Can we make start-ups a more family-friendly career choice?

7 Oct 2014

Ireland is not family-friendly when it comes to launching start-ups, a non-government organisation focused on start-ups has warned in its pre-budget submission.

In a submission designed to remove obstacles that get in the way of people opting to become entrepreneurs, Start-up Ireland has suggested equal PAYE treatment for entrepreneurs, making employee ownership schemes more practical for startups, and introducing shared parental leave to encourage female entrepreneurship.

The organisation pointed out that the future growth of Ireland’s economy in terms of innovation and jobs will increasingly be linked to the performance of Ireland’s start-up sector.

In particular, outmoded maternity leave rules are forcing female entrepreneurs to choose between having a company and having a family.

Unintended obstacles

Start-up Ireland co-founder Eoin Costello said that the list of submissions has been informed especially by the growing number of overseas entrepreneurs locating in Ireland and highlighting obstacles.

“The large emerging cohort of Irish-founded high tech companies can bring the country an unprecedented level of sustainable high-value employment and domestic wealth generation,” Costello said.

“Attracting international startups to locate in Ireland can also contribute to this. Ireland has, however, accumulated a number of unintentional obstacles to entrepreneurs and startups and Government has a critical role to play in addressing this.

“We need only look to the UK for a positive example of what can be achieved when startup-friendly policies are implemented, including multiple significant tax incentives to encourage people to create and invest in new technology companies.

“With many startups in Ireland already choosing to incorporate their business in Northern Ireland to avail of these incentives, there is clear evidence that Ireland is at a competitive disadvantage to its nearest neighbour when seeking to secure entrepreneurial talent,” Costello said.

A family and career-friendly entrepreneurial landscape

Among the recommendations are:

Parental leave: Mothers are currently entitled to 26 weeks maternity leave and an additional 16 weeks unpaid leave. Since only the mother can avail of this leave, many female entrepreneurs are forced to choose between having a company and having a family. Maternity Leave should be redefined as “Parental Leave”, and should be sharable between a mother and her legal partner in order to enable increased levels of female participation in high impact startups.

Provide PAYE tax credit to entrepreneurs: As proprietary directors, startup founders are not eligible for the current PAYE tax credit. This means that they are taxed more than another employee on the same salary in their company. This is a specific disincentive that discourages people from becoming entrepreneurs. Proprietary directors who are in full-time PAYE employment in their company should be eligible to claim the PAYE tax credit.

Implement similar Capital Gains Tax (CGT) treatment to the UK:  Both the founders and investors behind startup companies hope to derive the majority of their long-term income from the disposal of their shares in the company. However, CGT at 33pc acts as a disincentive to investment. Ireland should implement a progressive scheme similar to the UK’s Entrepreneur Relief Scheme by applying a lower rate of 10pc CGT on the first €12.5 million earned from investments by founders of startups.

Making employee ownership schemes more practical:  Start-ups cannot offer their employees a salary or benefits to compare with larger corporates located in Ireland, but they can offer ownership by way of equity participation. If shares are received as a form of remuneration they should correctly be taxed as a benefit-in-kind. However, most start-ups do not aim to remunerate their employees with shares, but instead incentivise them with a stake in the future growth of the company. Exercising a share option to purchase shares in a startup company should not be a taxable event. Tax should instead only be applied to the eventual disposal of any purchased shares as a capital gain. 

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John Kennedy is a journalist who served as editor of Silicon Republic for 17 years