Supports for Irish owned businesses key to recovery as we emerge from lockdowns

Irish entrepreneurship and family owned businesses will play a key role in the country’s jobs-led recovery as it emerges from the Covid-19 pandemic. “The Government wants the unemployment rate to come down from 22 per cent at present to between eight and 10 per cent next year,” notes KPMG tax partner, Olivia Lynch. “It also wants to see 2.4 million in employment in 2024. That’s significantly higher than pre-pandemic levels.”

Lynch also leads KPMG’s Private Enterprise practice and believes support for Irish owned business will be critically important in the period ahead. “I think the Government is very aware of its importance to society and economy,” she adds. “It is part of the bedrock of Irish society. There are 160,000 family businesses in Ireland employing 938,000 people, that’s close to half of all employment in the country, and it is very important that the sector gets the support it needs as we recover from the pandemic.”

That support should help businesses to invest in digital transformation, diversify and expand overseas but there are more pressing immediate issues as well, she points out. “First and foremost is liquidity. Any tax or other measures to help liquidity can provide a lifeline to businesses at the moment. They can allow them to be brave and look at diversification and expansion abroad at a time when they are facing into headwinds in an Ireland suffering from reduced capacity as a result of the pandemic. The pandemic has also changed consumer behaviours and changed routes to market. The businesses of today are not the same as the businesses of tomorrow.”

And that must be seen against the backdrop of Brexit. “That hasn’t gone away,” Lynch notes. “You’ve really got to admire Irish businesses for the way they have dealt with that. We hear the word resilience coming up a lot in conversations, but it is embedded in the DNA of Irish family businesses. They have a long-term mindset with entrepreneurship having been sustained across generations. They define success in both financial and non-financial terms and that means the green and sustainability agendas sit well with them. The multi-generational nature of family businesses definitely helps. We are now seeing younger generations bringing things like the green agenda and digital transformation to the table.”

The pandemic impact hasn’t been entirely negative, either. “One of the interesting, unexpected benefits of the pandemic has been the gift of time. It has allowed owners time to step back, take stock, explore new markets and new service offerings and focus on digital transformation. They have also been able to look at areas like succession and ownership and governance. The smartest businesses I see are those with one eye on some kind of exit or investment event. For a business to be attractive to investors it has to have the right people, the right organisation and governance structure, and be obsessive about the needs of the customer. That’s what it’s all about. And we see that in Irish businesses.”

That gift of time has also allowed businesses to prioritise innovation. “We are seeing more and more recognition of the need to pivot and diversify to protect the business into the future.”

She points out that innovation isn’t necessarily just the development of new products. “Innovation can be in processing, routes to market, you can be innovative in how you manage your people, and in how you embrace technology. While it might be new service offerings, it can also be the ways in which the business meets customer needs, or it can involve enhancing the governance structure.”

We need to have a tax response that encourages people to set up businesses, grow their businesses, and grow employment

It can also apply to sustainability. “I’m quite enthused by the things I am seeing with Irish businesses at the moment. I am seeing clients looking at every step in the product journey to make things as green and efficient as possible. Irish businesses now recognise that environmental, social, and governance (ESG) is not just for large companies. It’s also really impressive the way younger generations are bringing ESG to the table. Part of that is making the business a force for good in the community and the wider world. I’m seeing a lot of focus on that at the moment.”

Lynch believes tax policy can be an important instrument when it comes to driving the jobs-led recovery. “We need to have a tax response that encourages people to set up businesses, grow their businesses, and grow employment,” she contends. “We need to reward risk. Entrepreneurs' relief should be increased from its current €1 million level, for example. We also need to facilitate extraction of profits for business founders at various stages during the lifetime of the business at more attractive tax rates.”

CGT relief for investors in businesses could also be looked at. “This could help untap the significant savings accumulated during the pandemic and the relief could be linked to jobs growth or green transition. It could also act as an incentive for transformation. It could be offered as a relief for investors on the way out.”

There is also a case to expand the scope and operation of the Enterprise Investment Incentive Scheme (EIIS). “It could be extended to founders and family, for example,” she points out. “If people are really ambitious and committed to investing in the family dream they should be encouraged to do so”.

Good supportive tax policy can help Irish businesses expand overseas and diversify into new markets

Small changes can also help with liquidity. “I am a great believer in enhancing the tax measures that are there already. Loss relief is currently only available to carry back a year. Why not extend that to three to five years? You can use losses in future years anyway so there would be no overall loss to the exchequer. It would just be a change of timing and could help businesses greatly by giving them some tax back now when they need it most. A corporation tax start-up relief is also available to newer businesses, it would be great to see that expanded to a restart relief to help those businesses reopening.”

A coherent tax policy is also required to support the change to remote and flexible working models. “We have the National Remote Working Strategy currently considering the matter, but we need a range of complimentary tax measures and supports. That means changes to BIK rules and so on”.

Finally, tax policy can also assist businesses taking in new investment. “There is a huge amount of cash out there looking for investment opportunities,” Lynch points out. “The M&A market is very buoyant at the moment, and it can be used to support business growth and diversification. Businesses are also being quite innovative about how they go to market, and they are looking at things like collaborations with customers and suppliers. Investment can come in many forms and can include loans, minority stakes, preference shares and so on. You don’t have to sell the company. Good supportive tax policy can encourage that activity and help Irish businesses expand overseas and diversify into new markets.”

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Reporting: The Irish Times