Finance Acts 2018 and 2019: The New EII Rules
Significant changes to the Employment and Investment Incentive (EII) and Start-Up Relief for Entrepreneurs (SURE) were introduced in Finance Act 2018 and further amended in Finance Act 2019 as a result of several factors, including the introduction of the General Block Exemption Regulation (GBER) and the recommendations of the Indecon independent review of the schemes,1 which focused primarily on administrative changes to improve the efficiency and cost-effectiveness of the scheme and policy measures to increase uptake of the reliefs. This article sets out the main changes to the EII introduced by the last two Finance Acts.
Finance Act 2018
Section 25 of Finance Act 2018 introduced a complete overhaul of how EII relief is claimed. It also aligned our domestic legislation with State Aid rules as set out in the GBER. The main changes were:
- There was a move to self-certification by the companies raising EII finance, rather than applying to Revenue for the requisite certificates to be provided to investors to claim the relief. The purpose of this change was to address delays in processing applications, enabling investors to apply for their tax relief earlier.
- Application to Revenue for advance “outline approval” is now restricted to questions relating to the GBER, such as whether an undertaking is a “firm in difficulty” or whether enterprises are linked or partner enterprises within the meaning of the GBER.
- Greater clarity has been given on the ability of companies engaged in R&D to be EIIqualifying companies.
- Certain preferential rights can attach to shares, whereas previously only ordinary share capital qualified for the relief. Note that this extension applies only to the EII and not SURE.
- The Start-up Capital Incentive (SCI) for micro companies was introduced, which relaxes the Finance Act 2017 connected-party rules for family members and connected parties investing in a founder’s company. The SCI does not extend to a direct investment by a founder. Instead, they can apply for SURE, a refund of PAYE deducted at source in the previous six tax years, on a personal investment in their company.
- Permitted investments by designated funds were expanded to non-EII investments, and they were no longer limited to being closed funds.
- The relief was extended to 31 December 2021.
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This article first appeared in Irish Tax Review, Vol. 33 No. 1 (2020) © Irish Tax Institute