What Budget 2025 means for your business
An outline of what is in the Budget for Irish businesses, and a look at what it has done right and wrong.
Budget 2025 was written in the context of a looming general election and speculation about when that will be. This, along with healthy coffers, set the scene for a bumper Budget. And for the most part, it has delivered.
This article outlines what the Budget means in particular for your business and your employees.
Here’s what we cover:
Workers will definitely have more money in their pockets when the measures come into effect in January 2025. These include:
- An increase of €2,000 up to €44,000 in the point at which people pay the higher rate of tax of 40%.
- The personal, employee PAYE, and earned income tax credits will go up by €125 to €2,000.
- The 4% rate of Universal Social Charge (USC) will be reduced to 3% on incomes between €27,382 and €70,444.
- The minimum wage will rise by 80 cents per hour to €13.50. The USC threshold will also rise in line with this, so an employee on the minimum wage does not pay USC. The new threshold will be €27,382—an increase of €1,622.
- Under the Small Benefit Exemption scheme, employers will now be able to give as many as 5 non-cash benefits in a year worth up to €1,500—up to now it was a €1,000 limit.
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Measures targeted at businesses
In terms of businesses, there are measures targeted both at multinationals and Small to Medium Enterprises (SMEs).
Tax exemption for foreign-sourced dividends
Multinationals will be happy with the introduction of the tax participation exemption for foreign-sourced dividends. This aims to simplify Ireland’s double taxation relief provisions and align Ireland’s regime more closely with international norms.
Increase in VAT threshold
For the second year in a row, there will be an increase in the VAT registration threshold for the supply of goods. It will increase from €40,000 for services to €42,500, and from €80,000 to €85,000 for goods. This will mean less administration for businesses below the threshold and will also help them with cash flow.
Increase in spending on upskilling for SMEs
More money will be released from the National Training Fund. It is funded by employers’ PRSI and is in surplus, due to increased employment. There will be increased funding for universities, but also more direct support for SMEs in terms of upskilling, etc.
Supports targeted at entrepreneurs
There were several changes made to supports aimed at Ireland’s business ecosystem, with these mainly in the form of tax reliefs.
These include:
- In Budget 2024, a reduced Capital Gains Tax (CGT) of 16% was introduced for individual angel investors. In Budget 2025, the lifetime cap available to individuals will be increased from €3 million to €10 million.
- Under the Employment Incentive Investment (EII) scheme, which is a tax relief that aims to encourage individuals to provide equity-based finance to businesses, the maximum tax relief available to an investor will be doubled from €500,000 to €1 million.
- Start-Up Relief for Entrepreneurs (SURE) is an income tax refund for people who leave employment to become entrepreneurs and start up their own company. The relief available will be increased from €700,000 to €980,000 over 7 years.
- Tax relief will be introduced for expenses of up to €1 million incurred over a 3 year period in relation to listing a company on a relevant stock exchange. There is also a proposed stamp duty exemption on a listing of Irish shares, subject to satisfying EU state aid considerations.
- The Research and Development (R&D) tax credit provides a tax credit for all qualifying R&D expenditure. Following significant changes in the regime last year, there will now be an increase in the first year payment of the R&D tax credit, from €50,000 to €75,000. There will also be a review over the coming year to enhance the competitiveness for innovative businesses in Ireland.
- Retirement relief provides relief from CGT to individuals on the disposal of businesses where certain conditions are met. Last year’s Budget increased the age parameters and introduced a cap on retirement relief of €10 million. The relief also provided for a clawback of CGT relief payable by the child if they dispose of the relevant assets within 6 years of the transfer by the parent. Budget 2025 will double this clawback period to 12 years. These changes are to ensure that the intergenerational transfer of Irish family businesses will continue to be supported by the tax system.
- Company start-up relief provides for a reduction in a new company’s corporation tax liability for the first 5 years. A company may be entitled to the relief if the tax liability due in a tax year is €40,000 or less (with marginal relief available for companies with a liability of between €40,001 and €60,000). The total tax relief available is the lower of €40,000 or the employer PRSI paid in the period, subject to a maximum PRSI payment of €5,000 per employee. A provision has now been included to allow up to €1,000 of Class S PRSI (self-employed/director contributions) per individual to count towards this cap. This will provide targeted support for small, owner-managed start-up companies.
- Within the audio-visual sector, there will be a new tax credit, subject to EU approval, for unscripted production at a rate of 20% on qualifying expenditure of up to €15 million. There will also be a new 8% uplift under section 481 of the film tax credit to support smaller film production, with a maximum qualifying expenditure of €20 million. This is in light of increased competition from the UK, due to enhancements made to their incentives earlier this year.
- Various farming related tax reliefs, which were due to end, will be extended. These include enhanced stock relief for registered farm partnerships, stock relief for young trained farmers and general stock relief. Changes will also be made to agricultural stamp duty reliefs.
Building a future Ireland
An additional €3 billion will be earmarked for infrastructure spending in housing, energy, water and transport infrastructure.
Protecting Ireland’s environment
Included in the infrastructural commitment mentioned above is a direct equity investment of €750 million to develop the onshore and offshore electricity grid infrastructure. Other green initiatives include:
- Carbon tax increase of €7.50 per tonne for petrol and diesel from 9 October 2024 and for other fuels from May 2025.
- A VAT reduction to 9% for heat pumps to incentivise homeowners to install them.
- A new benefit-in-kind (BIK) exemption when an employer incurs an expense in relation to the provision of a facility for the electric charging of vehicles at the home of a director or employee.
Date set for introduction of pension auto-enrolment
While there will be more money in next January’s pay cheque, there is a major change coming down the line that will see a reduction in take-home pay for those affected. It has now been confirmed that pension auto-enrolment will start from the end of September 2025.
This affects employees aged between 23 and 60 that earn over €20,000 per year and who do not already have a pension. From September, you as an employer, and those affected employees, will be obliged to contribute 1.5% of the employee’s gross salary to their pension, with these contributions increasing on a sliding scale over the next 10 years.
While this is a positive step, it is a major change, which your business will have to budget for, and there will be also be significant work that will need to be done in the initial stages in terms of setting up the system and communicating with employees.
Other key measures
There are other headline measures in the Budget that though they may not affect your business directly, are also significant.
These include:
- Increase in inheritance tax threshold.
- Increase in renters’ tax credit.
- Extension of Help to Buy scheme for first-time home buyers.
- An energy credit of €250 per household, with €125 paid before year-end and another €125 after.
- Increase in social welfare payments, including the Working Family Payment.
Does the Budget deliver for businesses?
The Budget is a win for workers and households, and it looks to help people most impacted by the cost-of-living crisis. But has it done enough for businesses?
Broadly speaking, it is seen as good news for business, though there are concerns. For example, the hospitality industry has been vocal in its disappointment, as it lobbied hard for the lower VAT rate that was introduced during the pandemic to be re-instated.
The reality is that the small café has been finding it difficult, due to increased costs such as the last hike in the minimum wage and increased sick pay entitlements and later this year, there will potentially be contributions to pension auto-enrolment.
Professional services firm PwC is happy to see increased funding targeted at businesses. However, it feels the Budget does not do enough to help private businesses deal with rising costs, increased regulation and complexity and it believes that many of the tax reliefs available such as the R&D tax credit and the EII are too complex and this is impacting uptake. In terms of these reliefs, a better balance needs to be struck between protecting schemes from being abused, while also making them accessible.
The independent Irish Fiscal Advisory Council also issues a word of caution. It feels that Budget 2025 is repeating Ireland’s past mistakes of pumping billions into the economy when it is at full employment. While inflation has eased, there is a risk that this Budget could lead to further inflation and for instance could make it difficult to deliver on infrastructure projects, with the risk of costs spiralling.
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