Personal taxes

Oct 10, 2017

In line with much publicised affirmations by the Minister and the Taoiseach to reduce the tax burden for low and middle income earners, the middle rates of USC are set to be reduced and the entry point to the top rate of income tax is due to increase.   The Earned Income Credit and the Home Carer Credit will be increased and a new BIK system for electric vehicles will be introduced.  The Budget documents also give us insight into the PAYE Modernisation project and steps for merging PRSI and USC.  

USC

A reduction in the middle rates coupled with an increase in the income threshold was announced as follows:

  • €12,012 – €19,372 @ 2 percent (reduced from 2.5 percent and income threshold increased from €18,772)
  • €19,372 – €70,044 @ 4.75 percent (reduced from 5 percent)

The entry rate remains at 0.5 percent for income up to €12,012 and the balance of income from €70,045 remains subject to the USC at 8 percent.  

There was no change announced to the income exemption of €13,000 per year.  For self-employed income over €100,000 there was no adjustment to the 3% surcharge indicated. 

For a single person earning €35,000 the USC changes mean a saving of around €70 in a tax year.  If the person earns €70,000, the changes will result in a €158 reduction in their annual USC liability. 

The USC relief for medical card holders will be extended for a further two years. 

The USC changes are expected to cost €177 million next year. 

Standard rate band

The standard rate band will increase by €750 for all earners. Therefore the entry point to the 40% rate of income tax will increase from €33,800 to €34,550 for all single earners and from €42,800 to €43,550 for married couples with one income earner. 

This measure alone will mean a tax reduction of €150 per year for individuals paying tax at the top rate. Combined with the USC reduction, individuals will pay up to €308 less in tax next year.    

Income tax credits

The Earned Income Credit for the self-employed will increase by €200 to €1,150 from 1 January 2018.   This credit will still be €500 short of the PAYE credit of €1,650 for employees. 

An additional €100 will be added to the Home Carer Credit to bring it up to €1,200.

Provision of employee motor vehicle

A new 0% BIK rate on electric motor vehicles provided in the workplace.  This new measure will be in place for one year to allow for a comprehensive review of the BIK regime on motor vehicles in general. 

Key Employee Engagement Programme

As was flagged by the then Minister for Finance Michael Noonan in his budget speech last year, a new share-based remuneration incentive is being introduced from 1 January next.  The incentive will aim to assist unquoted SME companies to attract key employees.  Detail in the Budget document tell us that the employee will be subject to CGT on the disposal of the shares in place of the current income tax, USC and PRSI liabilities on exercise.  

Merger of PRSI and USC

Over the past few months, the Minister has signalled his intention to merge the USC and PRSI into a single social insurance payment. During today’s speech, Minister Donohue announced that a working group will be established to plan over the next year this amalgamation of PRSI and USC over the medium term. 

PAYE Modernisation project

Revenue is currently undertaking a programme of PAYE Modernisation which will mean that from 1 January 2019 employers will need to calculate and report their employee’s pay and deductions as they are paid and report this to Revenue.  This system will differ greatly from the current model with the abolishment of many of the current forms including P30, P35, P45 and P60s and will result in enhanced IT resources being required.   Such modernisation was flagged in Budget 2017 and was followed up by a public consultation earlier this year.

In preparation for the Revenue PAYE Modernisation project, we have been told by Revenue that a range of compliance interventions will be undertaken at the end of this year and during 2018.  . 

Amendments to the PAYE legislation to facilitate this modernisation are expected in the Finance Bill.