2025-12-09

8. Deputy Rose Conway-Walsh asked the Tánaiste and Minister for Finance if his Department is considering any review or potential increase of the VAT registration threshold for the self-employed; and if he will make a statement on the matter. [64580/25]

15. Deputy Barry Heneghan asked the Tánaiste and Minister for Finance the reason a graduated VAT system based on business size or turnover was not considered to support small and family-run SMEs; if his Department has examined such an approach to provide meaningful relief for community businesses; the alternative measures being developed to ease the VAT burden on smaller enterprises; and if he will make a statement on the matter. [64591/25]

I ask this question in the context of how sole traders and self-employed people are struggling right now. I ask in particular what consideration the Tánaiste has given to raising the VAT threshold, especially in the area of services from €42,500 to try to alleviate the administrative burden on these sole traders and self-employed people.

I wanted to raise this as well to ask the reason a graduated-----

I am sorry Deputy, the Minister responds first and then you.

Sorry, I am still new to the House.

I am not and I did not know what happens. I thank the Deputies for these questions. I propose to take Questions Nos. 8 and 15, together. The VAT registration thresholds are, as the Deputies note, subject to the requirements of EU VAT law, with which Irish VAT law is obliged to comply. Under the directive there is an upper limit of €85,000 on registration thresholds that member states may apply. Ireland’s VAT registration thresholds are set at €85,000 for supplies of goods and €42,500, as Deputy Conway-Walsh noted, for supplies of services. These VAT goods and services thresholds were increased from €80,000 and €40,000, respectively, in the Finance Act 2024. Even if the turnover is less than a threshold limit, a business may elect to register for VAT. Ireland’s current registration thresholds are some of the most generous thresholds in the EU, with some member states not operating any threshold, meaning all businesses are required to register for VAT. We have one of those higher thresholds. The thresholds are kept at an appropriate level to support small businesses by reducing administrative burden, but also not to cause competitive distortions or undermine tax compliance. The VAT directive provides that member states may fix varying thresholds for different business sectors based on objective criteria. A separate threshold cannot be set for self-employed people, SMEs or family-run businesses, as an example. Thresholds must be sector-based and not based on the type of business structure. As a result, a review of the registration threshold for the self-employed is not proposed. Budget 2026 tried to take a number of measures to assist small and medium businesses in light of the action plan on competitiveness and productivity, and the programme for Government commitments. The programme for Government commits to implementing a pro-enterprise tax policy over the course of the term. This includes commitments to deliver change to hospitality, to examine further tax credit supports for R and D and innovation, and to continue to review and simplify existing enterprise reliefs. I believe budget 2026 makes some progress in this regard. The question is why there is a different threshold for goods and services. Ireland's VAT legislation applies different registration thresholds to the supply of goods and services. The rationale for this relates to the difference in the nature of the two supplies. In general, the value added on the supply of goods is much smaller relative to turnover compared to the supply of services, where the value added reflects the direct input of the business proprietor or staff, along with the cost of indirect inputs, such as parts. We keep both of these threshold levels under review and will continue to do so in the forthcoming budget.

I am asking the Minister to undertake greater exploration of this. One of the reasons for this concerns the impact of inflation. We live in an environment that is constantly changing and it is important to examine these things. I am familiar with the different rates in the EU; some are higher and some are lower. In Britain, for instance, it is the same for goods and services at a straight £90,000 sterling. We need to listen to the self-employed. I try to speak to as many of the self-employed as possible. What they are saying to me is that they find it too low, given where they have to register, and that is also the case when passing it on to consumers. They say it is okay if they are trading with another business, but they might be trading with a vulnerable person or a television repair person trying to fix somebody's television, or something like that. They say that they have to pass this on, although the person in the house might not have a lot of disposable income in the first instance.

I would support a graduated tax system based on business size and turnover - a tiered system, like in other EU countries. I would particularly support small family-run SMEs. Is the Department examining such an approach to providing meaningful relief for community businesses? Are alternative measures being developed to ease the VAT burden on smaller enterprises? The Minister referred to this in his statement. I also raise the issue of the burden of the cost of renewing the general employment permit after two years. It is €1,500. For a small SME, that is a lot of cups of coffee and scones to be sold to reimburse the cost. I do not think it should be as high to renew the general employment permit after two years. I can understand the initial cost, but it should be reviewed for SMEs.

I thank the Deputies for their questions. To recap my position, I have tried to outline why, to date, there has always been a policy differential in the threshold for goods and services. There is some validity to that. The Deputy is right that there are some European countries that might have a higher threshold than Ireland, but Ireland certainly has one of the higher thresholds, so we are certainly at the upper end in Europe. I am quite comfortable with that, by the way, as I think it ensures we are exempting small businesses from that administrative burden. The Deputy did not ask directly, but I want to put this on the record of the House because it is useful for the Deputy’s work. If we were to increase the €42,500 to €85,000 for services and, in other words, equalise it, this would cost in the region of €100 million. At this stage, it is useful to put that out there. We cannot differentiate between the self-employed and the family-run. I am not saying that is what Deputy Heneghan is looking for me to do, but I know what he is looking for me to do, which is to better support them. We want to do that. We can differentiate between the sectors but we cannot differentiate between ownership types. I will keep under review for forthcoming budgets the broader point that Deputy Heneghan makes. We have taken some actions in this budget to try to assist small and medium businesses. Deputy Conway-Walsh referenced the selling of scones. I am very proud of the reduction that we are making to VAT in the hospitality sector, although some are not. I think it is going to make a big difference to people because it is effectively reducing the cost of running a café, a restaurant or a pub that serves lunch. At a time when there is so much external pressure on the Irish and European economy, it is prudent to try to support jobs and those who create the jobs in that sector. We have also made changes to the R and D tax credit. That is often talked about as an FDI initiative and foreign direct investment benefits from it. Interestingly, the larger number of applications for it are from Irish companies, many of which are SMEs and microenterprises. We need to get more information out about that to further encourage the uptake. I will reflect on what both Deputies have said.

I am very supportive of the R and D tax credit. A previous question was asked about our competitiveness. Innovation at all levels of business is very important. I am glad the Minister said it would take €100 million to bring it to €80,000 for services. The Minister may already have this information. If he does, I might ask him another question to try to get information on the position if we were to bring it to, say, €50,000, €60,000 or €70,000. It is worth examining this with regard to how we might change it. We have to remember that one of the other big things is that these people are not allowed to pay the PRSI rate that would enable them to get sickness cover or anything like that. They are often in a very vulnerable situation. I know we cannot just have it for the self-employed and sole traders. However, we need to look at this because supporting small and medium businesses, the self-employed and sole traders is important to our economy.

I am not asking for more supports. I know there have been a lot of them, and I am proud of some of the supports in the budget. I am asking whether the Department is examining a tiered tax system based on turnover per business, say, €300,000 to €400,000, based on the differentiation in their turnover. The Minister spoke about supporting entrepreneurs. The current wage subsidy scheme needs to be reviewed for self-employed people with disabilities and self-employed entrepreneurs who are employing people with disabilities. Such a measure would be very welcome and long overdue. As I have stated in the House, my PA, Michael Reynolds, has a disability, but I cannot avail of the wage subsidy scheme to support him. It has not held him back. However, we need to review that for those in this House. The more people with disabilities we have near policymakers, the better we will be at dealing with and fighting for people with disabilities. If the wage subsidy scheme could be extended to Members of this House, it would really help us with that.

I was checking the figure on the R and D tax credit while the two Deputies were speaking. Some 87.5% of claimants of the R and D tax credit are SMEs, so while the greater quantum is claimed by FDI because of the size of FDI, the overwhelming number of applications is coming from SMEs. That shows it is working and has the potential to work even better. I would make the point that we raised the thresholds in the Finance Act 2024. Both Deputies made the point but, in the past, we have done that. Of course, there are issues that can be considered in future budgets. Both Deputies will understand that I have been Minister for Finance for a couple of weeks and that we have yet to pass the Finance Bill for this year's budget. I am not going to speculate on what will potentially be in the next one, other than to say that we can have useful debates and discussions and tease through these issues over the course of the year in the House, at committees and through parliamentary question sessions and the like, in advance of future budgets. We all want to pursue pro-enterprise policies. We have to back indigenous business. We have to continue to make our economy competitive and make it a good place to invest. We are reliant on FDI for many reasons, and those companies also benefit from being located here. However, the backbone of the Irish company has always been our indigenous industry. We all need to work together to see how we can best support that. On the wage subsidy scheme more broadly, I am conscious that the Chair of the Oireachtas social protection committee, Deputy John Paul O’Shea, is the Acting Chair. We have published the new national disability strategy and the human rights strategy. There is a real focus in that strategy, rightly, on employment for people with disabilities. The first meeting of the oversight group was yesterday. Deputy Heneghan's PA, Michael Reynolds, does an excellent job. I am sure good work could be done through the Oireachtas committees and through that new strategy on how we help more people with a disability to get into the workforce and how we help more businesses to hire and employ people with a disability who can make a very good contribution to their businesses. I will ask the Minister, Deputy Calleary, to link with the Deputy.