SMEs should be supported in becoming more resilient and agile as they emerge from the pandemic, says Chartered Accountants Ireland.

While government assistance will be essential, says CAI, its interventions should aim to reduce red tape for businesses, allowing them to adapt to new post-Covid challenges, rather than the usual financial supports.

In its position paper The Next Financial Year, the focus is on improving government policy for businesses without demanding additional exchequer funding or support.

Director of public policy Dr Brian Keegan (pictured) commented: “Government in the future will be bigger. There will be more regulation, more direct government intervention, greater accountability. Government and its agencies collaborated with business better in the last 18 months than before. As supports are withdrawn, a continuation of this partnership-based approach would position Ireland’s SMEs strongly for growth.  

“As well as emerging from the restrictions, businesses will be dealing with increased compliance from developments such as the proposals for an auto-enrolment pensions system and statutory sick pay. The timing of these initiatives and their immediate impact on SMEs as they reopen has to be managed.” 

In Association with

The CAI’s proposals include:

• Improvements to the digital facilities of business regulators such as the Company Registration Office and the Revenue Commissioners 
• Greater use of verifiable electronic signatures for official purposes 
• Overhaul of Companies Act provisions to reduce permanently the need for physical meetings and events 
• Extension of the commercial rates waiver for businesses affected by the public health restrictions. 

CAI also suggests that new tax rules are needed to fit with new ways of working, the organisation suggests, as 100-year-old tax rules are no longer fit for purpose as what constitutes a ‘normal’ place of work is being redefined.

“The pandemic has shone a harsh spotlight on the taxation system,” said Keegan. “Payroll tax amounted to €18.83 billion in 2020, a reliable source of Exchequer revenue made possible by flexibility in where an employee could work during the pandemic. 

“The current tax system is inadequate, however, for the purposes of fairly reflecting the costs for businesses and employees of working from home.”

Complex Rules

CAI tax lead Nora Collender added: “Currently employers can contribute up to €3.20 per day to cover an employee’s additional costs of working from home, without triggering benefit-in-kind. However, many employers cannot afford such a contribution. The UK’s ’express claim’ tax relief measure, while more modest, is easier to claim. A similar measure should be considered by the government if working from home continues to be required.   

“At present tax relief can only be claimed on expenses incurred for equipment used ‘wholly, exclusively and necessarily’ in the performance of the duties of employment. Revenue applies a strict interpretation of this, resulting in complex rules and slim odds of making a successful claim. Fairer and more accessible tax rules must be developed as part of an effective strategy for remote working.”

The institute says the rules to establish a normal place of work should be reconsidered in the light of moves to hybrid or blended working. An employee’s normal place of work should be based on where the employee carries out most of their work, whether home, their employer’s office, or another workspace. 

On climate change, the institute says businesses will be able to deliver on the government’s net-zero carbon emissions targets only if they are supported by the right policy frameworks and encouraged by government to commit to carbon-reduction targets.

Its proposals to ensure this happens include:

• Aligning tax policy with decarbonisation objectives to steer business investment and consumer choice towards low carbon alternatives 
• Allocating all revenues from increasing carbon taxes to climate action initiatives 
• An enhanced R&D Tax Credit to fast track the development of technology making renewable energy cheaper and more readily available 
• Extending the tax breaks for energy efficient equipment scheme beyond the current expiration date of 31 December 2023 and giving the scheme a permanent basis. 

Other key proposals in the wider position paper include:  

• Tax policies to tackle the blockage to housing supply by reducing development costs, including tax payment holidays for developer PAYE and VAT, offsetting the costs of training construction workers and enhanced tax deductions for safety equipment 
• A new ‘super-deduction’ capital allowance regime for a limited period (two years), providing companies a 130% capital allowance deduction for investments in plant and machinery 
• Application of the current tax relief model to the proposed pension auto-enrolment system 
• A cost/benefit analysis to consider the reduced interest rate of 3% on unpaid tax debt available under the Tax Debt Warehousing Scheme being applied on a permanent basis. 

The complete position paper can be downloaded here.