A windfall tax on the profits of energy companies will not be introduced to fund grants of up to €10,000 per month, announced in Budget 2023, to help SMEs pay their energy bills

The Temporary Business Energy Support Scheme was among the flagship measures for businesses announced by Minister for Finance Paschal Donohoe, and will be administered by the Revenue Commissioners.

The €1bn scheme will be backdated to September 2022 and run until February 2023 before being reviewed at that time, and it will be open to businesses that carry on a Case 1 trade, are tax compliant and have experienced a "significant increase" in the cost of their natural gas and electricity.

Donohoe said it was not fair for energy firms to "earn excess profits from the current volatility in the market" and that Ireland would form part of the EU-wide response to spiralling energy prices, but stopped short of introducing a windfall tax.

If EU measures are not effective, he warned that the government would "bring forward its own measures" to address the situation.

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The Temporary Business Energy Support Scheme will operate on a self-assessment basis, and businesses will be required to register for the scheme and to make claims within the required time limits.

The minister said the scheme would operate by comparing the average unit price for the relevant energy bills in 2021 and 2022.

If the increase is more than 50%, the businesses would become eligible for monthly financial support equating to 40% of the increase in the bill amount or €10,000, whichever is lower.

The scheme has been designed in compliance with the EU temporary state aid framework, created in reaction to the pandemic, but the European Commission will have to give its approval before any payments can be made.

"This is a significant intervention by the government in the Irish economy to protect employment," Donohoe said. "We must weaken the ability of a shock to income becoming a loss of jobs.

"This new policy will help employers with their rising bills, and help to save their businesses."

Minister for Public Expenditure Michael McGrath announced the €200m Ukraine Enterprise Crisis Scheme to support firms operating in the manufacturing and import sectors affected by the fallout in Ukraine.

It is expected that grants of up to €2m, administered by Enterprise Ireland, will be made available to firms once they have produced an approved business plan that shows how they will manage their energy costs.

The government has also decided against extending the lower 9% rate of VAT for hospitality beyond February 2023. The VAT rate for electricity and gas will also revert to 13.5% from March 2023.

Minister Donohoe has doubled the tax-free bonus amount employers can give employees through the Small Benefit Exemption from €500 to €1,000. Employers will also be permitted to grant staff two vouchers per year under the exemption.

The corporation tax rate will remain at 12.5%, although with Ireland signing up to the OECD's base erosion and profit shifting (BEPS), the rate for top-earning multinationals will soon be taken out of the government's hands.

It is expected that the state will take €20bn in corporation tax this year, with revenue having hit €12bn in the eight month period to end August.

The minister clarified that 500,000 income earners workers and ten companies account for over a third of annual tax revenue

With international tax reform continuing at an "intense pace," Donohoe said "excess" corporation tax receipts of €8-10bn would not be used to fund permanent expenditure.

(Pic: Getty Images)