What is the Start your own Business tax relief?

Budget 2014 announced a new 2 year income tax relief for long term unemployed people starting out in business. Often these schemes sound great until the detail is published but this one seems to be pretty straightforward and Revenue have given guidance on how it will operate in their eBrief 03/14.

Who can apply?

People classified as long-term unemployed, so 12 months or more receiving most social welfare payments who start a new business between October 2013 and end of December 2016. Generally speaking any state training courses or other schemes will be taken into consideration to make up the 12 months.

Any catches?

Of course! Firstly it doesn’t work if you set up a company, you must be self employed. Secondly it has to be a new business and not purchased or otherwise acquired. It should also be noted that the exemption only applies to profits from the trade and not to other income. Finally it does not extend to PRSI and USC which are effectively also taxes on income.

How do I apply?

No pre-approval required here. There is a section in the tax return where the relevant detail is entered. Self Employed people are required to complete their tax return every October for the previous calendar year.

How much is it worth?

The relief is capped at profits of €40k per annum. So if this was fully taxed for a single person on normal credits and cut-off points it would be worth just less than €8k per annum. The relief is given over 2 years (which may run into 3 tax years depending on start dates) so therefore the maximum relief available is about €15700. In reality it will be worth far less to the average recipient.

In summary

In our opinion any labour market activation scheme is to be welcomed but whether this scheme will actually encourage a lot of people to take the plunge and start a business is unclear.  Given the fact that the person is unemployed for at least 12 months it will be a major step change to earn a decent profit in a new business and in reality it is often PRSI and USC that are the main taxes for self employed people in the early years. Also for some people setting up a company just makes better sense. However on balance if it is combined with training and other social welfare supports it may well improve the lives of some of the many thousands of people who are unemployed. 

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