If you have been unemployed for at least 12 months and set up a qualifying business, the Start Your Own Business scheme provides an exemption from income tax up to a maximum of €40,000 per annum for a period of 2 years.
Start Your Own Business Relief only applies to income tax payable on the profits from your business. It does not extend to PRSI and Universal Social Charge (USC) so you will be liable to pay PRSI and USC on any profits earned in your new business. The Start Your Own Business scheme runs from 25 October 2013 to 31 December 2018.
You may qualify for this relief if you have been unemployed and getting any (or a combination) of the following for 12 months or more:
If you have spent time on certain training or on employment schemes this period will be treated as part of a period of unemployment. Examples of training courses and schemes include Further Education and Training (FET) courses, Community Employment, and the Back to Education Scheme.
If you took up employment for a period but lost your job and returned to your jobseeker’s payment you can qualify (provided the two jobseeker claims are not separated by more than 12 months and your total claim is more than 12 months).
If you work part-time and claim a jobseeker’s payment for the other days you can qualify for the Start Your Own Business Relief once you have been getting a jobseeker’s payment for 312 days of unemployment.
If you qualify for the Start Your Own Business Relief, the following must also apply:
You can claim Start Your Own Business Relief if you are getting the Back to Work Enterprise Allowance (BTWEA). (However if you started to get the BTWEA before 25 October 2013 you do not qualify for the relief because you had already started your business before the start date for the scheme.)
You can claim the relief on up to €40,000 of profits each year for 2 years. How you calculate the relief depends on when you started your new business.
Year 1: You do not have to pay income tax on your profits if they are less than the cap. If you start your new business in January (and you use the calendar year as your accounting year) the cap for the year is €40,000. If you start your business later in the year then the cap will be reduced proportionately according to the month you start. For example if you start your business in February, 11 months remain in the year so you can earn up €36,667 (11/12 of €40,000). If you start your business in December, one month remains in the year so you can earn up to €3,333 (1/12 of €40,000).
Year 2: You do not have to pay income tax on your profits if they are less than the cap of €40,000. The accounts for the second year will always be for a period of 12 months.
Year 3: Profits for any part of this year which fall within the first 24 months of business are income tax free once they are less than the cap. The cap for year 3 is calculated as €40,000 x [months left to claim] / 12. If you started your business in January, then you have used up the 24 months relief in Year 1 and Year 2 and there is no relief available for Year 3. If you started your business later in the year then there is still some relief available.
If you make a loss in your first year of trading you can claim Start Your Own Business Relief before you claim relief for losses in following years. This ensures that if you make a loss you receive actual value for those losses in future years rather than having to set those losses against profits which would not have been subject to income tax under the Start Your Own Business scheme.
You can read further examples of how to calculate Start Your Own Business Relief on Revenue’s website. You can also read Frequently Asked Questions on the scheme.
You do not need to be preapproved for the scheme. Instead, you claim this relief when you make your income tax return. Note that new businesses get an extension to the normal filing date for your first tax return. For example if you set up your new business in 2014 then your first tax return is not due until 31 October 2016.
Revenue's Online Service (ROS) can calculate the amount of income tax, USC and PRSI that you owe.
If you do not want to use ROS to file your tax return and if you file a paper tax return before 31 August, Revenue will send you a calculation of the amount of tax, USC and PRSI you owe.
The Start Your Own Business Relief only applies to income tax payable on the profits from your business. It does not extend to PRSI and Universal Social Charge (USC) so you will be liable to pay PRSI and USC on any profits earned in your new business.
If you have a question relating to this topic you can contact the Citizens Information Phone Service on 0761 07 4000 (Monday to Friday, 9am to 8pm) or you can visit your local Citizens Information Centre.