Two thirds of business owners expect their turnover to increase over the next 12 months while more than four in 10 say they expect to hire more staff during the same period. These were among the key results of the latest KPMG Entrepreneurs Barometer which is based on research carried out recently among 200 Irish SME owners by RED C research.
At the same time, 67 per cent of the respondents believe Brexit will have a negative impact on their business. Almost the same number (66 per cent) plan to expand in the near future.
The positive outlook on turnover, expansion and hiring against the backdrop of Brexit demonstrates once again the underlying strength and resilience of Irish entrepreneurs. They acknowledge the challenges presented by Brexit but are determined to continue to grow their businesses, nevertheless.
Entrepreneurs acknowledge the challenges presented by Brexit but are determined to continue to grow their businesses’.
Sentiment is rather different when it comes to taxation, however. Three quarters of the entrepreneurs surveyed believe the existing tax regime is more favourable to multinationals while more than half of them (53 per cent) say the administrative burden placed on businesses by the regime is too great. Another cause for concern is the finding that 38 per cent believe the current tax regime puts Irish entrepreneurs at a disadvantage compared to those in Europe or the UK.
Overall, there is a sense that entrepreneurs feel the system could support them more on their business journey. Indeed, only 20 per cent of them feel that the tax regime encourages entrepreneurship and growth.
There is also a sense that they are poorly rewarded for the risks they take and the fact that they make up the backbone of the economy and are responsible for two thirds of employment in the country. This is highlighted in the initiatives entrepreneurs would most like to see in the forthcoming budget.
Topping the list is alignment of personal tax rates for self-employed individuals and PAYE workers. More than one in four (26 per cent) named this as their top priority. It remains puzzling why an entrepreneur should pay more tax than an employee earning the same salary. With the Minister ruling out personal tax changes in Budget 2020, many will remain disappointed for this year at least.
Our experience of entrepreneurs is that they are very selfless people who often take lower salaries than their employees in order to invest in the growth of the business. There is poor reward for this behaviour in both the personal tax and Capital Gains Tax (CGT) systems. Indeed, 21 per cent of those surveyed want to see CGT reform in the budget.
This could take the form of a rate reduction or a mechanism to reward entrepreneurs in the right way for the risks they take. One such mechanism could see a tapered reduction of the tax on the sale of shareholdings by entrepreneurs. One of the problems Ireland faces is entrepreneurs not staying long enough in their businesses. Relief of this nature would allow them to benefit from the growth and success of their business through the sale of a portion of their equity at an advantageous tax rate whilst remaining a shareholder and continuing to be involved in the business.
Entrepreneur Relief was also highlighted by respondents. While the introduction of this relief, which allows for a reduced CGT rate of 10 per cent on the first €1 million received by an entrepreneur on the sale of businesses during their lifetime, was welcome it still compares unfavourably with the equivalent scheme in the UK which has a ceiling of £10 million (€11.2 million).
Entrepreneurs also want access to the same level of social protection as those in employment. It must be said that this is another area where progress has been made in recent years with dental and optical care benefits being extended to self-employed individuals and jobseekers assistance shortly to be made available. However, illness and disability benefits are still not available, and this is an area which could be examined by government.
Very interestingly, number three on the list of budget initiatives for entrepreneurs was a share incentive scheme tailored for SMEs. This aligns with the finding that 48 per cent of respondents are finding it difficult to find the right people to fill roles. A share incentive scheme would help them compete with multinational firms with deeper pockets for the talent they need to help their businesses continue to grow and thrive.
On Brexit, more than half of the entrepreneurs surveyed expect to be negatively impacted by a potential introduction of some form of border checks and currency fluctuations. However, while 60 per cent said they had done some preparations only 17 per cent had done a full Brexit analysis.
Businesses need to move swiftly to assess the potential impact of a hard Brexit and prepare for it. There are a number of relatively simple things which can be done. Companies should review supply chains to ensure continuity of supply and they should look at the potential impact on liquidity and cash flow of duties and tariffs and currency fluctuations.
Another issue to look at is people mobility and the ability of employees to travel to and from the UK or through the UK post-Brexit. And then there is data. If you have company data stored in the UK this may have to be moved in the context of the UK leaving the EU.
Fortunately, there is a range of very good state supports to assist businesses prepare for Brexit. Enterprise Ireland has produced some excellent Brexit tools while the Clear Customs Initiative is also extremely useful. Companies need to avail of these and plan ahead sooner rather than later.
The very positive sentiment of Irish entrepreneurs is very welcome in light of the challenges they face. However, we know how quickly confidence can dissipate and, within the bounds of prudence, the government should take the opportunity to address the concerns raised in relation to taxation and other areas in Budget 2020.
This article was first published in the Irish Independent and is reproduced here with their kind permission.