Three Year Tax Relief for Start-up Companies
Summary of Finance Act Changes
Finance Act 2013 (Section 34) provides for a significant enhancement of the tax relief for start-up companies by allowing any relief not availed of in the first 3 years of trading, due to losses or insufficiency of profits, to be carried forward for use in subsequent years. This is subject to the amount of relief in any year not exceeding the employer’s PRSI contributions of the company, with relief for these contributions capped at €5,000 per employee and €40,000 in total for a year.
A 3-year tax relief for start-up companies commencing a new trade was introduced in 2009, and extended to end-2014, as a support to encourage new business development and employment creation. The relief, which is provided for under section 486C of the Taxes Consolidation Act 1997, is available where the total amount of corporation tax payable by the company for an accounting period falling within the 3-year start-up period does not exceed €40,000. Marginal relief is granted on a tapering basis where the total amount of corporation tax liability for the accounting period is between €40,000 and €60,000. To ensure that the measure is focused on job creation, the amount of tax relief is based on the employers’ PSRI contributions of the company in respect of its employees, subject to a limit of €5,000 per employee and an aggregate limit of €40,000 in any one period.
Prior to Finance Act 2013, the relief operated on a ‘use it or lose it’ basis. Relief was not available to a start-up company in any of the first 3 years of trading where a loss was incurred and relief was only partly available where the tax payable on profits from the new trade was not sufficient to enable the company to obtain full relief for its employer’s PRSI contributions. There was no provision for carry forward of unused amounts to later years.
Section 34 addresses this limitation by allowing a start-up company, with eligible employer PRSI contributions in excess of the corporation tax referable to the qualifying trade for an accounting period within the 3-year start-up period, to carry forward the excess amount and use it to reduce corporation tax in respect of the trade in subsequent years. Provision is also made to enable a company entitled to marginal relief for an accounting period in the 3-year period to carry forward the additional amount of marginal relief that would have been available if the corporation tax in respect of the trade were of a sufficient amount to match the company’s employer PRSI contributions