Startup Refunds for Entrepreneurs – sounds great but is it a SURE thing?

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Slice your tax bill by backing growing Irish companies

Last May, the government launched a new scheme to allow entrepreneurs to obtain tax refunds for making capital investments in starting up a business. The scheme is called Startup Refunds for Entrepreneurs (‘SURE’) and works by refunding income tax paid by the entrepreneur in previous tax years up to a max of 41% of the investment made.

It sounds great but how does it work in practice and how likely is it that entrepreneurs will benefit?

Let’s look at some of the main conditions.

A new company must be established. So this rules out any sole traders i.e. startups which operate initially as a sole trade in the principal’s own name. The startup business must be operated through a company for the entrepreneur to qualify for relief.

The question of whether to operate initially through a company or as a sole trader is a big decision when starting up a business and should not be taken lightly. There a number of factors to consider here including whether limited liability is required and also the level of profits the business is expected to make compared to what the entrepreneur requires to live on. In many cases, it does not make a whole lot of sense to commence business through a company where profits are expected to be small initially and where the individual needs to take all excess cash out of the company to live on.

The second main condition to qualify for relief is that the company must be trading and professional service companies are excluded. So the following are all ruled out – lawyers, accountants, advertising professionals, architects, financial advisers, engineers, consultants. Other trading activities which do not qualify for relief are dealing in land or commodities / futures in shares, financing activities, forestry and film production.

To qualify for the relief you need to have had mainly PAYE income over the last 4 years. So this could include all of the following – someone currently in a PAYE employment, an unemployed person or a retired individual. It would not include an entrepreneur who has been operating as a sole trader for a number of years.

The investment in the company must take place by way of a share purchase. This rules out investments made by way of a loan to the business which in some circumstances can be preferable to a share purchase.

The individual must take up full time employment in the new company as a director or employee.

There are various other conditions to be met but even from the above you can see that the relief is quite restrictive and it will only be suitable for a very small number of entrepreneurs.

If you are lucky enough to fit the bill and you think you could qualify then as first step you should take a look at the SURE website – http://www.sure.gov.ie/. The website contains an online calculator which will calculate potential relief due. You will need details of your investment amount and P60s and tax credits for the years concerned.
Refunds can be claimed on investments of €250 up to €100k. The investment amount is set against your taxable income in one or more of the previous six years – this will give rise to an income tax refund for that year. Professional advice should be obtained to ensure that you get the best possible outcome.

Claims are made by completing some paperwork available on Revenue’s website and sending this with some supporting documents to Revenue. Claims for relief should be made within two years of the end of the year in which the investment is made and the shares issued.

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