Rose Conway-Walsh on Raising VAT Threshold for Services

I want to ask you this question in the context of how sole traders and self-employed people are struggling right now. And I want to ask you in particular, what consideration have you given to raising the VAT threshold, particularly in the area of services from the 42,500, to obviously try and alleviate the administrative burden that's on these sole traders and self-employed people? Thank you. Thank you. I want to raise as well to ask the reason it graduated. Sorry, Deputy, it's the Minister's response. Sorry, still new to the House. I'm not, and I didn't know what's happening. My apologies. Sorry, my apologies, Deputy, but Deputy Conway Walsh, thank you very much for the question. I know these two questions are grouped. The VAT registration thresholds are, as the deputies know, subject to the requirements of the EU VAT law, with which Irish VAT law is obliged to comply. Under the directive, there's 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 supply of goods and €42,500, as Deputy Conway Walsh knows, for the supply of services. These VAT goods and service thresholds were increased from €80,000 and €40,000 respectively in the Finance Act of 2024. So we did increase both of them in the Finance Act 24. 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, for want of a better phrase, but from a factual point of view, generous thresholds in the EU, with some member states not operating any threshold, meaning that all businesses are required to register for VAT. So we do have one of those higher thresholds. The thresholds are kept at an appropriate level to support small businesses by trying to reduce 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 an objective criteria. A separate threshold cannot be for self-employed people or for SMEs or for family-run businesses, as an example. Thresholds must be sectoral-based and not based on the type of business structure. As a result of a review of the registration threshold for the self-employed is not proposed. Budget 2026 did try to take a number of measures to assist our small and medium businesses in light of our action plan and competitiveness and productivity and our programme for government commitments. The programme for government commits to implementing a pro-enterprise tax policy over the course of the term. This included commitments to deliver change to hospitality, to examine further tax credit supports for R&D and innovation, and to continue to review and simplify existing enterprise reliefs. I believe Budget 2026 makes some progress in relation to that. I suppose the question as to why is there a different threshold for goods and services? Ireland's VAT legislation does apply 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 with 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. But we do keep both these threshold levels under review and will continue to do so in forthcoming budgets. Thank you for that, Minister. I suppose what I'm asking you to do is just to do some greater exploration on it. And one of the reasons for that, I suppose, is that even with inflation and the impact that that has as well. I think we live in an environment that's constantly changing. So I think it's important to examine these things. Notwithstanding, as you said, that I'm familiar with the different rates in the EU, and some are higher and some are lower. And in Britain, for instance, it's the same for goods and services. It's the straight £90,000. But I think we need to listen to people as well who are self-employed. So what they are saying to me, and I try to speak to as many as possible, is that they are finding it too low in terms of where they have to register. Also for passing on to consumers, because they're saying that's OK if I'm trading with another business, but if I'm trading with, you know, it could be a vulnerable person, it could be a television repair person trying to come and fix somebody's television or something like that, and that they're saying, we have to pass this on as well. And the person in the House mightn't have an awful lot of disposable income in the first instance. So there's some... Thanks. Thanks so much to Deputy Conway Walsh and to Deputy Heenan for the question. So look, I suppose just to recap in relation to my position, I suppose I've tried to outline why, at least to date, there's always been a policy differential in terms of the threshold for goods and the threshold for services. I think there's some validity in that, and the Deputy is right, yes, there are some European countries that might have a higher threshold than Ireland, but Ireland certainly has one of the higher thresholds, so we're certainly at the upper end in Europe, and I'm quite comfortable with that, by the way. I think that ensures that we're exempting smaller businesses from that administrative burden as well. You didn't ask directly, but to put on the record of the House, because it's useful for your own work, if we were to increase, for example, the 42,500 to 85,000 for services, in other words, if to equalise it, it's in the region of €100 million, so just at this stage it's useful to put that out there. On the issue of differentiating between... We can't differentiate between self-employed or family-run, I'm not saying that's what Deputy Heaney is looking for me to do, but I know what he is looking for me to do, it's better support them. We want to do that. We can't differentiate on sectors, but we can't differentiate on ownership and ownership types. I will keep under review the broader point that Deputy Heaneyhan makes in forthcoming budgets. I would say, though, we have taken some actions in this budget to try and assist small and medium businesses, the selling of scones that you referenced, and I'm very proud of the reduction that we're making, by the way, to fashion the hospitality sector, some aren't, I think it's going to make a big difference to people, because what it's effectively doing is reducing the cost of running that cafe, or running that restaurant, or running that pub that serves the lunch, and I think at a time when there's so much external pressure on the Irish and European economy, I think that's a prudent thing to do to try and support the jobs and those who create the jobs in that sector as well. We've also made changes to the R&D tax credit, often that's talked about as an FDI initiative, but yes, absolutely, foreign direct investment benefits from it. Interestingly, the larger number of applications to it are actually from Irish companies, many of which are SMEs and microcredits, and I think we need to maybe get more information out about that to even further encourage the uptake, but I'll reflect on what both deputies said. Deputy Heaney-Lunch? Yes, absolutely, I'm very supportive of the R&D tax credit, and I think it's one of the ways, because I think, you know, a previous question was asked around our competitiveness, innovation, and innovation at all levels of business is so hugely important. I'm glad that you said, so the 100 million to bring it to 80,000 of services, is that it? I think even to do, and you may have this information already, and if you have, I'll just ask it another question to try and get the information. So, you know, if we were to bring it to 50,000, 60,000 and 70,000, I just think it's worth examining it in how we could change it, because you have to remember, these people as well, Tánis, one of the other big things is that they're not allowed to pay, say, the PRSI rate that would enable them to any sickness cover or anything like that. So, they're often in very, very vulnerable situations. And I know that we can't just have it for self-employed and sole traders, so very much I get that. But I just think it's what we need to look at, because supporting our small and medium businesses, our self-employed, our sole traders is so important to our economy. Thank you. Thank you very much. So, to both deputies on the R&D tax credit, I was just checking the figure while you were speaking there, so it's about 87.5% of claimants of the R&D tax credit are SMEs. So, while the greater quantum is claimed by FTI, because of the size of the FTI probably, but actually the largest number of applications, the overwhelming number of applications are coming from SMEs, so that does show, A, that it's working and the potential for it to work even better. I would make the point we did raise thresholds in Finance Act 2024, so the point that both deputies made in the past, we have done that, so of course these are issues that can be considered in future budgets. Both deputies will understand, I'm Minister of Finance for a couple of weeks now, we've yet to pass the finance bill for this year's budget, so I'm not going to speculate on what is going to potentially be in the next one, other than to say, you know, I think we can have useful debates and discussions and tease through these issues over the course of the year, both here and at committees and PQ sessions and the likes, in advance of future budgets. We do want to pursue, we all want to pursue pro-enterprise policies, we have to back Indigenous business, we have to continue to make our economy competitive, we have to continue to make it a good place to invest, we are absolutely reliant for many reasons on FTI, and they indeed benefit from being located here, but also the backbone of the Irish economy has always been our Indigenous industry, and we do need to all work together to see how we can best support that. What I will say on the wage subsidy scheme more broadly, and I'm conscious of the CAIRLAC of the ROCSA Social Protection Committee is in the chair, we do have our new national disability strategy, our human rights strategy published, and there is a real focus in that strategy, quite rightly, on employment for people with disabilities. I know the first meeting, the first kind of oversight group of that met yesterday, I know your PA, Michael Reynolds, does a very excellent job, and I'm sure there could be good work done through the ROCSA committees and through that new strategy in terms of how we help more people with a disability get into the workforce, and help more businesses hire and employ people with a disability to make a very good contribution to their business. I'm going to ask Minister Keenri perhaps to link with you, Deputy Heenan.