Minister for Finance Paschal Donohoe needs to focus on "fostering the strength and growth" of indigenous business in the budget as he outlines his long-term ambition for the Irish economy, an accountancy body has urged.
The Institute of Certified Public Accountants (CPA Ireland) is calling for specific measures to promote share-based pay for SMEs.
"Currently SMEs are fighting an unequal battle with multinational companies when it comes to recruiting and retaining skilled employees," said CPA president Deirdre Kiely. "One of the few ways an SME has to compete with the much deeper pockets of the multinationals is to offer shares to their employees, but our tax system actually penalises this".
Absurd and unfair
As it stands, employees of an SME receiving share options in the business have to pay tax, PRSI, and USC on their value at a combined rate of up to 52 per cent.
Ms Kiely said this was absurd and unfair.
“To begin with, the employees have to pay tax on income they have not yet received. Worse still, they may be paying tax on income they will never receive,” she said. “After all, 50 per cent of Irish companies go out of business before they are five years old.”
Ms Kiely called on the Government to adopt a scheme similar to the UK’s enterprise management incentive, which gives an employee a right to purchase shares at a date of their choosing within an agreed timeframe into the future.
No income tax is payable on the options and none is payable when they are exercised as long as the price paid is not lower than the value of the shares at the time the option was granted. Capital gains tax is paid when the employee sells the shares, but only on the difference between the amount received and the price paid.
Ms Kiely said the scheme would allow SMEs to compete with larger companies for employees, reward staff for their contribution to the business and probably deliver a tax boost to the exchequer in the form of CGT receipts.
She said the issue of share-based remuneration should be a priority for the Minister in the budget and that failure to address it could be very costly, “particularly in light of challenges to come in the form of Brexit and other international events”.
