businessbuddy May 19, 2016 No Comments

Startup Tax Refunds for Entrepreneurs (SURE) 

Tax refunds

SURE is a tax refunds for startups incentive scheme for entrepreneurs investing and working full-time in a new business.

How does it work?

The scheme offers a potential income tax refunds of up to 41% of the capital that is invested in a new business. Depending on how much you invest you may be entitled to tax refunds for the six years prior to the investment in the new business.

General conditions

To avail of the SURE scheme you (the “Investor”) must:

  1. Establish a new company carrying on a qualifying trade (the “Company”);
  2. Invest in the Company for the purchase of new shares
  3. Have mainly PAYE income in the previous 4 years. This would include a person currently in PAYE type employment, an unemployed person, a person recently made redundant or a retired person; and
  4. Take up full time employment in the Company either as a director or an employee for a period of at least 12 months.

For Example

Claire makes a qualifying SURE investment of €100,000 in 2016 after being made redundant at the end of 2015.

The €100,000 investment can be used by Claire to reduce her taxable income in one or more of the previous six tax years.

Claire’s tax position for last 6 years and tax paid by PAYE.

  2010 2011 2012 2013 2014 2015 2016
Salary 45000 65000 100000 65000 85000 32500 0
Tax 8,040 15,940 30,040 15940 23940 3200 0

 

Claire can make a claim for her SURE investment of €100,000 in 2012 tax year. This will reduce her taxable income for 2012 to Nil and results in a tax refund of €30,040 calculated as follows:

2012
Taxable Income 100,000
Les: SURE Investment 100,000
Revised Taxable Income           0
Tax paid  30,040
Tax Refund Due 30,040

As Claire paid €30,040 in the 2012 tax year, and has previously not received a full or partial refund of tax paid in the 2012 tax year, she will receive a SURE refund of the full amount of the tax he paid in the 2012 tax year of €30,040.

 

The small print:

In addition to these general conditions, the scheme places restrictions on the investor, the Company and its trading activities.

The investor must:

  1. hold the shares for a period of 3 years from the date of issue;
  2. hold at least 15% of the issued share capital of the Company for a period of 12 months after the share issue, or if the Company is not trading at that time, from the date, it begins to trade;
  3. show that income from previous years has been mainly liable to PAYE. Income in the year immediately before the investment can be from any source; and
  4. start the full time position as director or an employee for a 12 month period either within the year the investment is made or if later, within 6 months of the date of the share issue.

 

The investor must not:

  1. be employed elsewhere during the 12 month period as either a director or employee unless the aggregate of such other employment(s) is not more than 10 hours per week;
  2. receive any payments from the Company other than reasonable remuneration and expenses in the 3 year period after the share issue;
  3. have held (or have been entitled to acquire either directly or indirectly) more than 15% of the share capital, loan capital or voting rights of any other company during the 12 months prior to the investment in the Company. This condition may be set aside if certain criteria are satisfied
  4. avail of SURE for the purpose of avoiding tax only ; and
  5. enter into any agreement or arrangement of any nature whatsoever which could reasonably be considered to eliminate the risk attaching to the investment in the Company.

The Company must:

  1. be less than two years old and be incorporated in the State or in another European Economic Area (“EEA”) State;
  2. be an unquoted company;
  3. be tax resident in the State or in another EEA State;
  4. carry on business in the State through a branch or agency and from a fixed place of business in the State;
  5. be a micro, small or medium-sized enterprise;
  6. have its issued share capital fully paid up; and
  7. use the investment for:
  • the creation and maintenance of jobs; and
  • the benefit of the Company; or
  • research and development where the Company has not begun trading.

The Company must not:

  1. take over an existing trade;
  2. have any special trading arrangement with a former employer or a company related to a former employer. Business transactions on an arm’s length basis are acceptable;
  3. carry on a trade which is similar to any other trade in which the investor had or has a controlling interest;
  4. be considered a firm in financial difficulty
  5. control or be controlled by any other company, with the exception of controlling a qualifying subsidiary; and
  6. enter into any agreement or arrangement of any nature whatsoever which could reasonably be considered to eliminate the risk attaching to the investment in the Company.

 

What  trading activities qualify for the SURE Scheme?

The scheme accepts most trading activities however the following will not qualify for SURE:

  1. once-off or speculative transactions;
  2. dealing in commodities or futures in shares, securities or other financial assets;
  3. financing activities ;
  4. professional service companies (except internationally traded financial service companies);
  5. dealing in or developing land (including building development);
  6. forestry;
  7. operations carried on in the coal, steel and shipbuilding sectors; and
  8. the production of a film;

 

How to claim SURE scheme tax refunds

A SURE scheme refund can be claimed on an investment of €250 up to €100,000 against the current and one or more of the previous six tax years. The limit therefore is effectively €700,000.

SURE Scheme On-line Calculator

To calculate potential tax refunds, use the on-line calculator at http://www.sure.gov.ie/Calculator,  you will need details of:

  1. the investment amount; and
  2. your income and PAYE tax. (per P60 or balancing statement)

When estimating an income tax refunds, please note the following:

  1. the investment of up to €100,000 must be fully utilised in the first year selected before proceeding to claim against another year and so on;
  2. the investment cannot be split between years in order to maximise a potential tax refunds;
  3. the investment cannot be transferred to or split with a spouse/civil partner; and
  4. If you have already received tax refunds under the Employment and Investment Incentive (“EII”) or the Business Expansion Scheme (“BES”), for any of the six years selected the amount of income on which relief is available in that year is the difference between the amount of the original EII/BES investment and the maximum annual amount of €100,000.

The claim must be made within two years of the end of the year of assessment in which the investment is made and the shares are issued e.g. a claim for an investment in 2015 must be claimed by 31st December 2017.

 

Further Information:

Please contact Robert Kelly FCA at robert@businessbuddy.ie or on 01-5175211 if you would like further information on SURE. We are a firm of Chartered Accountants based in Sandyford, Dublin 18 specialising in helping SME’s with all their tax and accounting needs.