Insights

Irish Budget 2021

  • Written By: Michael McGivern
  • Published: Wed, 14 Oct 2020 13:30 GMT

On 13 October 2020, Ireland’s Finance Minister, Paschal Donohoe presented Budget 2021. He advised that it was prepared under the assumptions that there will be no bilateral trade deal between the EU and the UK, and that there will be a continued presence of Covid-19 in Ireland in 2021, and the absence of a broadly available vaccine.

It was also prepared based on the projections that GDP is projected to decline by 2.5% for the year as a whole, with domestic demand falling by 6% and that the Department of Finance have forecasted a total loss of approximately 320,000 jobs in 2020.

Because of the above background, Budget 2021 focused on expenditure with very few changes to any of the headline tax rates for income tax, corporation tax, capital gains tax (“CGT”) or capital acquisitions tax (“CAT”).

A new Covid Restrictions Support Scheme (‘CRSS’) has been introduced, effective immediately, to target sectors that have been temporarily closed or significantly impacted as a result of the restrictions introduced to curb the spread of Covid-19. Details of the scheme are discussed under Business Taxes below.

The current Vehicle Registration Tax regime will be transitioned to the Worldwide Harmonised Light Vehicle Test Procedure (‘WLTP’) from January 2021. The impact of this on current VRT tax rates is discussed under Indirect Taxes below.

As expected, excise duties on petrol and diesel will be increased, there has been a reduction in the VAT rate of 13.5% to 9% for the tourism and hospitality sectors and no changes to income tax rates or USC were introduced, apart from an increase of €203 to the ceiling of the second rate of USC in order to ensure that full time employees on the minimum wage remain outside the top rates of USC.

The Government reiterated the current tax deductions available for people who are currently working from home.

Further information on all changes introduced are discussed below.

Business Taxes

Highlights

  • The 12.5% corporate tax rate applicable to Irish trades will be maintained.
  • COVID Restrictions Support Scheme (‘CRSS’) is a new scheme to provide targeted support for businesses impacted or temporarily closed as a result of the restrictions in the Government’s “Living with Covid-19” Plan (generally it will operate when in Level 3 or higher). It is currently aimed at the accommodation, food and the arts, recreation and entertainment sectors, while other sectors may qualify if further restrictions are imposed. The scheme will be effective from 13 October 2020 until 31 March 2021.
    • The Government will make a payment, based on the businesses’ 2019 average weekly turnover. Turnover may not exceed 20% of the turnover for the corresponding period in 2019 in order to qualify.
    • It applies to business premises where the Government restrictions directly prohibit or restrict access by customers.
    • Qualifying businesses can apply for a cash payment from the Revenue Commissioners as an advance credit for trading expenses for the period of restrictions.
    • Payments will be calculated on the basis of 10% of the first €1 million in turnover, and 5% thereafter, based on average VAT exclusive turnover in 2019.
    • A maximum weekly payment of €5,000 will apply.
    • Qualifying businesses can claim in Week 1 of the restrictions and valid claims will be repaid for the entire period of the restrictions within 2-3 working days.
    • Payments will automatically cease at the end of the COVID restriction period.
    • If restrictions are extended, subsequent claims can be made.
    • The scheme will operate on a self-assessment basis.
  • The Knowledge Development Box, which is an OCED compliant intellectual property regime that supports businesses in retaining and exploiting property regime that have resulted from R&D activities in Ireland, has been extended by an additional two years to 31 December 2022.
  • The Section 481 (Film Tax Credit) Regional Uplift scheme is being extended by one year by inserting an additional year of uplift at the rate of 5% in 2021. The uplift will then reduce to 3% in 2022, 2% in 2023, and Nil thereafter.
  • New tax credit for the digital gaming sector will be developed, with the intention that it will be introduced from January 2022 onwards.
  • Accelerated Capital Allowances scheme for energy efficient equipment will be extended for a further three years to 31 December 2023. The energy efficiency criteria for the scheme will be re-assessed during the year to ensure that the categories of equipment remain appropriate and reflect the most up-to-date efficiency standards.
  • The Stamp Duty Residential Development Refund Scheme is to be extended to 31 December 2022. The time allowed between commencement and completion of a qualifying project will be extended by six months to two and a half years.
  • The weekly income threshold for the higher rate of Employer’s PRSI will increase from €394 to €398 from 1 January 2021.
  • There have been changes made to Vehicle Registration Tax. Please refer to Indirect Taxes for further discussion on this.

Anti-Avoidance

  • With effect from 14 October 2020, all intangible assets acquired after 13 October 2020 will be within the scope of balancing charge rules.
  • A technical amendment will be introduced with effect from 13 October 2020 to the EU Anti-Tax Avoidance Directive (‘ATAD’) Exit Tax rules to clarify the operation of interest on instalment payments.
  • The Government will be introducing Interest Limitation and Anti-Reverse-Hybrid rules as part of the ATAD over the next year.
  • The Government will publish an update on Ireland’s Corporation Tax Roadmap, which will also consider the reports published by the OECD BEPS Inclusive Framework on its work on the tax challenges of digitalisation.

Capital Taxes

Capital Gains Tax (CGT)

  • The current rate of CGT remains at 33%.
  • Entrepreneur relief qualifying conditions have been amended so that an individual who owned 5% of shares for a continuous period of any 3 years will qualify for the relief. This removes the requirement for an individual to hold their shares for a continuous period of 3 years within the 5 years immediately prior to the sale of the shares.
  • Anti-Avoidance – Amendment to Section 541 TCA 1991 to close an avoidance scheme – more details to follow.

Capital Acquisitions Tax (CAT)

  • The current rate of CAT remains at 33%.
  • The Minister did not make reference to any CAT changes in his speech.

Personal Taxes

Private Client

Highlights
  • Extension of Debt Warehousing Scheme to include 2019 income tax payments and 2020 preliminary income tax payments for self-assessed individuals.
  • No change to income tax rates or bands.
  • The Earned Income Credit for self-employed individuals (including proprietary directors) has increased from €1,500 to €1,650 in line with the PAYE Credit.
  • The Dependent Relative Credit has increased from €70 to €245.
  • Increase of 2% USC band in line with minimum wage increases.
  • One-year extension of the reduced rate of USC for medical card holders

Extension of Debt Warehousing

The Debt Warehousing Scheme has been extended to include income tax payments for the 2019 tax year and preliminary income tax payments for the 2020 tax year. This will allow self-assessed taxpayers to defer payment for 12 months without a charge to interest arising. A 3% interest rate will apply thereafter.

Rates/Bands/Credits 

Rates & Bands

2021

2020

2019

Single person’s tax band

€35,300

€35,300

€35,300

Additional band for single parents

€4,000

€4,000

€4,000

 

Married couples' tax band

 

 

 

One income

€44,300

€44,300

€44,300

Two incomes

€70,600

€70,600

€70,600

 

Tax rate applicable to above bands

20%

20%

20%

Tax rate applicable to balance of income

40%

40%

40%

 

Personal Credits

2021

2020

2019

Single person

€1,650

 €1,650

€1,650

Married person

€3,300

€3,300

€3,300

Widowed person

 

 

 

   - Without dependent children

€2,190

€2,190

€2,190

   - Qualifying for one parent family tax credit

€3,300

€3,300

€3,300

Single Person Child Carer Credit (one parent only)

€1,650

€1,650

€1,650

Home carer's credit       (Max)

€1,600

€1,600

€1,500

Age credit                    (Single)

€245

€245

€245

Age credit                    (Married)

€490

€490

€490

PAYE tax credit

€1,650

€1,650

€1,650

Earned Income Tax Credit

€1,650

€1,500

€1,350

Incapacitated child        (Max)

€3,300

€3,300

€3,300

Dependent relative        (Max)

€245

€70

€70

Blind person’s credit

€1,650

€1,650

€1,650

Employing a carer        (at 40% rate)

€75,000

€75,000

€75,000

Fisherman Tax Credit

€1,500

€1,270

€1,270

PRSI

  • No changes announced to Employee PRSI.
  • The weekly income threshold for the higher rate of Employer’s PRSI will increase from €394 to €398 from 1 January 2021.

USC Rates & Bands

  • Incomes of €13,000 or less are exempt.
  • Increase of €203 increase to the 2% rate band.
  • For total income liable to USC greater than €13,000 the following rates of USC will apply:
    1.   €0 to €12,012 @ 0.5%.
    2.   €12,012 to €20,687 @ 2.0%.
    3.   €20,687 to €70,044 @ 4.5%.
    4.   €70,044 + @ 8%.
  • Self-employed income in excess of €100,000 – 3% surcharge.

Remote Working

The measures available to employees have been reiterated by the Government. These are as follows:

  • Employees can receive up to €3.20 per day as working from home expenses from their employer without a Benefit-In-Kind arising;
  • Where employers do not contribute to working from home expenses, employees can claim a tax deduction for utility expenses (for example, light & heat, broadband). Revenue are willing to accept the average proportion attributable to a home office is 10%. Further clarification will be issued by Revenue shortly regarding what expenses can be included in such claims;
  • Claims can be made by employees for any other vouched expenses that are incurred “wholly, exclusively and necessarily” in the performance of their duties of their employment.

Housing Related Provisions

Help to Buy (HTB)

The HTB measures announced earlier in the year as part of the July Stimulus Package have been extended until 31 December 2021. The relief available is the lower of:

  • €30,000,
  • 10% of the cost of a new home or self-build, or
  • the total amount of income tax and DIRT paid in the four years before purchase or self-build.

Employment and Investment (EII)

An assessment will commence in 2020 of how the EII Relief can be enhanced in light of the impact of Covid-19. There will be a focus on improved support for start-ups, the potential to attract capital from a wider range of investors and the potential to include energy-efficient project in the scheme.

Indirect Taxes

VAT

  • Temporary Reduction of the VAT rate for Tourism and Hospitality sectors from 13.5% to 9% from 1 November 2020 to 31 December 2021.
  • Increase in the Farmers’ Flat Rate Addition from 5.4% to 5.6% from 1 January 2021.

Stamp Duty

  • Farm Consolidation relief has been extended in its present form until 31 December 2022.
  • Consanguinity Relief which provides for a reduced 1% rate of stamp duty on transfers of agricultural land between certain family members has been extended in its present form until 31 December 2023.
  • Stamp Duty Residential Development Refund Scheme provides for a refund of a portion of stamp duty paid (to bring the effective stamp duty rate down to a minimum of 2%) where non-residential land is acquired and subsequently developed for residential purposes. This scheme has been extended from 31 December 2021 to 31 December 2022. The time allowed between the commencement and completion of a qualifying project has also been extended from 24 months to 30 months.

Environmental Measures

  • €7.50 increase per tonne/CO2 in the Carbon Tax rate from midnight on 13 October 2020 on auto-fuels and from 1 May 2021 for all other fuels. It is also set to increase by €7.50 every year up to 2029 and by €6.50 in 2030.
  • VRT transition from CO2 based vehicle registration tax regime to the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) emission to take effect from 1 January 2021.
  • A new motor tax rates table is being introduced for WLTP cars first registered in Ireland from 1 January 2021. There have been minor changes to the existing rates table for cars taxed on CO2 emissions for cars first registered in Ireland between July 2008 and the end of 2020. There have been no changes to the rates table for pre-July 2008 cars which are taxed based on engine size.

Excise Duties

  • The excise duty on a pack of 20 cigarettes will be increased by 50 cents with a pro-rata increase on other tobacco products.
  • The Minimum Excise Duty rate on cigarettes is increasing such that any 20 pack priced below €11.50 will be subject to excise as if it were priced at €11.50.

 

Acronyms

USC – Universal Social Charge
OECD - Organisation for Economic Co-operation and Development
BEPS - Base erosion and profit shifting
PRSI – Pay related social insurance
DIRT – Deposit Interest Retention Tax
VRT – Vehicle registration tax

Source: https://www.gov.ie/en/collection/339eb-ministers-speeches/

DISCLAIMER
We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action on the information it contains.
Smith & Williamson Freaney Limited Authorised to carry on investment business by the Institute of Chartered Accountants in Ireland. A member of Nexia International.

Government and tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions.

 Ref: 139620lw

 

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