Introduction
The Irish Budget 2024 has unveiled significant changes that are poised to impact the landscape of small businesses and sole traders in Ireland. In this article, we will dive into the key highlights of the budget, assess its effects on small businesses and sole traders, gauge the initial reactions from these sectors, and consider the potential long-term repercussions that this fiscal policy may bring.
Quick Information
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Irish Budget 2024 changes to income taxes for small businesses
Irish Budget 2024 brings welcome news for small business owners, directors and self-employed sole traders, with an increased income tax band, higher tax credits, and a reduction in USC.
The standard rate income tax band will increase by €2,000 to €42,000 for a single person, providing tax savings for small business owners.
- All the main credits, including Earned Income Tax Credit, will increase by €100 to €1,875, reducing taxes for self-employed sole traders.
- Changes in USC rates and bands will benefit everyone
- On the negative side PRSI contribution rates will increase by 0.1% from October 2024, marginally increasing costs.
Irish Budget 2024 VAT rate changes for sole traders and small businesses
In a bid to ease the burden on businesses, Irish fiscal policy for 2024 introduces higher VAT registration thresholds for both services and goods, alongside an extended 9% VAT rate on energy, enhancing affordability and reducing compliance expenses.
- The VAT registration threshold for services will increase from €37,500 to €40,000. This will reduce compliance costs for service businesses with turnover under €40,000.
- The VAT registration threshold for goods will increase from €75,000 to €80,000. This will reduce compliance costs for goods businesses with turnover under €80,000.
- The reduced 9% VAT rate on electricity and gas will be extended until October 2024, continuing to lower energy costs.
Irish Budget 2024 changes in paying employees for small businesses.
In 2024, Ireland’s financial landscape is set to witness pivotal changes. The minimum wage will rise, PRSI contributions will increase, and the Wage Subsidy Scheme could offer more support to small businesses.
- The income taxes reductions referred to in the first paragraph also apply to your employees so they should notice an uplift
- The minimum wage will increase by €1.40 to €12.70 per hour from January 2024, increasing wage costs for small businesses.
- PRSI contribution rates will increase by 0.1% from October 2024, marginally increasing employment costs.
Irish Budget 2024 impact on electricity bills for sole traders
To address climate concerns and alleviate energy expenses, Ireland introduces significant changes, including carbon tax hikes and cost-saving measures for electricity consumers.
- The carbon tax will increase by €7.50 per tonne of CO2 from October 2023 for auto fuels and May 2024 for other fuels, increasing energy costs.
- The reduced 9% VAT rate on electricity will be extended until October 2024, continuing to lower electricity costs.
- An electricity credit of €450 will be paid to all households in 3 instalments between late 2023 and early 2024, reducing electricity costs.
Impact on Small Businesses
The Irish Budget 2024 brings promising changes: tax cuts to bolster incomes, R&D credits to offset minimum tax rates, EII enhancements for start-ups, VAT threshold increases, and a fund for SMEs.
- Tax cuts worth approx €800 per worker will boost incomes and spending power.
- The R&D Tax Credit will increase from 25% to 30% and the first-year refundable amount will double from €25,000 to €50,000. This will benefit start-ups and innovative small companies.
- EII changes make it easier for start-ups to attract investment. CGT relief incentivizes angel investors.
- The EII scheme investment limit will double from €250,000 to €500,000 per year, increasing access to capital for qualifying small businesses.
- VAT threshold increase reduces compliance burden for very small businesses.
- New €250m fund to help SMEs with costs through once-off grants (up to 50% of rates bill).
- A new CGT relief for angel investors will incentivize investment into start-ups.
- An Increased Costs of Business Support Scheme will be introduced in 2024 to assist SMEs with rising costs. Details are to be finalized.
Impact on Sole Traders
Irish Budget 2024 ushers in several favourable changes. Lower USC rates and increased welfare benefits boost take-home pay for sole traders, while extended stamp duty relief and enhanced incentives for R&D and investment create new opportunities.
- USC and income tax changes increase take-home pay. USC middle rate cut from 4.5% to 4% significant for sole traders.
- Self-employed will benefit from welfare increases, child benefit extension and other cost of living supports.
- Consanguinity stamp duty relief extended 5 years, benefiting family business transfers.
- 30% R&D credit valuable if eligible. Higher EII limits open investment.
Reactions from Small Business and Sole Traders
The Irish Budget 2024 has drawn a mixed reception, with widespread appreciation for income tax cuts and welfare increases, coupled with concerns over insufficient business support in the face of rising costs. While changes in R&D and EII are applauded, some call for broader expansion. However, disappointment lingers as the 3% USC surcharge for the self-employed remains intact.
- Broad welcome for income tax cuts, USC reduction and welfare increases to boost consumer spending.
- Concerns that business supports do not go far enough given inflation/costs.
- R&D and EII changes welcomed but some want further expansion of schemes.
- Disappointment that 3% USC surcharge for self-employed not abolished.
Long Term Effects
Irish Budget 2024 is a dynamic mix of tax cuts and business incentives, poised to provide short-term relief while possibly stoking inflation. Simultaneously, new international rules pose uncertainties for multinational corporations, and housing support extensions aim to address long-term supply issues.
- Tax cuts and cost supports will help in short term but may fuel inflation.
- Business incentives around R&D, EII and angel investment aim to boost start-up ecosystem.
- Global rules from 2024 will impact multinationals. Effects on domestic economy remain uncertain.
- Extending housing supports aims to increase rental supply – but effects will take time.
Key Takeaways
- Income tax changes: The standard rate tax band will increase by €2,000 to €42,000, providing tax savings for small business owners. The Earned Income Tax Credit will also increase by €100 to €1,875, reducing the tax burden for self-employed sole traders. USC middle rate reduced from 4.5% to 4%
- Business supports: The R&D Tax Credit will increase from 25% to 30% and the first-year refundable amount will double from €25,000 to €50,000, benefiting start-ups and small innovative companies. A new CGT relief for angel investors will incentivize investment in start-ups.
- EII Scheme: Maximum annual investment doubled to €500,000. Minimum holding period increased to 4 years.
- VAT changes: The VAT registration threshold will increase from €37,500 to €40,000 for services and from €75,000 to €80,000 for goods, reducing compliance costs for small businesses under these turnover limits.
- Costs: The minimum wage will increase by €1.40 to €12.70 per hour from January 2024, increasing wage costs for small businesses. The carbon tax will also increase by €7.50 per tonne, raising business energy costs.
Conclusion
Budget 2024 provides short-term relief through tax cuts and cost of living supports. It also introduces measures to boost start-up investment. However, effects on inflation and housing supply will take time. Overall, the budget aims to support incomes and growth – but economic outlook remains uncertain.
