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Budget 2024 – Expert Analysis

Minister Michael McGrath announced his first budget as Minister for Finance yesterday Tuesday 10th  October with Pascal Donohoe making the step over to Public Expenditure on this occasion. It was a budget speech full of references to “cost of living”, “planning for the future” and the “housing crisis”. A total budget package of €14bn was announced but the immediate question arising from the speech was have the measures gone far enough to meet those areas of concern with the rising cost of living for individuals and the rising cost of running a business for business owners? We will look at the highlights from those key areas of reference below.   Cost of living €12bn has been provided to deal with the cost of living measures.   Some of the key areas of tax saving for individuals to increase their take-home pay include:
  • Raising the standard rate of income tax threshold by €2,000 to €42,000. This will save earners on €42,000 or more €400 per year in income tax.
  • Increasing most tax credits by €100 which in a lot of cases will see earners benefit by €200 per year.
  • Increasing rent tax credit to €750 from €500.
  • Amendments to the USC which will see the 4.5% rate reducing to 4% and increasing the 2% rate band by €2,840. This could save a person earning €70k per annum €406.
  Overall this could see an individual renting and earning over €70,000 having an increase in their annual tax home pay in 2024 of €1,256 per annum. However, broken down this results in €100 per month extra in that individual's wage. There was also the negative news that PRSI will raise by 0.1% from October 2024 which would see that individual earning €70k paying €70 extra per annum in PRSI.   The increase of the minimum wage to €12.70 will be welcome news for low-paid workers but it will cause additional strain on SMEs to meet increasing wage demands.   Other cost-of living measures to put more disposal funds in people's bank account include:  
  • The 9% VAT rate on gas and electricity to be extended by 12 months to end of October 2024.
  • €450 of energy bill credits to be provided over 3 instalments between end of 2023 and April 2024.
  • A €300 lump sum payment for fuel allowance recipients and a €200 lump sum for Living Alone Allowance recipients in November.
  • A Christmas bonus paid in early December and a cost of living double week in January will be paid to social welcome recipients.
  • A €12 weekly increase in social welfare payments.
  A large headline number of €12bn does not seem to correlate to a large increase in a middle-income earners take-home pay. The lump sum energy credits will certainly be welcome to homes over the next six months but it is felt more could have been done to perhaps overhaul USC.   Planning for the future The Minister continued the theme of planning for the future through his speech with many of the announcements in relation to corporation tax feeling very much like planning for the future as many will not take immediate effect and relate to reviews being carried out on reliefs and schemes. Below is some of the highlights of these items.  
  • The work on a participation exemption for foreign dividends will be examined and will not be introduced until next year's finance bill.
  • A review of interest deductibility was a welcome announcement but we would hope this will be acted on in future for an area that has many complexities for corporates and advisors.
  • A TALC subgroup will be formed to review business supports with the view to simplifying.
  • A public consultation on VAT modernisation will take place.
  • A public consultation will be launched in relation to share-based remuneration.
  • A promise from the Minister to review Entrepreneur Relief to improve the incentive for founders.
  In addition to this two new funds were announced in the Budget speech: the Future Ireland Fund and an Infrastructure, Climate and Nature Fund. The Future Ireland Fund is designed to protect public services while the latter is designed to invest in climate and nature-related projects.   These are all important issues and it is great to see them being highlighted but more immediate simplification of reliefs and further support for our SMEs would have been of more benefit.   To continue to show our dedication to global tax reform the introduction of the 15% corporation tax for in scope entities will be within this year's Finance Bill. However, in an effort to perhaps ease the effective tax rate increase for some of our important corporates the R&D tax credit will rise from 25% to 30% from 2024. This R&D change will be welcome news for SMEs who benefit greatly from the cash flow of this relief and the first year max payment has been increased from €25,000 to €50,000.   In addition to the R&D changes there was also more good news for the future of domestic SMEs and entrepreneurs in relation to the below key items:  
  • Confirmation that amendments would be made to the Employment Investment Incentive Scheme to increase the limits an investor can invest to €500,000 for a 4-year holding. It was noted that the EIIS would be reviewed going forward to simplify what is a very onerous piece of legislation at present.
  • The prior amendments to the Key Employee Engagement Programme which sees it extended to end of 2025, doubling the limit of shares within the KEEP scheme to €6m and allowing CGT treatment on buy back of shares from an employee have now received EU State aid approval and can be implemented.
  • A new capital gains tax relief for angel investors in innovative start-ups. Investment must be for 3 years and at least €10,000 for 5%-49% share in the entity by acquiring newly issued shares. The relief will allow a CGT rate of 16% (18% if through a partnership) on gains up to twice the value of the initial investment with a lifetime limit on qualifying gains of €3m.
  • From 1 January 2025 the age category for retirement relief of 55-65 will be extended to 55-70. Therefore, a tax free consideration of €750k will be available until 70 and reducing to €500k after 70. For a transfer to a child there was previously no limit to 65 and a €3m limit after 65 but now there is a €10m limit introduced until 70 and the €3m applies after that.
  • Extension of accelerated capital allowances for energy efficient equipment to 31 December 2025.
  • The tapering of the tax-free element for BIK purposes on electric cars was postponed with the €35,000 threshold remaining until the end of 2025 and the €10,000 additional deduction has been extended by one year to the end of 2024. This is a welcome move to encourage the use of electric vehicles as company cars with the first €45,000 being disregarded from the OMV for BIK purposes for 2024.
  The above incentives are good news for our SMEs, but they will wait anxiously to see if any action comes from the various reviews and public consultations noted above.   Housing Crisis Opposition called it a Budget for landlords rather than tenants. This was in reference to the new relief for landlords on rental income which would see €3,000 of rental income be disregarded for 2024 at the standard rate meaning a saving of €600 for a landlord in income tax. This will increase to €4,000 in 2025 and €5,000 for 2026 and 2027. However, this may not be a generous enough measure to encourage landlords to free up property given the top rate of income tax remains at 52%. The Minister highlighted that 86% of landlords own one or two properties and it is important to encourage this large majority to keep those properties available to the rental market. The Vacant Homes Tax has been increased to 5 times the LPT from 3 from 1 November 2024.   There were some positions for people attempting to secure their first home with the news that the Help to buy scheme will be extended by 12 months to end of 2025 and a new mortgage interest relief for one year in 2023 which could provide a tax credit up to €1,250 and is based on the increase in a taxpayer’s interest between 2022 and 2023. It is only available to taxpayers with outstanding mortgages on their primary residence of between €80,000 and €500,000 at 31 December 2022.   Overall, it is not certain if enough has been done to encourage landlords to put properties up for rent and a more beneficial scheme for landlords with one or two rental properties may be required.   Agriculture The agricultural industry felt disappointed that their budget was cut from prior year and that there was not more support for the rising costs being endured by farmers from both an inflation and environmental policy changes perspective. It would appear major planning for the future with rural Ireland is needed to ensure green policies being pursued do not negatively affect an industry that is the backbone of our nation. To add to the disappointment for farmers the flat rate addition will decrease from 5% to 4.8% from 2024. There is also now a 7-year holding requirement on land before it can avail of leasing farmland relief. There were some reliefs extended as per below highlights:  
  • Consanguinity relief was extended a further 5 years to 31 December 2028 which allows a 1% stamp duty rate to apply to transfers within a family.
  • Accelerated capital allowances for farm safety equipment extended by 3 years to 31 December 2026.
  • Lifetime relief limits from stock relief, stamp duty relief and succession farm partnerships to €100,000 from €70,000.
  • Stock relief increased from €15,000 to €20,000.
  The agriculture sector will be disappointed with the lack of support but there was also a lack of focus on other industries such as tourism and hospitality.   We would hope that the budget will help people with the cost of living crisis as appears to be the main intention of this budget but we would also hope and urge that the future planning commitments and various reviews would be actioned in the near future and not drift down the priority list.
October 11, 2023

Budget 2024 – What to Expect

Tomorrow, Tuesday 10th October, the Minister for Finance and the Minister for Public Expenditure will announce Budget 2024. With local Council and European elections next summer and a general election most likely during 2025, it is likely the Budget will follow recent trends of aiming to please a large percentage of the electorate while perhaps not doing a significant amount for any one particular area. There is expected to be a big focus on the cost of living crisis while also being cautious of an over-dependence on corporation tax receipts which may be volatile in the future. In this regard and from information coming from government comments it seems that the following will be likely part of the announcement:  
  • A small increase in the standard rate band by €1,000 - €1,500.
  • A small change in USC perhaps by 0.5% or increasing the threshold at which low-income earners enter the USC scale.
  • An increase in social welfare payments and double payments on Christmas week.
  • Another energy credit regime similar to 2023 which could see two or three credits of c.€100 provided against energy bills.
  • For young families there will be assistance through cuts to childcare costs and free schoolbooks for secondary school children.
  • For renters it is likely the rent credit will be increased from €500.
  As practitioners dealing with clients on a daily basis in relation to their tax affairs, there are certain changes we would really welcome in the Budget. We have set some areas we feel would be beneficial to the overall economy and address the concerns of clients we talk to.   Housing There has been some talk of a benefit being provided to landlords who enter into a long-term lease with a tenant. This would be very welcome and could have a real positive impact on the rental market. We continuously have enquiries from property owners in relation to their tax position if renting a premises. Unfortunately, for those with a salary/income from another source, it often means their tax bands and credits are already being used and the rental profit suffers income tax at 52%. It is not encouraging for landlords to enter long-term leases with tenants when they are only netting less than half of the rental profit.   Energy costs As mentioned above, there has been mention of another energy credit being announced in this year's Budget which would see household owners obtaining perhaps a couple of €100 or €150 credits against their energy bills. It is important to note that the reduced VAT rate of 9% which applies to gas and electricity is due to expire at the end of October 2023. An extension of this VAT rate could be another good way to help domestic and commercial energy costs and would certainly be encouraged. We would hope to hear the Minister provide for such an extension tomorrow.   Share Schemes It has been an area of focus recently by Revenue to carry out compliance reviews of employees who received share awards/share options. This has led to many employees who may never have filed income tax returns realising their compliance requirements on share awards/options. This can be a complicated and confusing area for employees and although the KEEP scheme sought to provide a beneficial share scheme from a tax perspective it appears to have failed in practice due to the onerous nature of the rules. It would be sensible to look at perhaps a complete overhaul of the KEEP scheme or introduce a user-friendly share award/option programme for employers to reward and encourage key staff members.   Capital taxes An area of concern for clients considering succession planning or entrepreneurs trying to drive a business to succeed is often potential changes in capital taxes. A commitment to ensuring the main capital tax reliefs of entrepreneur relief to encourage entrepreneurs; business asset relief to ensure safe succession of a business within the family and retirement relief would be useful to avoid worry of such reliefs being potentially taken away at short notice in future. We would also suggest a reduction of CGT and CAT from 33% could be encouraging to see properties, businesses and other assets changing hands.   We await tomorrow’s announcement with interest and we would be delighted to see a real focus on looking after our domestic SMEs and our entrepreneurs to encourage them to keep employment at such a record high. We feel the above suggestions would be good ways to reflect this.
October 9, 2023

Budget 2023 – What does it mean for your Business?

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.
September 27, 2022

Share Option Schemes

31 March is an important deadline for companies who have provided share option schemes to their employees. A Form RSS1 is required to be completed and filed with Revenue where share options are either granted, exercised or sold. The Form RSS1 must be sent to Revenue on or before 31 March in the following year of assessment i.e., for 2021 this would be due on the 31st of March 2022. This form is required to be returned to Revenue electronically by using their online system. Where the share option scheme is operated under the Key Employee Engagement Programme (“KEEP”) a KEEP 1 return is also required to be filed by the employer by 31 March for any KEEP options granted, exercised, assigned or released. As companies begin to see the light at the end of the Covid-19 tunnel we have seen an increased interest in looking at rewarding key management with an interest in the company. We have outlined below the reporting requirements for employees who obtain unapproved share options. As you will note, unapproved share options can often lead to a significant income tax bill for the employee and if not exercised at a point of sale can have cash flow implications.   Two common alternatives to unapproved share options which can have a more positive tax impact are both the KEEP mentioned above and growth shares which are popular to incentivise key staff to grow the business. We will look at the advantages of these share award options in our next article. In the meantime, below are the key considerations for employees obtaining unapproved share options from their employer.  

Grant of Share Option Scheme

The granting of share options would not be subject to tax in Ireland provided the share option is not capable of being exercised more than seven years after the date on which it is granted. If it is capable of being exercised more than seven years after the date of it being granted, you will only pay tax if the option price is less than the market value of the shares at the grant date. The tax is due on the difference between the:
  • market value of the shares on the grant date
  • amount you pay when you exercise the option.

Exercise of Share Option Scheme

Once share options are exercised, an individual will be subject to Income Tax, USC and PRSI at a rate of 52% on the gain arising on the exercise of the shares. The gain arising on the shares will be calculated as the difference between: (a) the market value of the shares at the date of exercise; and (b) the amount you paid for the shares at the time of exercise. Once a share option scheme is exercised, an individual is required to file an RTSO1 and remit the tax to Revenue within 30 days of exercising. You will also be required to register for income tax and a Form 11 will be required to be filed. If you exercise shares in 2021, you will be required to file a Form 11 by 31 October 2022.

Sale of Shares

If you exercise your share options and then subsequently dispose of the share you acquired you may be liable to Capital Gains Tax (CGT). You must report this disposal to Revenue, even if no tax is due. The CGT would be calculated as the difference between the sales proceeds and the base cost of the shares. The base cost would compromise the cost paid for the share options (if any), the price paid for the shares on the exercise of the share options and the gain arising on the exercise of the share option. The gain arising would then be subject to CGT at a rate of 33%. If the shares are disposed of between 1st of January and 30th of November, the CGT would be due on the 15th of December. If the shares are disposed of between 1st of December and 31st of December, the CGT would be due on the 31st of January. The disposal will be required to be reported in your income tax return for the year the shares were disposed. We have set out above a high-level overview of the compliance obligations for employers and employees on unapproved share schemes. As discussed, we will look in our next article at the benefits or alternative share option scheme such as KEEP and growth shares. If you are offering a share option scheme to your employees or have a share award you wish to exercise or sell you should
talk to our tax team at Roberts Nathan.
March 3, 2022

Revenue Update – Debt warehousing and Covid-19 supports

Last week Revenue began to write to taxpayers who are availing of debt warehousing and other Covid-19 supports. In relation to debt warehousing, Revenue are reiterating the need for all returns to be filed on time, even where warehousing is being availed of on payment. Any taxpayer availing of debt warehousing but does not have all tax filings up to date will be reminded to do so immediately or lose their entitlement to avail of the Debt Warehousing Scheme. Any returns outstanding will be brought to the taxpayers attention in the Revenue latest correspondence. For taxpayers availing of both Debt Warehousing and either the Employment Wage Subsidy Scheme or the Covid-19 Restrictions Support Scheme, they will be advised to bring any outstanding returns up to date within 21 days or their tax clearance will be rescinded and they will no longer be eligible for any of the support schemes. Revenue have also began a second stage of TWSS reconciliation, seeing employers who have availed of the scheme receiving a detailed reconciliation through ROS. Employers have until the end of June 2021 to review the information contained in the reconciliation by Revenue and accept, appeal or make any required adjustments to their claim by this date. It is also worth noting for taxpayers who are not availing of debt warehousing but do have tax liabilities outstanding that Revenue will seek to enforce debt collection of outstanding liabilities over the coming weeks as highlighted in a press release earlier this month. Finally, late filing surcharges for corporation tax returns had been suspended from March 2020, however Revenue have now confirmed that for corporation tax returns due between 23 March 2020 and 23 June 2021 (i.e. accounting periods ended between 30 June 2019 and 30 September 2020), will need to be filed by 30 June 2021. Corporation tax returns (including iXBRL financial statements if required) will be required to be filed on time from this period on to avoid late surcharges. If you would like to explore further options around your business, please contact Brendan Murphy who would be very pleased to assist you. Brendan Murphy: brendan.murphy@robertsnathan.com
March 30, 2021