Budget 2021, held on 13 October, offered a wide range of spending, funding and tax measures designed to stimulate a jobs-led recovery and build economic confidence while continuing to manage the impact of both Covid-19 and Brexit.
The expenditure includes over €8.5bn of Covid-related spending, €270m of taxation measures and €340m of Brexit support.
Below is a summary of the key tax measures.
Covid-19
The Budget is underpinned by the assumption that Covid-19 will continue to exist next year in the absence of a vaccine. To date, the total value of support amounted to €24.5m.
As part of an extra €17.7bn budgetary package in 2021, €8.5bn is being provided for Covid-19 support while €3.8bn is going towards existing services across a range of departments, in particular the Department of Health.
Brexit
Budget 2021 continues to make provision for Brexit, preparing for a disorderly exit. There are substantial spending packages that will only be utilised in the event of a no-deal Brexit.
A €3.4bn Recovery Fund is aimed at increasing employment throughout 2021, while €340m of voted expenditure will be spent on Brexit support including work on ports, airports and 500 customs staff.
Income tax
The only changes to income tax are an increase in earned income credit up €150 per annum in line with PAYE credit of €1,650, an increase in the dependent relative tax credit from €70 to €245 and minor changes to the second-rate universal social charge band.
Taxpayers across the board will be affected by the increase in costs, such as rising motoring costs.
VAT
The six-month reduction in the standard rate of VAT from 23% to 21%, effective from 1 September 2020, will end 28 February 2021. The tourism and hospitality sector will see a VAT cut from 13.5% to 9% from 1 November 2020 until 31 December 2021.
Employment Wage Subsidy Scheme (EWSS)
The EWSS runs until 31 March 2021. To qualify, the employer must be able to demonstrate that they reasonably anticipate a minimum of 30% reduction in turnover or customer orders from July to December 2020 compared with the same period in 2019. In the case of new businesses, this is based on a projected forward test.
Where the employer is a registered childcare provider, the EWSS is available without the requirement to meet the 30% reduction in turnover or customer orders test.
EWSS provides a flat-rate subsidy to qualifying employers, based on the number of qualifying employees on the payroll. It was confirmed that the EWSS will be replaced by a similar scheme for the remainder of 2021.
EU support
The Department of Finance has sought to access the European Commission’s Support to mitigate Unemployment Risks in an Emergency (SURE) fund, resulting in possible funding of €2.5bn to fund the Temporary Wage Subsidy Scheme (TWSS).
Ireland will also seek access to the Brexit Adjustment Reserve established by the European Council.
Covid Restrictions Support Scheme
This will support certain businesses significantly impacted or temporarily closed as a result of government restrictions. The scheme operates as a cash payment when the business is subject to Level 3 restrictions or higher (10% up to €1m and 5% thereafter, up to a maximum weekly payment of €5,000) based on 2019 turnover.
Valid claims will be repaid for the entire period of restrictions. This scheme is effective from 13 October 2020 until 31 March 2021, with the first payments being made in mid-November.
Warehousing of tax liabilities
This will extend the previous warehousing scheme to include repayments of TWSS funds owed by employers, 2019 balance and 2020 preliminary tax obligations of self-employed taxpayers. This will allow those affected by Covid-19 to delay payment of their tax obligations in part or in full for a set period of 12 months free of interest or penalties.
After the end of the 12-month period, warehoused debt may be discharged or entered into a phased payment arrangement at a reduced interest rate of 3% per annum with no surcharge.
Corporation tax
Preservation of the 12.5% rate of corporation tax was confirmed in the Budget, as expected. A technical change will be made to the intangible asset regime. The change is to ensure that Ireland’s tax regime for intellectual property assets is fully consistent with international best practice, such that intangible assets acquired after 13 October 2020 will be fully within the scope of balancing charge rules.
Development of a digital gaming tax credit was announced, which may be introduced in 2022. This would complement significant innovation incentives already available for this sector.
Mobile employees
There has been no change to the existing income tax scheme which benefits inbound and outbound employees in our global economy.
Capital gains tax entrepreneur relief
Entrepreneurs who have owned at least 5% of the shares of a company for any continuous three-year period will qualify for relief, removing the need for this three-year period to be within the past five years.
This gives a reduced CGT rate of 10% instead of 33%. Passive investors do not benefit, as the requirement to work in the business for three of the past five years remains. The relief has remained unchanged at €1m, well below the £10m relief offered in the UK.
Commercial rates waiver
There is a further commercial rates waiver for the final quarter of 2020, providing significant relief to businesses.
Knowledge Development Box
This relief will be extended for two years until December 2022. This offers a reduced tax rate of 6.25% on qualifying profits.
State pension
The proposed increase of the state pension age from 66 to 67 next January has been postponed.
Help to Buy scheme
Increased tax relief for the purchase of residential housing will be available until 31 December 2021. The maximum relief available is the lower of €30,000 or 10% of the cost of the new home.
Stamp Duty Residential Development Refund Scheme
The scheme will be extended to include operations commenced by 31 December 2022. The time allowed between commencement and completion of a qualifying project is also extended by six months to two-and-a-half years.
Carbon tax
A range of carbon tax measures were announced as expected, giving rise to an overnight increase in fuel prices at the pumps. Increases on other fuels have been delayed until May 2021, after the winter heating season.
Extension of Accelerated Capital Allowance scheme
This scheme for energy-efficient equipment will be extended for three years until 31 December 2023. It allows taxpayers to deduct the full cost of expenditure on eligible energy-efficient equipment from taxable profits in the year of purchase.
Overall, it is to be welcomed that business and personal taxpayers are not directly bearing the brunt of Covid-19 and Brexit risks through tax hikes. Time will tell if the spending measures announced are adequate to combat the potential impact of a hard Brexit and prolonged Covid-19 restrictions
AB’s regular tax update coverage from the Irish Tax Institute will be available in November.
