Insights

Irish Budget 2022

  • Written By: Michael McGivern
  • Published: Thu, 14 Oct 2021 14:30 GMT

On 12 October 2021, Ireland’s Finance Minister, Paschal Donohoe presented Budget 2022.

The backdrop to the budget is the recovery from the economic damage caused by Covid-19, and ongoing Brexit risk. Click on the links to read our summary analysis of the tax aspects. As always, don’t hesitate to reach out to us for specific tax advices.

Business Taxes

Highlights

  • The 12.5% corporate tax rate applicable to Irish trades will be maintained for businesses with worldwide group turnover of less than €750 million.
  • For businesses with worldwide group turnover exceeding €750 million the rate of corporation tax will increase to 15% in line with the negotiations with the OECD.
  • Minister Donoghue confirmed that there would be no ‘cliff edge’ to the Employer Wage Subsidy Scheme (‘EWSS’) with an extension in a ‘graduated form’ until 30 April 2022.
    • The scheme will continue as is until December,
    • Across December, January and February, the original two-rate structure of €151.50 and €203 will apply
    • The existing reduced rate of Employers’ PRSI (0.5%) will continue to apply until the end of February 2022.
    • For March and April 2022, a flat rate subsidy of €100 will be put in place.
    • In addition, for March and April, the reduced rate of Employers’ PRSI will no longer apply. 
    • The Minister confirmed that the scheme will close to new employers from 1 January 2022.
  • The Start-up Relief for new companies has been extended until the end of 2026. The three-year period for claims has also been extended to five years which is a welcome benefit for new businesses. The amount of relief available (as before) is directly linked to the amount of Employers’ PRSI paid.
  • A new tax credit for the digital gaming sector was announced in Budget 2021 to be introduced from January 2022 onwards. The relief will be available at a rate of 32%, on eligible expenditure of up to a maximum limit of €25 million per project. The relief will work by providing a refundable corporation tax credit for expenditure incurred on the design, production and testing of a digital game. The credit will be introduced subject to a commencement order.
  • Accelerated Capital Allowances scheme for energy efficient equipment will be amended to prohibit equipment directly operated by fossil fuels from qualifying for the scheme. The ACA scheme allows taxpayers to deduct the full cost of expenditure on highly energy efficient equipment from taxable profits in the year of purchase.
    Accelerated Capital Allowance scheme for Gas Vehicles and Refuelling Equipment allows an accelerated deduction when businesses invest in vehicles powered by natural gas / biogas and related refuelling equipment. The scheme is being extended to end 2024 and is being amended to include hydrogen powered vehicles and refuelling equipment. It provides for the acceleration of existing allowances. The scheme, again, allows taxpayers to deduct the full cost of expenditure on eligible equipment from taxable profits in the year of purchase.
  • Interest Limitation Rule - This measure will place a limit on deductible interest expenses of 30% of EBITDA for companies within scope of the measure. Disallowed interest may be carried forward and may be deducted in future years if the company has sufficient interest capacity.
    Full details of the measure will be contained in the Finance Bill.
  • Anti-reverse-hybrid rules - will bring certain tax transparent entities (such as partnerships) within scope of Irish tax where the entity is 50% or more owned/controlled by entities resident in a jurisdiction that regard it as tax opaque and, as a result of this hybridity, double nontaxation occurs.
    Full details of the measure will be contained in the Finance Bill.
  • Bank levy – extended to end of 2022 with KBC and Ulster Bank being excluded due to their exit from the Irish market.
  • Employers PRSI - From 1 January 2022 the weekly income threshold for the higher rate of employer’s PRSI will increase from €398 to €410.
  • BIK on electric vehicles - The BIK exemption for battery electric vehicles will be extended out to 2025 with a tapering effect on the vehicle value. This measure will take effect from 2023. For BIK purposes, the original market value of an electric vehicle will be reduced by €35,000 for 2023; €20,000 for 2024; and €10,000 for 2025.

Indirect Taxes and other miscellaneous measures

VAT

  • The temporary reduction of the VAT rate for Tourism and Hospitality sectors from 13.5% to 9% will remain in place until the end of August 2022.
  • There will be a decrease in the Farmers’ Flat Rate Addition from 5.6% to 5.5% from 1 January 2022.

Stamp Duty

  • The Young Trained Farmer Stamp Duty relief will be extended to the end of 2022.

Housing Measures

  • A Zoned Land Tax will be introduced as part of the Housing for All Plan. The Zoned Land Tax of 3% will apply on the market value of land that is undeveloped but is zoned for residential development (or zoned for mixed use) and is serviced. A two-year lead in time is proposed for land zoned before January 2022 and a three-year lead in time for land zoned after January 2022. Once operational, the Zoned Land Tax will replace the vacant site levy.

Environmental Measures

  • A €7.50 increase per tonne/CO2, from €33.50 to €41, in the Carbon Tax rate will apply from midnight on 12 October 2021 on auto-fuels and from 1 May 2022 for all other fuels. Carbon Tax is set to increase by €7.50 every year up to 2029 and by €6.50 in 2030.
  • The 20-band Vehicle Registration Tax (VRT) table will be updated to reflect the following increases on the following bands:
  1. Increase in VRT of 1% for vehicles in bands 9 to 12
  2. Increase in VRT of 2% for vehicles in bands 13 to 15
  3. Increase in VRT of 4% for vehicles in bands 16 to 20

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.

Capital Gains Tax (CGT)

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

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.

Private Client

Highlights

  • Increases to income tax standard rate bands of €1,500 for all earners and increased personal, PAYE and earned income tax credits.
  • Increase of 2% USC band in line with minimum wage increases.
  • One-year extension of the reduced rate of USC for medical card holders and individuals 70 years of age or over earning €60,000 or less.
  • Expansion of Debt Warehousing Scheme to include self-assessed taxpayers with employment income who hold a material interest in their employer company to warehouse income liabilities relating to their employment income
  • Tax relief on expenditure incurred by remote workers on light, heat & electricity increased from 10% of the cost of the expenditure to 30%.
  • Extension of Employment Investment Incentive (EII) Scheme and modifications to open the scheme to a wider range of investment funds and greater capacity for investors to redeem their capital.
  • BIK exemption for Electric Vehicles extended to 31 December 2025.
  • Extension of stock relief measures for farmers, young-trained farmers and partners in registered farm partnerships.

Rates/Bands/Credits

Rates & Bands

2022

2021

2020

Single person’s tax band

€36,800

€35,300

€35,300

Additional band for single parents

€4,000

€4,000

€4,000

 

 

Married couples' tax band

 

 

 

One income

€45,800

€44,300

€44,300

Two incomes*

€73,600

€70,600

€70,600

 

 

Tax rate applicable to above bands

20%

20%

20%

Tax rate applicable to balance of income

40%

40%

40%

*increase capped at the lower of €27,800 or the income of the lower earner.

Personal Credits

2022

2021

2020

Single person

  €1,700

  €1,650

€1,650

Married person

€3,400

€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

€1,600

Age credit                    (Single)

€245

€245

€245

Age credit                    (Married)

€490

€490

€490

PAYE tax credit

€1,700

€1,650

€1,650

Earned Income Tax Credit

€1,700

€1,650

€1,500

Incapacitated child        (Max)

€3,300

€3,300

€3,300

Dependent relative        (Max)

€245

€245

€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

€1,500

€1,270

The Sea-going Naval Personnel tax credit is being extended by one further year to 31 December 2022.

USC Rates & Bands

  • Incomes of €13,000 or less are exempt.
  • Increase of €608 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. €12,013 to €21,295 @ 2%.
  3. €21,296 to €70,044 @ 4.5%.
  4. €70,045 + @ 8%.
  • Self-employed income in excess of €100,000 – 3% surcharge.
  • The reduced rate of USC for medical card holders and individuals aged 70 or older, both who earn €60,000 or less is being extended for a further year. This caps the highest rate band for these individuals at 2%.
  • Increase of the weekly income threshold for the higher rate of employer’s PRSI from €398 to €410.

PRSI

No changes announced to Employee PRSI.

Remote Working

The tax relief available to remote workers has been expanded by the Government. The updated measures 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 vouched utility expenses (for example, heat, electricity & broadband) of 30% of the costs incurred in respect of those days spent working from home.
  • 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.

Expansion of Debt Warehousing

The Debt Warehousing Scheme has been expanded to include self-assessed taxpayers with employment income who hold a material interest in their employer company to warehouse income liabilities relating to their employment income

Help to Buy (HTB) Scheme

The HTB measures announced as part of the July 2020 Stimulus Package have been extended until 31 December 2022. 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.

Pre-Letting Expenditure for Landlords

The deduction of pre-letting expenses incurred by landlords is being extended to 31 December 2024 to encourage the return of empty properties to the rental market. The relief is capped at €5,000 per property.

Employment and Investment (EII)

The EII scheme is being extended and, a number of important further modifications to the scheme are being introduced. The most significant of these is to open up the scheme to a wider range of investment funds in order to attract more investors into the scheme. It is also proposed to allow greater capacity for investors to redeem their capital without penalty – known as the 'capital redemption window’ - and to remove the rule that 30% of an investment in an EII company must be spent before relief can be claimed.

Extension of BIK Exemption for Electric Vehicles

The BIK exemption for battery electric vehicles will be extended to 31 December 2025.

For BIK purposes, the original market value of an electric vehicle will be reduced by €35,000 for 2023; €20,000 for 2024 and €10,000 for 2025. The reduction will remain at €50,000 until 31 December 2022.

Farming Stock Relief

The deduction from farming trading income of an accounting period of 25% of the increase in the value of trading stock in the period is being extended for a further three years until 31 December 2024.

The deduction for enhanced stock relief at a rate of 100% for young trained farmers with qualifying level of academic training and at a rate of 50% for farmers who are partners in registered farm partnerships are being extended for a further year until 31 December 2022.

Micro-generation of Electricity

A tax disregard (€200) is being introduced in respect of personal income received by households who sell residual electricity that they generate back to the electricity grid.

Taxation of International Flight Crew

An amendment will be introduced to legislation which provides for the tax treatment of flight crew in international traffic. The current provision, that any individual who is employed aboard an aircraft that is operated by an enterprise whose effective place of management is in the State is within the scope of Irish Income Tax, will be amended to exclude non-resident flight crew in certain circumstances, where a number of conditions are satisfied.

Further details will be provided in Finance Bill 2021.

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.

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 before making decisions. HMRC Tax Year 2021/22.

 Ref: 125421eb

 

 

 

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