We were expecting a Budget like no other before and suffice to say, it was quite strange. Ordinarily, it is all about tax reform with either tax cuts or tax hikes taking the headlines. However, this year, it was all about public spending. The government spent heavily in this Budget but to the average worker, there is very little changes.
In general, the Budget was all about survival - with survival of our country’s SME sector top of the agenda. Particularly in areas such as Hospitality & Tourism. There are very little details of specific schemes announced thus far. The headline and possibly only tax cut from the budget are directed to the Hospitality and Tourism sector. The VAT rate for the industry has been reduced from 13.5% to 9% which brings us back to the VAT rate following the last financial crises. This should be a big help to the industry and reduce prices for our staycations (or else keep prices the same and increase profits for hoteliers).
There is also positive news for any taxpayers dreading the impending income tax liabilities due to filed and paid later this month. The government have extended the “warehousing” scheme meaning that there will be no surcharges or interest charged on late payment of income tax balances due for 2020 for a period of 1 year. This is on the provision that you are negatively affected by Covid19. As of now we do not have any guidance as to what negatively affected means for the purposes of this announcement. We assume it will be based on a reduction of turnover of over 25% for either Q2 of 2020 or a reduction in turnover for the full 9 months of the year.
The new Covid19 Restriction Support Scheme is another scheme aimed at struggling businesses which have either been prohibited in operating or only been able to trade at significantly reduced levels as a result of restrictions imposed on them in response to Covid-19 (bars, hotels, cinemas, etc). The industries effected will change as we move between different levels of Covid19 restrictions. Effected businesses will receive cash payments directly from Revenue (more details are provided below).
Minster O’Donoghue also reiterated that the Employment Wage Subsidy Scheme will likely run in some reduced capacity until the end of 2021 to avoid a scenario where the economy “falls of a cliff” when it ceases to exist.
The form of the extension will be decided closer to the end of March 2021.
Overall, the budget deficit is expected to be €21.5bn for 2020 and €20.5bn for 2021. This will increase the country’s debt levels to €219bn which is around 108% of GDP. In isolation, these debt levels seem absurd.
However, the alternative option of leaving businesses fail could be far more catastrophic. This is the first time in our history that the country has been able to borrow money with no interest payments and therefore, we feel it is a positive move to see this level of spending on our country’s economic survival and development.
Summary of Measures
Tax Cuts / Personal Tax
Very little personal tax changes – the few highlights include:
- An increase in the Earned Income Credit from €1,500 to €1,650
- An increase in the Dependent Relative Credit from €70 to €245
- 2% USC band rate increase from €20,484 to €20,687 – this is to account for 10 cent minimum wage increase
- No change to remote working policy but announcement that a departmental group is currently working on revamping the policy
- Expansion of Warehousing - Preliminary Tax 2020 for the self-employed – No surcharge or interest applied for 12 months for adversely effected individuals. Most likely this will only apply to people who file their return before 31 October 2020 (Revenue will confirm in due course)
Property Related Measures
- Residential Development Scheme – extended to 31 December 2022 – Scheme allows for a partial refund of stamp duty paid on the development of land for residential purposes.
- Help to buy Scheme – New measures introduced in July extended until the end of 2021. First time buyers can receive up to €30,000 towards the purchase of new build homes.
- Temporary reduction in VAT rate on Tourism and Hospitality from 13.5% to 9% from 1 November 2020 for a defined period of time –the rate will cease on 31 December 2021. Currently we believe this reduction also applies to hairdressers as was the case previously
- Farmers Flat Rate Scheme increase from 5.4% to 5.6% for the year 2021.
- Knowledge Development Box – two year extension to the end of 2022
- Entrepreneur Relief – slight change to the relief which should make it easier to qualify. The holding requirement under the scheme will now be for any three year period where it was originally for the three year of the 5 year period prior to sale. This measure will come into effect 1 January 2021.
- Expansion of Warehousing – Repayments on Wage Subsidy Scheme – No surcharge or interest applied for 12 months for adversely effected companies
- Employment Investment Incentive Scheme “EIIS” – No change to the current scheme. However, an assessment will commence in Q4 2020 of how the EIIS scheme can be enhanced in light of the impact of the current crisis with a particular focus on improved support for start-ups, the potential to attract capital from a broader range of investors and the potential to include energy-efficient projects within the remit of the scheme
- Extension of accelerated capital allowance scheme for energy efficient equipment to 31 December 2023 - The scheme allows taxpayers to deduct the full cost of expenditure on eligible energy efficient equipment from taxable profits in the year of expenditure.
- Employers PRSI - From 1 January 2021 the weekly income threshold for the higher rate of employer’s PRSI will increase from €394 to €398 to take account of the increase in minimum wage.
- Intellectual Property Regime - all intangible assets acquired after today will be within the balancing charge regime
- Commercial Rates - Further waiver for the final quarter of 2020
- Employment Wage Subsidy Scheme – The scheme is expected to be extended until the end of 2021 to avoid a scenario where employers fall off a “cliff edge”
- Consanguinity (Stamp Duty) Relief – Three year extension to 31 December 2023 – special 1% stamp duty rate for farms transferred within a family.
- Farm Consolidation (Stamp Duty) Relief – Two year extension to 31 December 2022 – special 1% stamp duty rate for farm consolidation.
- Farmers Flat Rate Scheme increase from 5.4% to 5.6% for the year 2021.
- Cigarettes are again increased by 50 cent. A packet of 20 cigarettes is now roughly €14
- No increase in the price of a pint or a glass of wine
- Carbon tax increase of €7.50 per tonne from €26 to €33 per tonne – The increase will take effect for auto fuels tonight, with the other fuels from May 2021 after winter heating season. The increase is expected to cost €1.51 per 60 litre fill of diesel and €1.30 for a similar amount of petrol.
Motor Tax / VRT
- Car dealerships may not be overly pleased with the changes to VRT. They are quite complicated and we are not proposing to try and explain them here. However, based on our calculations the VRT on a new VW Tiguan will increase from 19% to 23.5%. There will be a similar increase in VRT rates for imported cars with diesel cars being worst hit. It means the cost of new VW Tiguan could increase by €2k and imported cars will also increase in cost.
- VRT reliefs for Hybrids will be gone but the VRT rate will decrease from previous levels. Overall, the price of these cars will still increase.
- Even VRT for electric cars is being hit. The rate will reduce to 7% but there will be no exemption for electric cars over €50k in price. This means that the price of the higher end (over €50k) electric cars will increase.
- With regard to Motor Tax the rates and bands are changing with now 3 different mechanisms for calculating the rate. They sure have complicated things – however the rates will broadly be the same as previously.
Covid19 Restrictions Support Scheme (CRSS)
- The new CRSS is aimed at businesses which have either been forced to close or only been able to trade at significantly reduced levels (i.e. 80% reduction in turnover from 2019 levels) as a result of restrictions imposed on them in response to Covid-19 (bars, hotels, cinemas, etc). The scheme is designed for certain businesses to drop in and out of the scheme based on Government restrictions on opening. For example, bars would qualify once we are in Level 3 restrictions or above.
- Qualifying businesses can apply to Revenue for a cash payment.Payments will be calculated on the basis of the company’s 2019 turnover and payments to the effect of 10% of the first €1m in turnover and 5% thereafter, will be made subject to a maximum weekly payment of €5,000.
- The Scheme will generally apply when Level 3 or higher restrictions are imposed in line with the Plan for Living with Covid-19 is. It will run from Budget day until 31 March 2021. It will be brought into effect by Finance Bill 2020.
- For example, if a bar’s turnover were €1.2m in 2019 and was forced to close due to Level 3 lockdown, it would be due the following weekly payment:
- First €1m/52 = €19,230 @ 10% = €1,923
- Remaining €200k/52 = €3,846 @ 5% = €192
- Total weekly amount of €2,115
- We will issue a full e-brief on the scheme as more details emerge
This is the governments 1st Budget and it was a really tough one to deliver. The ordinary man on the street did not get much from the budget and given all that is going on, no one will complain too much (although the motor industry might be entitled to). However, no one will be particularly happy either.
It is difficult to say there are any winners in the general environment. However, it is clear that the Hospitality & Tourism sector received the most support from this budget. Given all the pain that the industry has suffered in 2020, I do not think anyone will begrudge the industry the supports they require.
Time will tell whether the government’s decision to spend their way out of this recession (in order to prevent a depression) will be a wise one. Personally, given the circumstances and the low interest rates I think that they have made some good calls here. With a bit of luck, we will find out early next year.
Should you like to discuss any part of the Budget, please feel free to contact either your usual Quintas contact or myself.
Senior Tax Manager