National report IRELAND

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1 National report IRELAND Document Details: Reference WP/Activity Author(s) Character Date e2-p WP 3 National reports Country Report February 2011

2 Table of content 1) History and Presence of Self-Employment ) Ways of Starting Self-Employment in Ireland ) Statistical Information ) Kinds of Encouragement ) Barriers of Access to Self-Employment ) Example of Good Practice ) Summary...14 References

3 1) History and Presence of Self-Employment In the past Ireland s self-employment and entrepreneurial climate was negatively affected by factors such as the stigma that was attached to business failure and the lack of appreciation for entrepreneurship and self-employment as valid career options. People were often encouraged to seek out secure jobs, such as those in the civil and public service (The Institute of Certified Public Accountants in Ireland (CPA), 2010). Throughout the early and mid 20 th century the majority of those involved in self-employment in Ireland were involved in agriculture. Prior to the early 1990s, government policy was mainly focused on attracting Foreign Direct Investment (FDI) as a means to encourage new business development. There was little by way of government policy for start-ups and little support for small businesses. The self-employment and entrepreneurial culture in Ireland, outside of agriculture, started to gather momentum in the 1990s when unemployment levels reached almost 16% (OECD, 2003) and people turned to self-employment as a means of earning an income. Between 1995 and 2007 Ireland experienced a period of rapid economic growth, known as the Celtic Tiger. The growing success of Ireland's economy led to increased levels of entrepreneurship and risk-taking, qualities that had been dormant during poorer economic periods. In turn, this led to increased levels of self-employment. The culture for self-employment and entrepreneurship has improved greatly in recent years and there is much wider acceptance of entrepreneurship and self-employment as career options for people of all ages (CPA, 2010) saw the start of a recession in Ireland and a rise in unemployment levels, peaking at 13.6% at the end of 2010 (Central Statistics Office (CSO), 2010). The construction and agriculture, forestry and fishing industries have been greatly affected by the economic downturn with many self-employed individuals being put of out business. The rise in unemployment has also meant that again, similarly to the early 1990s, people are turning to self-employment (GEM, 2008): for example professional, scientific and 3

4 technical activities have experienced a growth in self-employment in the last few years (CSO, 2010). However, the self-employed are facing many challenges due to the economic downturn, such as the availability of credit and the reduction in consumer spending. Individuals starting businesses as percentage of the population is 4.3% in Ireland compared to just 2.7% across the EU. Also the rate of established entrepreneurs at 9% is one of the highest across the OECD (CPA, 2010). However, the vast majority of the selfemployed in Ireland are male. The level of female self-employment in Ireland is lower than the EU average (EU Commission, 2010) and represents an enormous pool of untapped potential. In the past FDI has played a major role in job creation and economic growth in Ireland but it will be home grown businesses that will create the vast majority of new jobs and wealth in the future (CPA, 2010). Many people believe that Ireland is not encouraging entrepreneurship and self-employment enough, particularly in underrepresented groups such as women and young people. Research has shown that participation in entrepreneurial education or training has positive effect on an individual s preparedness and likelihood of becoming an entrepreneur, but in Ireland two-thirds of those setting up a business do not receive this type of training (GEM, 2008). Furthermore, despite the many calls and evidence based reports by the European Commission highlighting the substantial benefits of an entrepreneurship education policy to a nation s economy and to its young people, Ireland has set to establish one (Accelerated Campus Entrepreneurship Consortium, 2009). 4

5 2) Ways of Starting Self-Employment in Ireland In Ireland you can set up a business as a sole trader, as a partnership or as a limited company. Setting up business as a sole trader is the most popular form of business entity in Ireland, due to the ease and straightforward way a business can be established. However, sole traders are liable for any debts that the business incurs if the business fails and any business profits are treated as personal income for tax purposes. Partnerships are an extension of the concept of the sole trader and are formed when two or more people go into business together and equally share in its profits. The partners are jointly responsible for running the business and if it fails all partners are jointly liable for the any debts that the partnership incurs. While it not a legal requirement to draw up a formal agreement when entering into a partnership in Ireland, it is highly recommended. Limited companies are separate legal entities and are therefore considered separate and distinct from those who run it. This effectively means that the shareholders of a limited company have limited liability from all the debts of the company. There are two types of companies in Ireland, private companies and public companies. The majority of companies in Ireland are private limited companies and, of those, most are small companies with one or two members. To form a company a number of documents must be submitted to the Companies Registration Office (CRO), including the Memorandum of Association and Articles of Association. While limited Companies are required to make annual returns with the CRO and in general there are more compliance requirements involved, such as compliance with the Companies Act, companies can be more tax efficient. Unlike sole traders and partners in a partnership who pay income tax on business profits (20 40%), companies pay corporation tax on their taxable profits, which is lower than income tax rates and one of the lowest in the world (12.5%). All business including sole traders must notify the Revenue Commissioners of the establishment of their business and provide them with the information required to register their business for the relevant taxes. Businesses with annual projected turnover likely to exceed certain limits must also register for VAT (Value Added Tax). Registration of a business name with the CRO is required if any individual, partnership 5

6 or corporate entity wishes to trade under a different name than that of their own true name(s). 6

7 3) Statistical Information Self-employment has become a significant source of job creation and entrepreneurship in many OECD countries and therefore contributes to the EU goals of more growth and better jobs (European Commission, 2010). In 2010 there were 33.2 million people selfemployed in the EU-27, accounting for nearly 15% of total employment: more than one job in seven (Eurostat, 2010). The relative employment decline has been more moderate in self-employment in comparison with paid work, indicating that the self-employment sector has had a degree of resilience to the economic crisis (European Commission, 2010). In 2010, 304,400 people in Ireland were self-employed (16% of the people at work) and this number has remained stable for the last number of years. The majority of these individuals are aged between years of age (54.5%). The number of self-employed individuals under 25 had decreased by almost 50% in the last 5 years with only 0.8% of self-employed individuals aged under 25 in 2010 (CSO, 2010). Males in self-employment in Ireland were found to account for 26.6% of the male civilian employment in 2009, whereas females only accounted for just 7.4% of the female civilian employment (OECD, 2010). Self-employment among women has remained fairly stable during the recession, remaining constant at about 60,000, whereas selfemployment numbers amongst males has fallen fell by nearly 50,000 in the last couple of years, from 297,000 to 248,000, a decline of nearly 17%. This was mainly due to sharp declines in self-employment in the construction and agricultural industries (European Commission, 2010). However, there has been an increase in self-employment in professional, scientific and technical activities with 5,700 more self-employed people in 2010 than 2005 (CSO, 2010). 7

8 The split of self-employment In Ireland by NACE sector is as follows: Agriculture, Forestry and Fishing 21.4% Construction 14.7% Wholesale & Retail Trade 12% Professional, Scientific and Technical Activities 9.7 % Transportation and Storage 7.8% Other NACE Activities 7.8% Industry 6.3% Accommodation & Food Service Activities 4.6% Human Health and Social work Activities 4.1% Information & Communication 3.4% Administrative and Support Service Activities 2.5% Education 2.5% Financial, Insurance and Real Estate Activities 2.3% (CSO, 2010) Self-employment is extremely important in Ireland and contributes significantly to the Irish economy: the earnings from self-employment totalled 12.6 billion in For further details go to 1 The Central Statistic Office have advised not to express self-employment earnings as a percentage of GNP ( billion in 2008) as it is not believed to accurately reflect the true impact. 8

9 4) Kinds of Encouragement In the last two decades Ireland has increased its efforts in encouraging self-employment. Major national programs have been established and new infrastructure has been developed to support self-employment. There are now many organizations in Ireland that offer support and advice to new and existing businesses. Grant aid also encourages and supports self-employment in Ireland. Enterprise Ireland is the government organisation responsible for the development and growth of Irish enterprises in world markets. They work in partnership with Irish enterprises to help them start, grow, innovate and win export sales on global markets. Their website contains an information store for entrepreneurs which includes information on start-ups, finance and government supports. They also have a High Potential Start-Up (HPSU) team provides hands-on support and advice to entrepreneurs and early stage companies that are considered by Enterprise Ireland to have an innovative product, service or technology, and have the potential to achieve exports sales and create employment. Thirty-five City and County Enterprise Boards around Ireland (CEBs) provide direct grantsupport and promote entrepreneurship, capacity building and women-in-business in new and existing micro-enterprises (businesses with 10 employees or less) at a local level. Some CEBs even provide low-interest or interest-free loans for selected projects or businesses. Social welfare schemes have been set up in Ireland to encourage the unemployed into self-employment. The Back to Work Enterprise Allowance (BTWEA) and the Short-term Enterprise Allowance allow those in receipt of social welfare to retain a portion of their social welfare and any secondary benefits payment for a period of time whilst they set up their business. Furthermore, those participating in the BTWEA as a self-employed person may also be able to obtain a grant for essential equipment, marketing, appropriate training or towards the cost of Public Liability Insurance from the Technical Assistance and Training Fund. 9

10 Low Interest Loans also encourage new businesses in Ireland. First-Step is a not for profit organisation with an objective to provide microfinance loans (i.e. loans less than 25,000) to start up or expanding small and medium enterprises for job creation or protection. Loans are targeted at people who have difficulty securing finance from traditional banking sources and all sectors are considered. The Citizens Information Board is the statutory body which supports the provision of information, advice and advocacy on a broad range of public and social services. They have information on setting up your own business and links to other organisations that can provide support to the self-employed. Partnerships around Ireland also encourage self-employment and support the selfemployed. These area-based Partnerships promote social inclusion through the development of disadvantaged areas and communities. Their Enterprise Support Programme provides a range of services and supports, including start your own business courses, to people who are long-term unemployed and interested in setting up their own business. BASIS (Business Access to State Information and Services) was established in 2000 as part of the Irish Government Action Plan 'Implementing the Information Society in Ireland'. The BASIS website provides government information and services 24 hours a day, seven days a week, from a single access point. Certain organisations operating in specific economic areas also provide grants to start-up businesses in their areas. Examples of these include Bord Bia, Bord Iascaigh Mhara, Fáilte Ireland, Teagasc and Údarás na Gaeltachta. 10

11 5) Barriers of Access to Self-Employment Whilst Ireland may have high levels of self-employment, there are still a number of barriers to self-employment in Ireland. As mentioned previously the number of selfemployed women in Ireland is substantial less than men and below the EU average (European Commission, 2010). It appears that women face additional barriers to selfemployment. Family/work balance, the cost of childcare, lower confidence and selfesteem, male views towards women in business, and negative attitudes on the part of some service providers have been found to create barriers to self-employment for Irish women (Goodbody Economic Consultants, 2002). Geographic location creates barriers to self-employment for some individuals. Living in a rural location can be a barrier to self-employment unless the business lends itself well to a rural setting. For some businesses, operating from outside Dublin creates additional difficulties due to customers, decision-makers and expert support services being heavily concentrated in the Dublin area. Also some of the more rural parts of Ireland do not have access to broadband internet and quality transport systems, both of which would allow them to access the Dublin market and are crucial to business success. Another barrier to self-employment in Ireland comes in the form of social welfare. If their business fails self-employed individuals are not guaranteed any unemployment benefit from the government, they only receive a payment if their income (including their partner s income) is at a low enough level to meet the requirement of a means test. For many new businesses, funding can be the single most important issue, especially for those with a high capital requirement from the beginning. However, in Ireland s current economic climate it is extremely difficult to secure funding from the banks. This lack of access to the necessary start up capital has hindered, and continues to hinder, many individuals on their quest to self-employment. 11

12 Many consider the Irish education to be a barrier to self-employment. The school system does not support the idea of working for oneself and there is a consensus that entrepreneurship should be included in the second level school curriculum (CPA, 2010). 12

13 6) Example of Good Practice Gavin McCarthy and Sara Mitchell set up Ireland s first Rotisserie chicken business in May 2009, following Gavin s redundancy in September The idea first came to them after a holiday in Spain where they enjoyed a hot rotisserie chicken bought straight from the spit at a local farmers market. All of their chickens sold are Irish and free-range and all of the ingredients used in the secret marinade are of the highest quality. The chickens are cooked with a "French twist": they are slowly roasted on a spit, continuously basting in their own juices, which produces a deliciously succulent roast chicken. Customers can take a chicken home or opt for a delicious hot chicken baguette, on its own or as part of one of their picnic boxes! As well as selling free-range chickens, they also make additional products from their own recipes, including coleslaw and casseroles. Poulet Bonne Femme began in two local farmers markets in Dublin and has slowly been growing due to the continued support of their customers. In under a year, the company became a full-time job for the couple, and they ve even taken on one employee. Poulet Bonne Femme has now expanded to five markets around Dublin. The company has also been extended to include Poulet Catering, which caters for a variety of events, from christenings to corporate functions. Furthermore, cafés and restaurants have also shown interest in their products and the couple hopes to expand this side of the business in the future. Poulet Bonne Femme has received great reviews in the national press and has been voted as one of the Best Emerging New Businesses in the Small Firms Associations (SFA) National Small Business Awards

14 7) Summary There is general agreement that while the climate is difficult for self-employment and entrepreneurship at present, there are still opportunities for people to start up new enterprises and become self-employed. As a result of the economic downturn and coinciding high unemployment in Ireland many people are turning to self-employment as a means to an income. Unlike the past when there was a negative perception of selfemployment, there is now great respect for those who start their own businesses. Many individuals are still opting to pursue self-employment, despite the many barriers faced by those starting out in self-employment in Ireland, such as difficulties in accessing credit, the reduction in consumer spending and growing conservatism and risk averseness among the business community resulting in many firms reluctant to deal with new suppliers. Since the start of the current recession in 2008, some 28,000 individuals have started new businesses in Ireland (CPA, 2010). The economic downturn has also resulted in benefits for new business start-ups. There have been significant reductions in running costs such as energy, rent, labour costs and professional service fees as well as increased sales discounts from businesses. Individuals opting for self-employment in Ireland have access to a variety of organisations that support new business start-ups and despite the recession grant aid is still available to new businesses. The small size of the Irish market coupled with the reduction in consumer spending has meant that individuals interested in setting up their own businesses in Ireland are now considering the export potential of their business more than ever. 14

15 References Accelerated Campus Entrepreneurship (ACE) Consortium (2009) Entrepreneurship Education in Ireland Towards Creating the Entrepreneurial Graduate, Dundalk: ACE. Central Statistics Office (CSO) (2010) Quarterly National Household Survey, Dublin: CSO. European Commission (2010) European Employment Observatory Review: Selfemployment in Europe 2010, Belgium: European Commission EuroStat (2010) Labour Force Database Global Entrepreneurship Monitor, (2008) Entrepreneurship in Ireland, Ireland: Global Entrepreneurship Monitor. Goodbody Economic Consultants (2002) Entrepreneurship in Ireland, Dublin: Goodbody Publications. OECD (2003) OECD Employment Outlook, Paris: OECD. OECD (2010) OECD Factbook 2010: Economic, Environmental and Social Statistics, Paris: OECD. The Institute of Certified Public Accountants in Ireland (CPA) (2010) Entrepreneurship Report, Dublin: CPA. ventures. 15