Paschal Donohoe and Michael McGrath have delivered Budget 2023 which the Minister for Finance specifically referred to as a “cost of living” Budget. The Minister referred to the difficult balancing act faced by the Government to help ease the burden of the rising costs of living on the public while also not driving up inflation which is currently at 8.5%.
In this regard, the measures introduced were weighted strongly towards individuals’ financial position rather than towards businesses and corporates. Some of the main changes introduced to help for individuals include:
- Each PAYE worker/sole trader in the higher tax band will see tax savings in 2023 of over €800 over the course of the year with the following measures:
- increase of the standard rate band to €40,000,
- increase of personal, employee and earned income tax credits by €75 each, and
- increase in the 2% USC rate threshold by €1,625.
- A tax credit for those who are renting of €500 per annum including for the year 2022.
- Electricity credits of €600 of which €200 will be paid in December 2022 with the remainder early in the new year.
- There were a number of increases for social welfare recipients including:
- Social welfare payments to be increased by €12 per week;
- One off double week payment to social welfare recipients in October in addition to the Christmas bonus in December;
- One off payment of €200 for those in receipt of the Living Alone Allowance;
- One off payment of €500 to those on Disabililty Allowance, Invalidity Pension and Blind Pension;
- One off payment of €500 to those on Carer’s Support Grant.
- Parents will benefit greatly in this budget with the following items being introduced
- A 25% weekly reduction for those availing of the National Childcare Scheme
- A once off double payment of child benefit to all qualifying households
- Free school books to be provided for primary school children.
While the above are welcome measures for individuals feeling the strain of increased fuel and living costs, SME’s are also in danger of seeing increasing overheads reducing profits and having a major impact on their survival. The lack of measures to ease this burden will have caused great concern to business owners, many of whom have just got back to normal trading following the Covid pandemic. Many of these businesses will also have debt warehousing balances to begin paying off from 1 January 2023 and this will put further financial pressure on their cash flow next year.
The main support introduced for businesses is the Temporary Business Energy Support Scheme. The scheme will compare the average unit price for the relevant bill period in 2022 to the corresponding period in 2021 and any increase of more than 50% will entitle the business to support calculated as 40% of the increase. A monthly cap of €10,000 per trade will apply. However, the scheme will need to be approved by the EU Commission in advance of payments being made.
For businesses carrying on R&D functions, the Government has committed to enhancing the current R&D credits to make amendments to the payable element of R&D to align with other EU countries. We would hope this would see the refund of credits not used arising in year one rather than being spread over 3 years. The Knowledge Development Box regime has been extended a further 4 years to allow an effective corporation tax rate of 6.25% for businesses making a qualifying KDB claim.
As noted above, employees will have some additional income in their take home pay due to the individual taxation measures, but to help businesses reward key employees the KEEP scheme has been extended to 2025. The KEEP scheme is an important consideration for SMEs who may wish to reward key staff with a share in the business, however, the administration and compliance of running the scheme has been known to be quite onerous and we would hope to see some tweaks to legislation in the Finance Bill next month to further encourage uptake in this scheme.
The once off tax-free gift employers can provide to employees has also been increased from €500 to €1,000 with two vouchers now being allowed instead of one.
Finally, the Special Assignee Relief Programme will continue until 2025 and the qualifying income has increased to €100,000 to encourage inbound expertise.
These business measures, along with the continued commitment to both the 12.5% corporation tax rate and working closely with the EU and OECD on international changes, are aimed at keeping Ireland competitive and safeguarding Ireland’s attractiveness as a destination for talent and foreign direct investment.
However, the lack of substantial support for SMEs given the rising overhead costs is a worrying result of the Budget announcements. The implementation of the new TBESS once it gets EC approval will be of major interest to all business owners as this is the only significant financial saving for businesses arising from the announcements. Some may argue that business owners did benefit from significant supports during Covid but the cost-of-living crisis that we are facing could be every bit as detrimental to the future of many Irish SMEs if sufficient support is not provided. We would hope that the application of the TBESS is made seamless and practical to ensure at least this support is fully utilised by businesses in need.
We await the publication of the Finance Bill on 20 October to see if any further measures are introduced.