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Start your own Business Relief

  1. Overview
  2. Who qualifies for this relief?
  3. Are there any restrictions for your business?
  4. How do you apply for the relief?
  5. How do you calculate the relief?
  6. What happens if you make a loss in the first year?

How do you calculate the relief?

With the Start Your Own Business Relief, you can earn up to a maximum of €40,000 per year without paying Income Tax (IT). This exemption is calculated on the first two years of your new business. The 24 month period starts from the date you start your new business.

If you started your business in January, then you have used up your 24 months of relief in year 1 and year 2. There is no relief available for year 3. If you started your business later in the year then there is still relief available in year 3.

Year 1

If you start your new business in January, you are allowed an exemption of €40,000 for year 1. If you start later in the year, the exemption is reduced based on the portion of the year that remains.

Year 2

You are allowed an exemption of €40,000. The second year will always include a period of 12 months, so this amount will not be reduced.

Year 3

You are allowed the remainder of the exemption that you did not use in year 1. For example, if you claimed 11 months in year 1, you have one month left to claim.

You may wish to choose a different year end for your accounts. To find out what profits are taxable in each year, refer to the special rules for determining the basis period on commencement to trade.

  • Example 1

    Jan starts a new business on 1 January 2014 and prepares accounts for the 12 months up to 31 December 2014, showing a profit of €30,000. Jan's accounts for the year to 31 December 2015 show a profit of €45,000.

    Year 1

    Jan’s profits are tax free up to the cap of €40,000, so the full €30,000 are tax free.

    Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) will apply to the profits of €30,000 at the relevant rates.

    Year 2

    The first €40,000 of Jan's profits are relieved from IT, leaving Jan taxable on €5,000 of profits.

    PRSI and USC will apply to the full profits of €45,000 at the relevant rates.

    Year 3

    Calculating the months left: 24 - 12 [months claimed in Year 1] - 12 [months claimed in year 2] = 0

    Therefore, there is no relief available in year 3.

  • Example 2

    Viv starts a new business on 1 February 2014 and prepares accounts for the 11 months up to 31 December 2014, showing a profit of €10,000. Viv's accounts for the year to 31 December 2015 show a profit of €15,000 and those for the year to 31 December 2016 show a profit of €20,000.

    Year 1

    Viv’s profits are tax free up to the cap of €40,000 x (11/12) = €36,667, meaning the full €10,000 of profit is relieved from IT.

    PRSI and USC will apply to the profits of €10,000 at the relevant rates.

    Year 2

    As Viv's profits have not surpassed the €40,000 cap, the full €15,000 is relieved from Income Tax.

    PRSI and USC will apply to the full profits of €15,000 at the relevant rates.

    Year 3

    Calculating the months left: 24 - 11 [months claimed in year 1] - 12 [months claimed in year 2] = 1

    As one month of year 3 is within the first 24 months, then the cap for that month which can be relieved from IT is €40,000 x (1/12) = €3,333.

    To compare the actual profits with the cap, calculate the profit for that month: €20,000 x (1/12) = €1,667.

    Viv can therefore claim relief against her profits of €1,667 in year 3, leaving €18,333 taxable. This represents the amounts of profits earned from February to December 2016 and therefore outside of the 24 month period to which the relief applies.

Next: What happens if you make a loss in the first year?

Published: 30 January 2023 Print this page

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