Catriona:     Welcome to another Goodman Jones conversation. Today Graeme Blair of Goodman Jones and Declan Merry, of Merry Mullen in Dublin will be looking at the issues for British and Irish companies exploring the new business opportunities across the water.

Graeme:      Hi Declan, it’s great to hear from you. Of course, it’s a shame with the lockdowns of both our countries that we can’t meet face to face at one of the regular events we jointly attend such as the British Irish Chamber of Commerce sessions, and then obviously have a pint afterwards.

Declan:        Yes, it’s good to talk. It’s been awhile and we would have had a number of different events to join up and meet and network and go through some of the opportunities in the different countries and some of the challenges. So let’s see if we can talk through a couple of the permutations and some of the issues that we’ve had.

What are the issues for British companies looking to Ireland now?

Graeme:      We obviously have mutual clients and regularly rely on each other’s expertise for our own clients, expanding into the other’s countries. As we can’t meet, and as we can’t travel its worth catching up and just exploring what the typical situations that get asked, for expanding to the other’s country. One of my clients said to me, I’m still looking to Ireland as a new market. What advice would you give British businesses right now when taking those first steps into the Republic?

Declan:        The country is in pretty good stage at the moment in terms of exiting the lockdown. We’ve reacted reasonably quickly and we hope that we’ll be in a good position. The clients that we have at least outside the hospitality sector have generally experienced the ability to work remotely. And as we exit, there seems to be an expectation that the booming economy that was before lockdown is going to surge forward with everything that was happening beforehand.

So we’re hoping that we’ll exit relatively quickly, and we can rely on some of the established technology, financial services and pharma sectors, which are thriving through the boom. So hopefully they will give a bit of leverage. The government has done quite well in terms of the supports. There’s good supports there in terms of the ability for companies to progress forward. And that’s going to hopefully continue the economy going forward. With regards to your clients, a number of supports that we can put in place, especially through Enterprise Ireland and the I.D.A.

And we can put them in touch with some of the contacts we have there, would be willing to get in touch with them and see whether there’s any assistance or grants that they can give to your clients.

With reference to construction, the Irish economy is growing strongly and was predicted to grow strongly further through 2020. There was significant projects in train, numbers of cranes in the skyline. So all of those projects are recommencing. And the view of economists is there has been shortage. It’s still going to be there. And with the pre-let offices being developed, there will still be under supply for some time yet. So hopefully the construction industry is going to bounce forward, and there’s going to be a couple of years of activity there in train, or to continue.

Graeme:      What mistakes have you seen businesses make when they expand into Ireland? And what examples of best practice can you give?

Declan:        The main mistake that we have Graeme is people coming here and not being fully committed. A company needs to be managed and controlled in Ireland to be tax resident. And it needs a physical presence with employees here also. Once the company is committed to establishing a presence in Ireland that will then suffice. There’s the usual concerns that exist, which can be determined generally with good advice, whether or not you have a branch or a subsidiary or a standalone company or a subsidiary structure they can be developed with some simple advice as to what’s best.

Somebody might want the Entrepreneurs’ Relief in the UK and a standalone structure might be preferable, but the overall sense within any businesses, is what’s intended for the accumulated profits of the company? How are they going to be repatriated to the UK or elsewhere? We meet with advisers such as yourself to work out what is the overall strategy for the investment and we can do that working with yourself or others. One point I would raise is coming from the UK, Irish companies require an EU tax resident director. And from January, 2021, the company’s board cannot solely be UK tax residents. That’s something we just got to look forward and plan.

Graeme:      Declan, that’s a really good point about the EU resident directors. At the moment, if a business is in two minds, whether it should physically move to Ireland to set up or stay in the UK and expand directly from the UK. What issues do you see for both alternatives? Effectively we’re asking, what’s the benefit of a branch versus a subsidiary?

Declan:        The branch activity Graeme is far simpler to set up. As you know, we simply have to register the branch in Ireland. There may be VAT implications, and we’ll register for VAT in Ireland or PAYE in Ireland. The difficulty obviously is that it doesn’t have a limited liability structure in Ireland. And therefore there isn’t a ring fencing of the losses. Sometimes there can be a tax angle, as you know, in terms of the benefits of one or the other, but setting up a company in Ireland has got a different level of documentation and bureaucracy, which has to comply with in terms of money laundering, legislation, bank accounts, verification and as I said, just their requirements under companies law to have EU tax resident directors.

Graeme:      For those businesses that are expanding outside the UK into the Republic. It’s not unusual to bring some key staff over at the early stages. What strategies are there to motivate key staff and to remunerate them, especially if they’re moving their families to a new country?

Declan:        So I think that the main thing is to bring them over Graeme, buy them a pint of Guinness, and they’ll see the benefits straight away. Ireland is an attractive place to live and work. It’s got a good quality of life. It’s got the fastest growing economy in Europe, youngest population in Europe and a good education system. So overall it’s a good place to live. Dublin is the biggest city, but it’s a small city and it can be established in other cities around the country.

There is a special assignee relief program in Ireland, which allows key personnel to come to Ireland under assignment by their employer, where their salary is in excess of 75,000 Euros. 30% of the amount in excess of 75,000 Euros can get disregarded for tax purposes. This can be a key incentive in order to attract your personnel to relocate in Ireland, that together with our non-domiciled system, whereby we have a remittance basis of tax, it would only be their Irish source income, which will be taxed in Ireland. These two combined can give a really attractive package coming to Ireland.

Graeme:      Great. I wish we had something similar.

Declan:        Yes, it’s up to a million euros.

Graeme:      Wow.

Declan:        So if you’re earning 675,000 effectively 200,000 just gets disregarded for tax.

Graeme:      That’s a really attractive relief. Is it aim that specific sector such as professional practices or people businesses, or is it used across the board?

Declan:        No, it’s across the board. It’s probably aimed and designed for US Multinationals coming to Ireland more than Ireland to the UK. The relief can be quite attractive and there can be quite an amount of the remuneration package that can fall out of the tax net. There is also a keep share option scheme Graeme, which is very similar to your EMI scheme, where a company can provide options to the employees and the employees can exercise the options straight away and effectively where as the deferred tax on that option until such time as the company’s sold. So that’s something that we see happening more often in some of the mid-sized companies that we have, which can offer an attractive way to incentivize the employees.

Graeme:      Good stuff, very useful.

Irish Companies Looking to the UK

Declan:        When I’ve got a client looking to establish a presence in the UK. If I want to develop the British markets, do you think a physical presence is now necessary, or can I take advantage of the fact that offices and businesses are now working more remotely?

Graeme:      That’s a really interesting question, especially as we come out of the Covid crisis. What we’re finding is that some of our recruitment agents in the UK are already advertising work at home type assignments. And therefore the suggestion is that we are actually going to move into a more remote working environment as a nation. What that really talks about to me is branch versus subsidiary, because traditionally there’s been a perception in the UK that to recruit good quality staff, you need a subsidiary here. If people are working from home, then why can’t they work for the Irish employer as a branch operation in the UK?

I think the world will change slightly in that regard, I think more and more Irish businesses coming to the UK will look at that possibility. Really, there’s no one size fits all answer. You need to consider the commercial needs of the business and you need commercial protection as well. And obviously if you have a UK subsidiary, you tend to ring fence the UK operations into the subsidiary, and that protects the Irish parent from the activities of the UK subsidiary.

Declan:        And what do you think will happen to the availability of offices and property as we all address our new office needs post Covid?

Graeme:      I really think that I’m going back to my school days of basic economics and supply and demand. I think as I’ve said, the world is changing the way businesses expand into the UK may change. And I actually think there’s going to be an availability of commercial premises going forward. That’s both factories and more traditional office blocks. Rents in the UK are pretty expensive compared to certainly Dublin and many of the European capitals. And therefore, if a business can save on rent, it can actually save a considerable amount of its overhead.

And I really believe that businesses, those expanding into UK in particular will start looking at home workers more than maybe having people in offices. However, from the people perspective, really, you need to make sure your employees integrate and your teams work efficiently. And that leads to the question of maybe we won’t have exclusive homeworkers maybe we will have office hubs where people can come together for short periods of time, maybe in central London and interact with other team members.

We’ve got one client who’s already looking to downsize their central London offices and take out serviced office space so that teams can meet infrequently and actually do the bonding that we all do in the office without really realizing it.

Declan:        That’s really interesting. So will London become less popular given the requirement to use public transport?

Graeme:      The interesting thing about London is it has a disproportionate percentage of the UK GDP and a disproportionate percentage of our national population. And a question I’m sometimes ask is why the business simply not relocate to cheaper parts of the country and save on the salary and property costs. For example, the BBC has traditionally been located in West London and in recent years has relocated many functions to the North of England.

I think the reality is that London and the Southeast is a natural destination for the wealthy and internationally mobile. It’s also a natural staging post for exports to continental Europe, including obviously those original 18 in the Republic. The government has long understood the difficulties associated with disproportion of wealth and population in the Southeast, and has introduced measures to try and spread that more evenly throughout the country.

For example, in recent years there have been announcements about funding the Northern powerhouses to spread the wealth more evenly and HS2 the train project has been specifically designed to make working outside London more practical.

The same principle applies to the upgrade of the Manchester Leeds rail link. However, we can’t turn away from the fact that the UK’s two largest airports are in London. Heathrow I understand is the third busiest in the world, and it’s another reason why internationally focused businesses might naturally gravitate towards London despite the higher employment in rental costs.

Declan:        So what other hubs do you see developing that I could take advantage of?

Graeme:      I would think the obvious ones would be Birmingham and Manchester. Birmingham, the second biggest city in the United Kingdom and only an hour and a half from London. Manchester has really reinvented itself over the last decade. Its industrial activities as they’ve close to being replaced by more technological and media friendly businesses. And that I think is going to help it in the long-term.

Declan:        Okay. Interesting. What if I wanted to buy into the British markets through acquisition? What issues would you flag that are different to the process you would understand in Ireland?

Graeme:      I think there’s great similarity between the processes that we would adopt in the UK and the processes that you’re firm are well versed in Declan. Obviously you need your due diligence and to instruct local advisers to ensure that the tailored advice or structuring legal agreements and other matters that always come out of a transaction are tailored specifically for the UK. However, because of the geographical proximity of our countries, the shared histories, the cultural similarities and I also would argue our combined isolation from mainland Europe tends to mean our regulatory processes are similar.

Our outlooks are similar, our tax systems are similar, and we really understand how each other operate. For example, Entrepreneurs’ Relief, it’s a million euros for you. It’s a million pounds for us. And the fundamentals of Entrepreneurs’ Relief is similar across both our nations.

Declan:        And they’re both 10%.

Graeme:      And they’re both 10% absolutely.

Declan:        Graeme, my clients won’t always have cash to put into staff benefits. What can I do to attract and incentivise the talent I’m after in the UK?

Graeme:      That’s a great question. And I’m going to start with a salutory tale I think. You’ve asked for benefits and highlighted the desire to preserve cash. Just one point that sometimes gets overlooked when coming into the UK and that is that we do have statutory pension obligations. These are on top of employment costs and with an increasingly aging population and therefore the number of workers whose taxes finance the retired, I should imagine the statutory pension obligations will increase to protect against future generations, having an ever increasing problem.

The statutory pension obligations are auto enrollment and Declan I believe you’ve got something similar in the Republic. Turning to your specific question, the matter that bridges cash and non-cash salary is of course share options. And we have a number of government approved share option schemes. Approved in this context means special tax breaks for both the employer and the employee. And that’s deliberate to make them attractive as part of a management package. The logic of course, is that if management were incentivized with equity ownership through an option, then in theory, they work harder, they grow the business and they participate in the future sale of that business.

The share option schemes, I’m thinking of are specifically tailored for unquoted companies and they’re regularly used when foreign businesses come to the UK for the first time to attract the key people who will manage the UK operations on a daily level. And therefore the key people who are instrumental in the business’s success.

One other part of the package that regularly is debated in the UK and it can be quite an emotive subject when recruiting staff is providing a car, it’s a historical anomaly in the UK, a car would of course be a cash cost to the business and we’re finding many businesses are leasing cars to spread that cost over the period of ownership. And there are some tax breaks for low or no emission vehicles such as electric cars, and these are deliberate. And when you combine them with some of the leasing opportunities can actually make a pretty efficient package at relatively modest cost.

We can’t do one of these discussions without the B word, Brexit.  Obviously it’s the big unknown, but actually I believe that our mutual trade, our combined in shared history and our fundamental similarities will remain with us and Brexit won’t impact on that too greatly.

Declan:        Agreed, I think business will always find a way when there’s investment opportunities and business opportunities, despite any changes that will come from Brexit,

Graeme:      Given what I’ve said, we can’t just assume that what your clients are used to would necessarily immediately translate into the UK.

Declan:        What mistakes have you seen companies make when coming to the UK and any examples of best practice?

Graeme:      I’ve already hinted that tailored advice should be sought. And it’s almost stating the obvious that if you don’t seek UK advice about UK structuring, then there’s possibility of a problem there. In terms of what mistakes I’ve seen, the one that springs to my mind is pensions. I can remember a situation where an overseas business was expanding into the UK by acquisition, and they did the commercial due diligence, they did the tax due diligence, and it was pretty late in the day that they engaged the pension lawyers to look at the pension due diligence. And actually they didn’t do the transaction. There was a defined benefit scheme in place that was pretty underfunded and the costs of sorting that out, made the transaction unattractive. So in summary, the opportunities for Irish businesses expanding into the UK are considerable. Our method of working may change to more of a remote homeworking environment, and we still retain our incentivization, particularly through EMI share options to attract the best talent into the UK.

Declan:        Absolutely. I think the similarities are greater than the differences Graeme. The EMI scheme is very similar to our KEEP scheme and we can always take advantage of these different opportunities. I think now in this environment where we’re working remotely, working with somebody locally in your city, or working with somebody across the water, I think is going to be very similar and I think there’s going to be more opportunities for people to work together and more business being conducted remotely. And that’s going to give great opportunities for all our clients in order to progress and take advantages of whatever opportunities exist.

Catriona:     Thank you both. And thank you for listening. If you’ve got any questions or would like to get in touch with Graeme or Declan, you can find us goodmanjones.com or merrymullen.ie.

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Graeme Blair - Partner

E: gblair@goodmanjones.com

T +44 (0)20 7874 8835

Graeme helps guide businesses through the corporate tax world. He is particularly expert at issues that property companies and professional practices have to navigate and therefore often manages large and complex assignments, many of which have an international element.

As a client of Graeme's wrote "I am increasingly impressed that when I pick up the phone to Graeme I receive robust and appropriate advice."

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