Section 33 Finance Act 2011 introduced new measures for providing relief for investments under the Employment and Investment Incentive (EII) and the Seed Capital Scheme (SCS). This new section replaced Part 16 of the Taxes Consolidation Act 1997, which previously provided such relief under the Business Expansion Scheme (BES)
The EII scheme allows an individual investor to obtain income tax relief on investments up to a maximum of €150,000 per annum in each tax year, up to 2013. Relief is initially available to an individual at 30%. A further 11% tax relief will also be available where it is proven employment levels have increased in the company at the end of the holding period (3 years) or where evidence is provided that the company used the capital raised for expenditure on research and development. (This additional 11% will not be subject to the high earners restriction).
An investor who cannot obtain relief on all his/her investment in a year of assessment, either because his/her investment exceeds the maximum of €150,000 or his/her income in that year is insufficient to absorb all of it, can carry forward the unrelieved amount to following years, up to and including 2013, subject to the normal limit of €150,000 on the amount of investment that can be relieved in any one year.
This measure could not be given effect until the European Commission gave approval under the Community Guidelines on State Aid to promote Risk Capital Investments in Small and Medium sized Enterprises. This approval has now been received.
The new EII scheme, incorporating the legislative changes required by the European Commission, was given effect on Budget Day. As a result-
- Both the BES and EII schemes will run concurrently throughout the period 25 November 2011 to 31 December 2011.
- BES expired on 31 December 2011.
- EII will run until 31 December 2013.
Relief under the new EII scheme will automatically apply in respect of shares issued on or after 25 November 2011.
While the EII provides tax relief for investment in certain corporate trades, the SCS provides for a refund of tax already paid by specified individuals, when they make a relevant investment in a qualifying company.
If an employee, an unemployed person or an individual recently made redundant start their own business, they are entitled to benefit from the tax refund available under the Seed Capital Scheme. An employee, who leaves employment and invests by means of shares in a qualifying new venture, may claim a refund of income tax paid in previous years. An unemployed person may also avail of this facility. Relief from income tax may be claimed in respect of the investment, subject to a maximum investment of €100,000 in any year of assessment.
Relief granted can be withdrawn however if the specified individual does not take up the relevant employment within 1 year of assessment of which the investment was made or, if later, within 6 months of the date the single investment was made or where more than 1 investment was made within 6 months from the date of the last such investment.
The SCS is a relief from income tax, not a tax credit. Therefore relief in respect of any investment must be claimed up to the extent of the total income in each of the selected years (subject to an overall maximum investment of €100,000 in any one tax year). There is no facility available whereby the investment can be spread over a number of years so as to utilise personal tax credits in each year.
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Paul Foley (Partner) Profile
