10/06/2023 by Dr Christina Voda-Forde 0 Comments
The Temporary Business Energy Support Scheme for SMEs Explained
In his address on Budget Day (27 September 2022), the Minister for Finance, Paschal Donohoe TD, highlighted several challenges facing the Irish economy. These challenges were driven, in part, by rising inflation and an imbalance between demand and supply as the economy reopened after the Covid-19 pandemic. The Minister also emphasized the crucial role of small and medium-sized enterprises (SMEs) in the Irish domestic economy and acknowledged the need for various supports to address their specific concerns. Among the key announcements made by the Minister was the introduction of the Temporary Business Energy Support Scheme (TBESS). This scheme aims to assist businesses that have encountered significant increases in their electricity and gas costs. It provides a cash payment equal to 40% of specified eligible costs to qualifying businesses.
Scope of the Relief:
To qualify for the Temporary Business Energy Support Scheme (TBESS) relief, a business must meet certain criteria. It must be an "eligible business" engaged in a trade or profession, excluding credit and financial institutions. Eligible businesses include charities with taxable trades and organizations promoting athletic or amateur games subject to income or corporation tax exemptions. Non-trading activities like property rental are not eligible.
To be a "qualifying business," administrative conditions must be met. This includes tax compliance, eligibility for a tax clearance certificate, maintaining eligible business status, and meeting electronic registration and claim requirements.
The energy costs threshold must be surpassed during the claim period, a calendar month within the specified period (1 September 2022 to 30 April 2023). The threshold requires a 50% or more increase in average unit price of electricity or gas compared to the same period in the previous year. Assessment must be done separately for electricity and gas bills.
Revenue will calculate the relevant unit price based on bill details provided through the ROS portal. The relevant electricity or gas bill is determined by the billing cycle. If the billing period overlaps the claim period, it is considered the relevant bill. Otherwise, the TBESS bill with a billing period falling within the claim period is relevant.
Identifying the correct bill is crucial for claim submission as it determines eligible costs for relief calculation.
Identifying the Eligible Cost:
Once the relevant electricity or gas bill has been identified, the qualifying business needs to determine the "eligible cost" on which the relief will be calculated. The legislation governing the TBESS provides a formula for determining the eligible cost for a relevant electricity or gas bill. The formula is as follows:
A - B, where
A = the amount of the relevant electricity or gas bill
B = the amount of the reference electricity or gas bill
Similar to the assessment of the energy costs threshold, it's crucial to note that the evaluation of eligible costs must be carried out separately for electricity and gas bills.
Identifying the relevant electricity or gas bill amount:
The identified relevant electricity or gas bill should not be confused with the "relevant electricity bill amount" or "relevant gas bill amount." These amounts are determined using specific formulas that depend on the business's billing cycle. This is necessary because a business may receive a bill that doesn't align precisely with a calendar month. For instance, an electricity bill covering the period from 1 September to 15 October 2022 is possible. As the TBESS operates on a monthly basis, it's important to proportionately allocate the amount within the billing period to correspond with a claim period (i.e., a calendar month). Additionally, in some cases, a qualifying business may have incurred electricity or gas charges that are not entirely for the purpose of its trade or profession. To calculate the relevant electricity or gas amount, the qualifying business needs to exclude these non-trade-related charges.
In identifying the reference electricity or gas bill amount, the business follows specific formulas based on the billing cycle falling into four categories.
Option 1 applies when the business receives a TBESS electricity/gas bill that begins on or before the first day of the reference period and ends on or after the last day of the reference period.
Option 2 applies when the business receives two or more TBESS electricity/gas bills that, combined, cover the entire reference period.
Option 3 applies when the business receives one or more TBESS electricity/gas bills that, combined, cover only part of the reference period.
Option 4 is applicable when the qualifying business has a new electricity account or gas connection.
For each option, the business must use a specific formula to determine the correct reference electricity or gas bill amount. Adjustments are also made to the reference bill amount if there are charges incurred that are not wholly and exclusively for the trade or profession.
Revenue guidance confirms that the necessary calculations and adjustments to determine the eligible cost for an electricity or gas bill will be carried out by Revenue.
The Relief Available:
A qualifying business is entitled to claim a payment equal to 40% of the eligible cost, known as the Temporary Business Energy Payment (TBEP). When making a claim, any deduction available for expenses incurred on electricity or gas bills must be reduced by the amount of the TBEP received. The TBEP is not considered taxable profit or gains for the trade or profession and is treated as a non-taxable receipt for the qualifying business. The TBEP can be set against any outstanding tax payable by the business, acting as an overpayment of corporation tax or income tax.
There are limitations to the relief provided. The aggregate amount that can be claimed by a qualifying business in any claim period is capped at €10,000. However, as of 1 March 2023, this monthly cap has been increased to €15,000 by Ministerial order. The increased cap of €15,000 (or €30,000 if the business operates across multiple locations) can be applied when a qualifying business has multiple electricity accounts. The increased cap was further increased to €45,000 as of 1 March 2023.
It is important to consider the overall cap on supports available under the Temporary Crisis Framework, which limits the total relief amount, including TBESS and other forms of aid. The limits are €250,000 for agricultural products production, €300,000 for fishery and agriculture products processing and marketing, and €2,000,000 for any other cases.
If the qualifying business operates as part of a partnership trade or profession, the claim for TBEP should be made by the precedent partner on behalf of the partnership and each partner. The maximum amount of the claim is subject to the previously mentioned limits. Each partner is deemed to have claimed a portion of the TBEP based on their partnership percentage in the claim period.
Administration, Practicalities, and Penalties:
The claim for TBEP must be submitted within four months after the end of the claim period. Qualifying businesses need to register on ROS and provide necessary information, including trade details and electricity/gas account information. Records must be maintained for 10 years from the end of the claim period and provided to Revenue upon request.
If a business makes an invalid or excessive claim, it must notify Revenue and repay the amount. Failure to do so can result in interest charges and penalties under the Tax Consolidation Act 1997. Knowingly providing incorrect returns or statements is an offense, as is assisting others in doing so.
Revenue Obligations and Powers:
Revenue is required to publish qualifying businesses' name, address, and the total TBEP paid on its website. They can consult energy suppliers for further information if they suspect an invalid or excessive claim. Failure to provide requested information can result in a penalty for the energy supplier.
Checklist for Businesses:
Businesses should ensure they meet all relevant conditions of the TBESS. This includes confirming their trade or profession status, complying with tax obligations, maintaining tax clearance, being an eligible business, satisfying electronic claim requirements, and having up-to-date electricity and gas bills.
Other Tax Incentives and Reliefs for Growth:
Aside from TBESS, SMEs can consider tax breaks like the Key Employee Engagement Programme (KEEP) to attract and retain talent, and the research and development (R&D) tax credit to improve cash flow. The KEEP has been extended to the end of 2025, while the R&D tax credit repayment process has been amended to accelerate cash refunds. These incentives provide opportunities for SMEs growth.
In conclusion, the Temporary Business Energy Support Scheme (TBESS) provides relief for eligible businesses facing energy cost challenges. For assistance in navigating the relief, businesses can contact Voda-Forde Ltd for expert guidance, clarification and support. Book a free consultation on our website!