Overview - Kevin Canning
Paschal likely had his final Budget today before rotating as Minister of Finance and this was his self-proclaimed “cost of living” Budget. The reason the Government felt the need for a “cost of living” Budget is clear for all to see with inflation predicted to be 8.5% in 2023 and 7% in 2022. The problem with trying to spend our way out of high inflation is that it rarely works. Unfortunately, inflation is a self-perpetuating reality, and spending only accelerates the conscious mind that price increases should be expected.
Given the surging energy crisis in Europe, it is difficult to feel optimistic about the future but given the couple of years we have had, this certainly was a positive Budget for the average person (albeit even if it only helps to smoothen the effects of inflation). There was something for everyone in the Budget from middle income earners, parents, social welfare recipients and SME business owners (although the construction industry might not sound too enthused).
One of the winners of today’s budget are the middle-income earners. A couple earning over €40k each and renting will be about €3,200 better off per year between income tax band increases, rental tax credits and energy cost subsidies. This amount would drastically increase if the couple were parents also. That 4% increase is far below the expected headline inflation but will go some way to offsetting this with the expectation that salary increases may pick up the remaining.
The construction industry will not be happy with the new Concrete Block Levy which places a 10% levy on the cost of concrete and related products. This is aimed to assist with paying for the costly redress scheme. However, it will likely negatively affect the construction of badly needed homes or at least make it even more difficult for young people to get on the property ladder due to increased prices. I remain sceptical whether this Levy will ever come into force.
Unfortunately for the hospitality industry, the special 9% VAT rate is due to change back to 13.5% in March 2023. This will be a major issue for the industry which could adversely affect Ireland’s competitiveness as a tourist destination. There will be some inhouse arguments going on in this sector with many of the smaller hospitality businesses blaming the large Dublin hotels for the perceived price gouging that was taking place, which ultimately led to this VAT increase.
The SME industry received a welcome boost to assist with rising energy costs. A new scheme will be operated by Revenue, whereby 40% of the increase in energy costs will be covered by the taxpayer. The aim of this is to protect employment in the economy. We are waiting on more details on this particular scheme but it looks positive.
Finally, the R&D credit received a welcome improvement for companies in Ireland. Previously, non-profitable companies engaging in R&D had to apply for a refund of tax over the course of a 3 year period. Now companies can apply for a cash refund of up to €25k in year 1 and also offset their R&D tax credits against other tax liabilities. This is a very positive move to promote innovation in our SME sector.
While spending would appear to have gotten out of control, it is comforting that a lot of the spending was once off in nature. We are spending our corporation tax surplus but not banking on it for future years – this is at least somewhat prudent. We would also suggest that if the government did not spend big this year it would probably lead to a landslide win for the opposition in the next election.
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 €815 in their pocket or €1,630 per couple. This is achieved by:
· Income Tax Band - Increase the 20% tax band by €3,200 (from €36,800 to €40,000 for a single person). This gives everyone earning at least €40,000 an extra €640 per year. There are pro rata increases for couples.
· Tax Credits - The general tax credits will increase from €1,700 to €1,775. This gives most Irish people an extra €150 per year (regardless of whether you are self-employed or an employee). These credits are:
o Personal Tax Credit
o Employee Tax Credit
o Earned Income Tax Credit
· Home Carer Credit: Will increase by €100.
· USC: An additional €1,625 will be subject to the 0.5% rate as opposed to the 2% rate. This will save the average worker €24 per year and is aimed at taking minimum wage workers out of the higher USC rate.
· Medical card holders will continue to avail of the reduced rate of USC where their income is below €60,000.
· Income Tax – Third Rate: The much discussed third rate of income tax has been pushed out 1 year – the government would like to consider it further and acknowledge that tax advisors/Revenue could not update systems until January 2024 at the earliest. Finally, someone thinks of the tax advisor!
· Rent Tax Credit – Renters will be entitled to a rental credit of €500 per year for 2022 onwards. This will be paid on a per person basis and therefore, couples can avail of a €1,000 tax credit.
Property Related Measures
· Vacant Property Tax – A new tax will apply to residential property which is occupied for less than 30 days in a 12 month period. The tax is expected to be 3 times that of LPT and several exemptions should be available. More details are expected to follow in the Finance Bill and we will publish these when we have it. However, it will be interesting to see if this will punish holiday homes, it certainly looks like it will where they are lived in for less than 30 days a year.
· Help to buy Scheme – Extended in its current form until the end of 2024 (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 was an independent review carried out of the help to buy scheme which was published today.
· Pre-Letting Expense Relief – Improve to the scheme for landlords. This relief allows a landlord claim a tax deduction for pre letting expenses of up to €10,000 (previously €5,000) per unit where the premises has been vacant for at least 6 months (previously 12 months) before letting. Unfortunately, this is not nearly enough to keep one off landlords (or attract new ones) into the market.
· Residential Development – Stamp Duty Refund: Extended to 31 December 2025. Scheme allows for a refund of stamp duty paid on non-residential property when converted into residential property. The refund is from 7.5% to 2%.
· Living City Initiative: Extended to 31 December 2027 and can now be claimed over 7 years as opposed to 10.
· Hospitality Sector (9% Rate) – Confirmed that the reduced rate will cease on 1 March 2023. The government is aiming to increase this back to 13.5% after this date.
· Oil & Gas (9% Rate): Extended to 28 February 2023. This was due to expire 31 October 2022.
· Newspapers: reduction in the VAT rate for print media from 9% to 0%. This will include digital editions. The change will be from 1 January 2023.
· Farmers Flat Rate Scheme - Decrease from 5.5% to 5%.
· Defibrillators – reduced to zero rate from 1 January – how was it ever not?
· Hormone and Nicotine replacement therapies – reduced to zero rate along with a number of period products which were still at 9%.
· Temporary Business Energy Support Scheme: This is one that will get all the attention. Applies to trading businesses who are tax compliant and have experienced a 50% increase in gas and electricity costs when comparing a billing period in 2022 against the same period in 2021.The support will be 40% of the increase in cost, up to a maximum of €10k per month. Interesting the scheme will need to be approved by the EU commission in advance of any payments being made – not sure how long that will take. We will get more information in the coming days and we will share this with you however, our understanding is that if a business paid €10,000 in energy costs in November 2021 and the bill increased by to €18,000 for November 2022, Revenue would cover 40% of the increase (i.e. €3,200).
· Research and Development Tax Credit (R&D): There has been a significant improvement to the R&D tax regime whereby companies can now choose to have the first €25k of any claim refunded in year 1 (as opposed to 3 years) or have the tax credit offset against other tax liabilities. We are waiting on further details of this but it appears to be a major improvement for the scheme, especially for early stage companies.
· Knowledge Development Box (KDB): Extended to 2027. The scheme provides a special 6.25% corporation tax rate on intellectual property developed in Ireland.
· Film Tax Credit: Extended to December 2028. The scheme allows for corporation tax relief on the cost of production of film in Ireland.
· Small Benefit Exemption: The tax free voucher scheme is increased from €500 tax free per employee to €1,000. 2 vouchers can be given in any one year. This will apply from 2022.
· KEEP Scheme: Extended to December 2025.Some decent improvements here including that companies can now buy back KEEP scheme shares. and the lifetime company limit has increased from €3m to €6m.
· Foreign Earnings Deduction (FED): Extended for 3 years to December 2025. The scheme provides relief from income tax for employees in Ireland who travel to developing nations to temporarily carry out duties of employment.
· Special Assignee Relief Programme (SARP): Extended for 3 years to December 2025. Limit for claiming has increased from €75k to €100k. The scheme provides income tax relief for high net worth individuals relocating to Ireland to carry out duties of employment.
· Windfall Energy Tax: Ireland are not imposing any windfall tax now but intend to if there is not an EU wide tax imposed.
Sample of One-Off Cost of Living Allowances
· Energy Payments (households): €600 per household paid in 3 instalments of €200 each. This will be paid directly to electricity providers. The first payment will paid before Christmas and two further instalments in the new year.
· Double Social Welfare: Once of double week Cost of living payment for all those in receipt of social welfare. To be paid in October.
· Christmas bonus: will still be paid in early December for social welfare recipients.
· Double Chile Benefit: Double Child benefit payment to be paid in November.
· Stock Relief - Extended to December 20224.
· Young Trained Farmer Relief (stamp duty) - Extended to December 2025.
· Accelerated Capital Allowance Scheme: New scheme to assist with farmers who build energy efficient slurry facilities.
· Farm Consolidation Relief (Stamp Duty): Extended to December 2025.
· Farm Restructuring Relief (CGT): Extended to December 2025.
Motor Tax / Climate Changes
· Carbon Tax - increase of €7.50 per tonne from €41 to €48.50 per tonne – The increase will take effect for auto fuels from 12th October, with the other fuels from 1 May 2023 after winter heating season. The increase car fuel will not be felt by consumers as it will be offset by the decrease in the National Oil Reserve Levy (see below).
· National Oil reserves Levy: has been abolished – equates to 2c per litre of vehicle fuel. This will offset the increase in carbon tax (see above).
· Concrete Blocks Levy: There will be a new 10% Levy placed on the use of concrete in construction from April 2023. This will assist with payment of the redress scheme. Will this further increase the already high costs of building?
· Cigarettes - Increased again by 50 cents. A packet of 20 cigarettes is now roughly €15.50.
· Alcohol - No increase in the price of a pint or a glass of wine.
· Pension: The old age pension will increase by €12 per week.
· Welfare Payments: will increase by €12 per week.
· Childcare Fees: Aim to reduce childcare costs by up to 25%. This will result in a €175 per month or €2,106 per year paid to parent.
· College Fees: A one off reduction of €1,000 per college student for 2022/2023 year. There will be a further €500 reduction for families earning under €100k.
· Licence Fee Reduction: 50% cut in the cost for of a special exemption order from €110 to €55. This is to support the night time economy.
· Microbrewery Relief: Production threshold is being increased by 50% to allow microbreweries expand.
· Banking Levy: Extended by 1 year to the end of 2023.
Should you like to discuss any part of the Budget, please feel free to contact either your usual Quintas contact or myself.