Two key assumptions underpin Budget 2021, namely that there will be no bilateral trade deal between the EU and the UK and that Covid-19 will continue to be with us next year. Out of the total package of almost €18 billion announced by Minister for Finance Paschal Donohoe and Minister for Public Expenditure and Reform, Michael McGrath, more than €17 billion relates to expenditure, and just €270 million to taxation measures. Summarised below are the highlights.
INCOME TAX, PRSI and USC
- There are no broad changes to income tax credits or bands.
- The ceiling of the second USC rate band will increase from €20,484 to €20,687.
- The weekly income threshold for the higher rate of employer’s PRSI will increase from €394 to €398 to ensure that there is no incentive to reduce working hours for a full-time minimum wage worker.
- For the self-employed, the Earned Income Credit will increase by €150 to €1,650.
- The Dependent Relative Tax Credit will increase from €70 to €245.
MEASURES TO SUPPORT BUSINESSES AND THE SELF-EMPLOYED
- Extension of the tax warehousing scheme to include repayments of Temporary Wage Subsidy Scheme funds owed by employers and preliminary tax obligations for the adversely affected self-employed. Debt warehousing provisions are being extended to include the 2019 balance and 2020 preliminary tax to allow such taxpayers to defer payment for a period of a year with no interest applying; 3 per cent will apply thereafter and will attract no surcharge.
- VAT rate reduction for the hospitality and tourism sector from 13.5% to 9% effective from 1st of November 2020. This reduced rate will be in place until December 2021.
- Commercial rates waiver for the final quarter of this year.
- Extension of the Employment Wage Subsidy Scheme through 2021, should it be required.
- A new Covid Restrictions Support Scheme (CRSS) will offer a targeted, timely and temporary sector-specific support to businesses forced to close or trade at significantly reduced levels as a result of restrictions imposed on them in response to Covid-19. The scheme, which will be effective from Budget Day (13 October 2020) until 31 March 2021, will generally operate when Level 3 or higher is in place and will cease when restrictions are lifted. Payments will be calculated on the basis of 10 per cent of the first €1 million in turnover and 5 per cent thereafter, based on average VAT exclusive turnover for 2019. It will be subject to a maximum weekly payment of €5,000. The scheme will operate on a self-assessment basis and qualification will require a business to demonstrate that their turnover has been severely impacted, i.e. reduced to 20% or less of the corresponding period of 2019.
- Knowledge Development Box relief will be extended for a further 2 years until end December 2022.
- The accelerated capital allowances scheme for energy efficient equipment is being extended for a further three years. In addition, the energy efficiency criteria for the scheme will be re-assessed to ensure the categories of equipment availing of the scheme remain appropriate and reflect the most up-to-date efficiency standards.
- The Capital Gains Tax Entrepreneur Relief ordinary share holding requirement is being amended so that an individual who has owned at least 5 percent of the shares for a continuous period of any three years will now qualify for this relief. Previously, a person had to own at least 5 percent for a continuous period of 3 years in the 5 years immediately prior to the disposal.
An Inter-Departmental Group has been set up to develop a strategy for remote working and remote service delivery. Measures already in place to support working from home include:
- In cases where the employer makes payments towards the expenses of working from home, up to €3.20 per day may be paid to employees without a Benefit-In-Kind arising.
- Where the employer does not make a contribution, the worker may claim a tax deduction for utility expenses such as heat and light – and, new for 2020, the Revenue Commissioners have now confirmed that this may include the cost of broadband. Details will be set out in the Revenue guidance.
- Claims may also be made for any other vouched expenses incurred “wholly, exclusively and necessarily” in the performance of the duties of their employment.
MEASURES TO SUPPORT FARMERS
- Increase in the Farmers Flat Rate Addition from 5.4% to 5.6% from 1 January 2021.
- Extension of Farm Consolidation (Stamp Duty) relief to 31 December 2022.
- Extension of Consanguinity (Stamp Duty) Relief in its present format until 31 December 2023.
€500 million was provided as part of the July Stimulus Plan to accelerate capital works and to generate jobs and economic activity. Together with an additional €600 million for core capital investment in 2021, the State will deliver over €10 billion in Exchequer resources for critical projects including major road projects and investment in Dublin Port and Rosslare Europort.
Some €340 million of voted expenditure will be spent on Brexit supports in 2021. This includes an additional allocation for compliance expenditure in 2021 to finalise work at ports and airports and provides for around an additional 500 staff bringing the total provision for approximately 1,500 staff for operationalising checks ahead of 1 January 2021.
The Budget also provides for a flexible €3.4 billion Recovery Fund to stimulate increased domestic demand and employment. This will focus on three main areas — infrastructure development, re-skilling and retraining, and supporting investment and jobs.
The additional Help to Buy scheme measures announced in the July Stimulus Plan are being extended to the end of 2021.
A third Motor Tax table is being introduced for cars registered from the 1 January 2021. Currently, nearly half a million cars are in the pre-2008 engine sized based regime and approximately 1.6 million cars in the post 2008 CO2-based regime. Rates will remain unchanged for all cars in the engine sized regime and all but the most pollutant cars in the post-2008 regime.
Carbon tax will be increased by €7.50 from €26 to €33.50 per tonne/CO2. This increase will be applied to auto fuels from midnight on Budget Day and all other fuels from 1 May 2021. This will result in an increase of approximately 2.5c per litre of diesel and 2c per litre of petrol.
The price of a pack of 20 cigarettes is going up by 50c with pro-rata increase on other tobacco products.
The Budget reaffirms the Government’s commitment to the 12.5% corporation tax rate and contains a number of measures in support of the green agenda including support for retrofitting housing, funding for peatlands restoration and investment in the transport system. Other measures include a financial resolution that will see intangible assets acquired from 14 October 2020 fall fully within the scope of balancing charge rules while a technical amendment to the anti-tax avoidance compliant Exit Tax rules will clarify the operation of interest on instalment payments.
While it is disappointing that there was no reduction in Ireland’s Capital Gains Tax rate which remains one of the highest in Europe, overall Budget 2021 contains welcome support for businesses and the self-employed as they face into a difficult year ahead. As always, measures announced in the Budget may change as the Finance Bill makes its way through the Oireachtas. In the meantime, if you would like to discuss how Budget 2021 affects your business, please contact a member of our team.