Overview - Kevin Canning
Paschal had his annual moment in the sun today as he announced Budget 2022 (will this be his last as Minister of Finance?). Given the number of leaks, not much was a surprise. This was evidenced by the collective laughter in the Dail when the Ceann Comhairle announced that the information is confidential and should not leave the Chamber prior to all speakers finishing.
One of the winners of today’s budget are the middle-income earners. Those earning over €37k per year will take home an additional €409 per year. Of course, inflation and carbon taxes will eat into this amount rather quickly. In addition to this, there was much fanfare about the work from home allowance, however, in reality it is likely to result an additional €50-€80 for those working from home fulltime. Hardly a reason to give up the office.
The Employment Wage Subsidy Scheme will run on a phased-out basis until the 30 April 2022 to avoid a “cliff edge” scenario for employers. This should be a positive sign for those in the hospitality industry who hopefully will be in for a bumper October bank holiday weekend (or the Jazz festival for Corkonians).
Unfortunately for the hospitality industry, the special 9% VAT rate is due to change back to 13.5% on 1 September 2022. This will be a major issue for the industry which could adversely affect Irelands competitiveness as a tourist destination.
There is a new 3% Zoned Land Tax which aims to tax land capable of being used as residential land. This is a big move for the country, but we await further details. Minister O’Donohoe was quite vague on the start date “I am proposing a two-year lead-in time for land zoned before January 2022, and a three-year lead in time for land zoned after January 2022. This will also give scope to review the workings of the tax, to listen to stakeholders, and ensure it is both effective and equitable.”
Minister O’Donohoe commenced proceeding today by providing forecasts for the remainder of 2021 and 2022. In the Summer Economic Statement, he had predicted a budget deficit of €34.5bn for 2021 and 2022. This has now been decreased to €21.5bn or a 40% reduction. This is a great result for the country, but also a timely reminder to take economic forecasts with a degree of scepticism. As the great statistician George Box once famously said “All models are wrong, some are useful”.
For what it is worth, National debt is expected to reach €240bn by the end of 2022 or put another way, €50k for every man, woman, and child in the country.
Below is a summary of the tax provisions announced in today’s budget:
Summary of Measures
Tax Cuts / Personal Tax
To counter inflation there were significant changes to the income tax bands and credits. This will give a single person earning €40k per year, an extra €409 in their pocket. This is achieved by:
- Income Tax Band - Increase the 20% tax band by €1,500 (from €35,300 to €36,800 for a single person). This gives everyone earning at least €36,800 an extra €300 per year.
- Tax Credits - The general tax credits will increase from €1,650 to €1,700. This gives most Irish people an extra €50 per year (regardless of whether you are self-employed or an employee). These credits are:
- USC: An additional €608 will be subject to the 0.5% rate as opposed to the 2% rate. This will save the average worker €9 per year and is aimed at taking minimum wage workers out of the higher USC rate.
- Minimum Wage - Will increase from €10.20 to €10.50.
- Remote working relief – 30% tax deduction for vouched utility expenses. This is to include broadband, electricity, heat, etc. The previous rates for light and heat were 10%. This new relief will only apply where an employer doesn’t pay you the daily tax free allowance of €3.20 per day.
For example, if a worker spends 3 days per week at home and spends €2k per year on utility bills. The worker will be allowed to claimed 3/7ths of their utility bills as a tax deduction (i.e. €2k @ 3/7ths @ 30% = €257). This will result in a 20% (€51) or 40% (€103) tax refund depending on whether the worker pays tax at the higher rate or not.
Property Related Measures
- Zoned land tax (3%) – A new tax will apply to land which is zoned suitable for residential development (and “serviced” according to the minister’s words) but has not yet been developed for housing. However, it will take at least 2 years before this affects landowners. This will replace the vacant site levy once implemented.
More details are expected to follow in the Finance Bill and we will publish these when we have them.
- Help to buy Scheme – Extended in its current form until the end of 2022 (max €30k). The Help to Buy scheme is an incentive where first time buyers can claim a maximum of 10% of the value of the property or €30,000 - whichever is lower. There will be a full review of the scheme during 2022.
- Pre-Letting Expense Relief – Extension of pre letting expenses allowance for another 3 years. This relief allows a landlord to claim a tax deduction for pre letting expenses of up to €5,000 per unit where the premises has been vacant for at least 12 months before letting.
- Hospitality Sector (9% Rate) – Confirmed that it is extended to August 2022. The government is aiming to increase this back to 13.5% after this date.
- Farmers Flat Rate Scheme - Decrease from 5.6% to 5.5% for the year 2022.
- Corporation Tax Rate – Increase to 15% if worldwide revenue is greater than €750m.
- Interest Limitation rule – This was flagged for a while but from January 2022 there will be a limit on deductible interest expenses of 30% of EBITDA for companies. This will not affect companies where net interest deductions are less than €3m. Exemptions will apply for standalone entities, legacy debt the terms of which were agreed before 17 June 2016, and certain long-term infrastructure projects.
- Propriety Directors - Where a company qualifies for tax debt warehousing and has not paid PAYE then the directors of that company will also be able to warehouse (in their income tax return) any taxes that arises from employment in that company. This clears up a significant issue that arose for company owners with respect to tax on PAYE income that a company had not yet paid.
- Start Up Relief – has been increased from 3 to 5 years. This means start-ups won’t pay corporation tax for their first 5 years, subject to certain limits and still subject to how much Employers PRSI is paid for each employee. The reason for the increase to 5 years is to take into account the reduction in Employers PRSI paid throughout the pandemic. We await further details of the scheme.
- Employers PRSI - The weekly income threshold for the higher rate of employer’s PRSI will increase from €398 to €410.
- Employment Investment Incentive (EII) - has been extended by 3 years to December 2024. There were some nuanced improvements to the scheme which we await details of but nothing in terms of investment limits. It does look like it is being made easier for investors to receive their money back when multiple fundraising rounds are done but we await more details on this. Also, the requirement for the company to spend 30% of the monies raised before the investor can claim the tax relief is being relaxed.
- Digital Gaming Tax Credit – New corporation tax refund scheme for the sector. Refund of 32% on eligible expenditure up to €25m spend (creating or testing of games). This is subject to EU state aid rules and hence we will need to await a ministerial commencement order for it to come into effect. Full details will follow in the Finance Act.
- Stock Relief - Extended to December 2022.
- Young Trained Farmer Relief (stamp duty) - Extended to December 2022
Motor Tax / Climate Changes
- Carbon Tax - increase of €7.50 per tonne from €33.50 to €41 per tonne – The increase will take effect for auto fuels tonight, with the other fuels from May 2022 after winter heating season. The increase is expected to cost €1.48 per 60 litre fill of diesel and €1.28 for a similar amount of petrol.
- VRT Rates: New VRT table with increased rates of between 1-4% depending on how energy efficient the vehicle is.
- E-Vehicles – Extension of €5k allowance for the purchase e-Vehicles until the end of 2023.
- E-Vehicles BIK - 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 to €35,000 for 2023; €20,000 for 2024; and €10,000 for 2025.
- Accelerated Capital Allowances for Energy Efficient Equipment - Will be changed to allow hydrogen fuelled equipment to qualify and ensuring equipment directly operated by fossil fuels to no longer qualify.
- Cigarettes - Increased again by 50 cents. A packet of 20 cigarettes is now roughly €15.
- Alcohol - No increase in the price of a pint or a glass of wine.
- Bank Levy – Extended to the end of 2022. However, expected receipts from the Levy should decrease significantly from €150m per year to around €87m. This is to take into account that two banks have left Ireland.
- Pension: The old age pension will increase by €5 per week
- Living alone allowance: Will increase by €3 per week
Employment Wage Subsidy Scheme (“EWSS”)
EWSS is to be extended out to 30 April 2022 on a phased basis with no new applications allowed after 31 December 2021:
October / November 2021
No change to current rates
December 2021 – February 2022
Change to original two rate structure of €151.50 & €203
March /April 2022
flat rate €100 (no reduced employers PRSI)
If a company qualifies on 31 December for EWSS then they will qualify for the remaining 4 months. In other words, the 2022 turnover is not relevant.
Should you like to discuss any part of the Budget, please feel free to contact either your usual Quintas contact or myself.