Are Irish startups tempted by UK incentives?

by Startacus Admin

A conference being held in the Wayra startup accelerator in Dublin earlier this week caused something of a stir by criticising the support available to Irish startups. It claimed that the incentives and assistance needed to nurture early-stage Irish startups, lags significantly behind that offered to their UK counterparts.

The conference which was organised by the Lucey Fund, a startup investment fund and Ireland's fastest growing young tech enterprise, was attended by 100 startups, and claimed that deep-seated inequalities in the taxation system are to blame for the country's stalled startup ecosystem.

These words will come as quite a surprise to many of you, who will be well aware that Ireland's booming technology sector is once again the envy of similarly sized nations the world over.

Ireland, and Dublin in particular are also known for having notoriously vibrant enterprise scenes, with enormous events such as Web Summit (last year attended by 22,000 people from all over the world) as well as the European headquarters of multinational corporations such as Facebook, and Google helping to cement the nation’s position as a major player in Europe's growing digital economy.

A multitude of startup support organisations the island over, offer a comprehensive and accessible source of advice and assistance to any budding entrepreneur.

Dublin has an especially well developed startup ecosystem, with a full calendar of startups events, meetups, and activities to be experience.

and so we could go on…

Where is the problem?

The key issue that is taking much of the blame is an inflexible taxation system which underwent a major revamp in 2011 and, according to some, has been unfairly favouring big business and wreaking havoc on new Irish enterprises ever since. In particular the most recent incarnations of the Employment and Investment Scheme (the Irish equivalent of SEIS and EIS in the UK) has come under fire at the conference, as wholly inferior to its counterpart across the Irish Sea.

To give you a sense of the problem, take a look at some of these figures which have been cited as inspiration for the criticisms.

1) The R&D tax credit is too complex and time for consuming for small startups to apply for. 981 small companies (defined as those with less than 50 jobs) claimed €62.1million in R&D tax credits since 2011, while large companies (defined as those with 250 or more employees) who are less dependent on these tax credits received more than twice this amount at €142.2million.

2) Seed capital has become less attractive to entrepreneurs due to harsh terms. The amount claimed in the Seed Capital Scheme (SCS) has dropped by a third from 2 million to 1.3million in 3 years.

3) Since the introduction of the Employment and Investment Incentive Scheme (EII) in place of the Business Expansion Scheme (BES), the amount claimed by startups has dropped by two-thirds from €41m in 2011 to €16m in 2013. The FOI request also revealed that bodies such as the Dublin Chamber of Commerce, The Consultative Committee of Accountancy Bodies and Irish Tax Institute have all expressed concerns about EII.

How does this compare with the UK?

The UK’s taxation incentives have fared much better in encouraging capital investments into fledgling businesses. As of 2012 the UK government offered their Seed Enterprise Investment Scheme (SEIS) which secures hefty tax breaks for those investing in qualifying businesses. The changes broadened the appeal of the schemes and led to a jump that almost tripled the level of investment overnight.

Crucial in the widening gap between investment levels under these schemes is the very fundamentals of how they are operated. For example, in the UK a startup might receive a research and development tax rebate within 3 weeks of spending the money, whereas in Ireland this money is paid back in instalments over a 3 year period. Such an amount of elapsed time between expenditure and rebate means that such schemes disrupt the cash flow of SMEs and startups to the extent that utilising them is infeasible.

What issues does this cause?

The danger is, that these problems in the supply of enterprise funding, combined with Ireland’s proximity to the UK will mean more and more talented and innovative entrepreneurs skipping across the Irish sea to make the most of the UK’s more startup friendly system.

Ian Lucey an investor with 40 investments in Irish startups organized the event and had some strong words of criticism for the Irish authorities.

“It has become more miserable and less attractive and has caused the amount claimed by to drop by two-thirds. If Silicon Docks can only support the big multinationals that’s fair enough, but if lean, agile Irish startups have to move to Silicon Roundabout in the UK to survive they might as well know the facts. The changes made to the Irish system since 2011 are scandalous – they’re killing startups and startup funding.”

What are your thoughts on this matter? Do you think that Irish startups are being tempted away to British shores, or is this a storm in a teacup?

Let us know in the comments section below or tweet us @iamstartacus.

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Published on: 14th May 2015