By Brendan Noone, Partner, Connellan Solicitors
Budget 2021 prioritises crisis management in meeting the challenges posed by Covid-19 and Brexit while preserving existing levels of state services. The total budget package for 2021 amounts to €17.5billion with €17billion in expenditure and €270million in taxation. €8.5billion will be set aside for public services including €2.1billion on contingency funding. Capital spending is to increase by €1.6 billion. €3.4 billion euro has also been announced for a Recovery Fund which will be aimed at increasing employment. The main sectors which the budget focuses on are the hospitality, tourism and healthcare sectors. The budget is also focused on supplying resources to businesses and the self-employed who have been heavily impacted by Covid-19 and to assist those who have lost or closed their business as a result of restrictions and lockdown measures. The budget includes a multibillion euro stimulus package of between €4 – €5 billion to combat the twin threats of Covid-19 and a no-deal Brexit. With the Government facing a deficit of €21.5 billion this year, the budget also addresses reaching into Ireland’s €1.5 billion ‘Rainy Day’ Fund in an effort to combat the major economic impact of Covid-19.
Below we have examined the key points to takeaway for householders and businesses as we navigate the current financial climate;
5 key points for householders
Income Tax: There has been no increase in Income Tax credits of bands. The ceiling for the second USC rate, however, has been adjusted up to €20,687 and the weekly threshold for higher rate of employers PRSI will go from €394 to €398. Self-employed income tax credit is to rise by €150 to €1,650.
Working from home: There are additional tax measures which have been put in place through the budget to support those working from home, including rates which are cost deductible. Measures have also been put in place to upgrade houses to provide office space. In addition to this, throughout Covid-19, many employees have incurred increased costs by working from home such as utilities and broadband. The budget upholds the predetermined 10% relief, yet removes the requirement to have a formal arrangement in place to encourage fluidity. Employees working from home can now also claim for broadband and other vouched expenses in the performance of duties of employment.
The Earned Income Tax Credit (Self-Employed): For the self-employed, the budget implements a Programme for Government commitment to equalise the Earned Income Credit with the PAYE credit by raising it by €150 to €1,650.
Dependent Relative Tax Credit: To support families with caring responsibilities, the budget announced an increase in the Dependent Relative Tax Credit from €70 to €245. It is possible to claim the Dependent Relative Tax Credit if you are married or in a civil partnership, and you care for one or more dependent persons
2. Welfare Benefits:
The Pandemic Employment Payment: which was slashed in July from €350 to €203-€300, was not increased and remains at the reduced rate. The budget does allow for those self-employed to earn up to €480 per month and still collect the PUP. Those claiming jobseekers allowance and the PUP will also qualify for a Christmas Bonus for double payment on the 27th of December. Ordinarily, social welfare Christmas bonuses are only paid to those who have been receiving the payment for 15 months, however the budget states that recipients are now liable if they have been getting it for a minimum of four months.
3. Motor Tax and Vehicle Registration Tax:
Motor tax: for diesel and petrol cars has been increased primarily because of the Government’s focus on reducing carbon emissions and the take up of electric vehicles. This initiative was also outlined in the Programme for Government. Motor Tax has also been adjusted to account for the new WLTP emission testing mechanism from 2021.
VRT: changes have also been made to raise VRT in an effort to reduce the number of cars sold with higher emissions. Weaker emissions tests on imports will also be changed to bring them up. Meanwhile, Current VRT reliefs for hybrids will be allowed to expire in light of the new rates system.
4. Stamp Duty:
The Stamp Duty Scheme, which refunds a portion of stamp duty paid on acquisition of non-residential land where it is then developed is extended by the budget until end of December 2022. Section 46 of the Finance Bill 2018 provided for the extension of the young, trained farmer stamp duty relief up until the end of 2021 and the budget has outlined that the Government will continue to provide for a full exemption on stamp duty on transfers of farmland to certain young, trained farmers. This exemption is designed to continue to encourage transfers of farmland to new generation farmers with the relevant qualifications by gift or sale. The budget also widened consanguinity relief, meaning most inter-family land transfers can avail of a reduced rate of 1%.
The Help to Buy scheme: has also been extended until 2021 to avoid any house buyers who were impacted by Covid-related delays being hit with larger costs. The rate of the scheme remains intact and offers first-time buyers a tax rebate of up to €30,000. The budget has outlined that this rate will continue until the end of December 2021 to ensure that the sales of homes currently being constructed can go ahead.
5. Carbon Tax
The carbon tax will increase by €7.50 every year out to 2029 and then by €6.50 in 2030 to achieve €100 per tonne. This increases the cost of petrol and diesel as well as home heating oil. This measure is set to ensure the acceleration in the reduction of Ireland’s carbon emissions as outlined in the Programme for Government. The Green Party also set aside €300 million for major investment in a nationwide retrofitting project. This is aimed at reducing home heating costs and to aid in the battle against climate change. The budget also includes an increase on tobacco such that a packet of 20 cigarettes will increase by 50c as well as a pro-rata increase on other tobacco products. It will now cost €14 for the most popular pack of cigarettes.
5 Key points for businesses
1. Employer PRSI and Self-Employed Tax Credit:
The budget also made changes to the weekly threshold for the higher rate of employer’s PRSI from €394 to €398 to ensure that there is no incentive to reduce working hours for a full-time minimum wage worker.
Self-employed can also benefit from tax warehousing and their income tax credit is to rise by €150 to €1650.
2. Business recovery fund
The budget also includes business support and a fund of up to €3.4bn was announced to help businesses large and small who are in financial difficulty as a result of the Covid-19 pandemic and a possible no-trade deal Brexit. A compensation scheme is also present to provide compensation to sectors which have had to shut down completely due to restrictions through weekly or monthly payments. This scheme will operate when level three or higher is in place and payments will be based on the business’s 2019 weekly turnover. It will be effective from today until March 31st with the first payments expected in mid-November. The budget also focuses on the entertainment and arts sectors in the range of €10-€20 million. Venues will also receive a grant of €10,000 to subsidise ticket costs as they manage reduced attendance due to social distancing.
Employment agencies such as the IDA and Enterprise Ireland are also set to receive extra funding and commercial rates for some businesses are set to continue to be waived for the last quarter of the year to give relief to struggling firms. Finally, there is also an increase of 15,000 retraining places in further and higher education, particularly targeted at young people, where the unemployment rate has been significantly high and increasing.
3. Capital Gains and Corporation Tax:
An individual who has owned at least 5% of the shares for a continuous period of any three years qualifies for Capital Gains Tax relief. This is to encourage individuals to expand their business without worrying about losing the relief. It notes that certain sectors of the economy have been more impacted than others and hence a rate reduction is necessary.
There were no changes to corporation tax which remains at 12.5%. The budget states that over the course of this year, just under €7.5 billion in corporation tax receipts were generated.
4. Tax Relief and the Covid Restrictions Support Scheme (CRSS):
The budget has introduced a further reduction in VAT rates from 13.5 % to 9% for those in the hospitality sector. Due to the various challenges facing businesses, the focused indirect tax relief measures adopted in the budget are welcomed by the hospitality sector which has been particularly badly hit by the impact of Covid-19. This development has been made to compliment the ‘Stay and Spend Scheme’ which enables people to claim back 20% from their bill, up to a maximum of €125 per person (or €250 for a married couple) in an income tax rebate to those who spend up to €625 (or €1,250 for married couples) in restaurants, pubs, hotels, B&Bs and other qualifying businesses.
The CRSS scheme will assist businesses whose trade has been significantly impacted or temporarily closed as a result of lockdown restrictions. The scheme will operate when Level 3 or higher is in place and will cease when restrictions are lifted. Sectors impacted include accommodation, food and the arts, recreation and entertainment. If lockdown restrictions are increased, other sectors may qualify. These businesses will receive a payment based on their 2019 average weekly turnover and will be effective from today until 31st March 2021. First payments will be made by mid-November and are to be calculated on the basis of 10% of the first €1 million in turnover and 5 % thereafter, based on average VAT exclusive turnover for 2019. It is subject to a maximum weekly payment of €5,000. To apply, the business’ turnover during Covid may not exceed 20% of the turnover for the corresponding period in 2019
5. Direct spending for infrastructure:
According to the budget, the Government is also investing €1 million in developing cycling and walking infrastructure as well as greenways. There will also be a focus on road, rail and other infrastructure.
The housing sector has also received an unprecedented €3.3 billion package which is the biggest ever investment in housing. 12,750 new homes are to be added to the stock of social housing of which 9,500 will be built. The remainder will be added through targeted acquisition and long-term leasing. Measures aimed at making homes affordable for first time buyers and renters will also be included in the budget. The health sector is also set to receive a €4billion package in order to support Irish people through the heavy impact of Covid-19. € 2billion of the money going towards healthcare will be directed towards covid-19 and the remaining €2 billion is to be directed toward healthcare systems, hospitals and Sláinte care.
Other investments in infrastructure include a €44million investment in Irish Water infrastructure and improvements, €80 million to the Department of Education and €20million of current year funding to go towards the Transforming Lives Programme. Voluntary Hospices are also to receive €10million for a Covid stability fund.