Call to allow firms ‘borrow back’ taxes paid last year

The Government has been urged to introduce a suite of tax incentives to stimulate the domestic economy following the Covid-19 crisis. This includes allowing SMEs to “borrow back” taxes paid last year.

Among the other measures proposed are a VAT reduction for the hospitality and tourism sectors, and additional tax credits for remote workers.

The proposals are all included in a submission to Government ahead of the expected July stimulus by accounting and consulting firm PwC, the DCU national centre for family business and the Family Business Network.

The key measure proposed is a new “borrow back tax paid” scheme that would allow small and medium-sized companies to borrow up to 25 per cent of tax paid last year through taxes including the Pay-As-You-Earn (PAYE), Pay-Related Social Insurance (PRSI) and the Universal Service Charge (USC).

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Another recommendation is the provision of tax relief on loans to encourage increased lending from the private sector direct to SMEs .

Trading losses

In addition, there is a proposal for carry back of trading losses to be permitted for a period of three years

The measures including in the submission cover four broad areas: getting cash supports to companies; stimulating demand in the local economy; incentivising behaviour that supports public health priorities ; and helping businesses to adapt to the digital economy.

One of the stand-out proposals put forward for stimulating demand is reducing the VAT rate in the tourism and hospitality sector to 5 per cent. VAT for both sectors was increased from 9 per cent to 13.5 per cent in Budget 2019 against the wishes of the sector.

Other measures outlined for kick-starting the local economy are a deduction for client entertainment expenditure, a 20 per cent cut on VRT, the reintroduction of the Home Renovation Incentive, and a continuance of the reduced rate of employers PRSI of 5 per cent.

Working remotely

Among the other proposals in the submission are an additional tax credit of €250 for those working remotely from their offices, as well as further allowances for the setting up of home offices. Additionally, measures to offset the cost of Covid-19 Personal Protective Equipment (PPE) and related fit-out costs, and a deduction for costs for businesses developing an online sales platform should be considered.

Lastly, the submission includes a call for a temporary increase in personal tax credit by €1,000 for employees of businesses transitioning from the Pandemic Unemployment Payment.

Ronan Furlong, tax partner at PwC urged the Government to "show imagination and consider a range of practical and achievable measures that can help to stimulate demand, protect employment and restart jobs-led growth in our domestic economy".

“Although Irish businesses have shown themselves to be incredibly resilient and adaptable so far, they will need more support to survive the next phase of the crises,” said Mr Furlong.

“Our economy needs jobs and growth and the suite of actionable tax policy measures we are proposing are aimed at stimulating demand, helping companies adapt to the digital economy and incentivising Irish companies and their employees to support our national health priorities,” he added.