In conversation with...Kimberley Rowan

What are the headlines of last week’s Budget?

The reduction in the two middle USC rates, an increase in the ceiling at which the 2% USC rate applies and an increase to the entry point to the top rate of income tax seems to be the most widely debated Budget headline. For the average two-person income household, these changes will mean a tax saving of around €320 a year. In addition, the Earned Income Credit will be increased to €1,150, so self-employed individuals will get an additional €200 tax credit next year. 

The main money spinner for Budget 2018 is the 4% increase in the stamp duty rate on commercial property. The additional income for government from this tax hike, expected to be as much as €376 million, is earmarked to pay for the income tax reductions. 

The much publicised sugar sweetened drinks (SSD) tax was pledged by the Minister to be introduced from April next year. This will mean an increase in the price of certain beverages by up to 30c per litre. It is worth noting that this tax is not expected to apply to dairy products, such as chocolate milk, and certain fruit juices. 

A new share-based remuneration incentive called the Key Employee Engagement Programme (KEEP) is to be introduced from 1 January. The aim is to assist unquoted SME companies to attract and retain employees. 

Is there anything in the detail which Chartered Accountants should be aware of?

The main revelation on Budget Day was the increase in the rate of stamp duty on commercial property from 2% to 6% with effect from midnight on Budget night. Comments from the Minister after Budget Day tell us that this increase was a key part of his maiden budget to fund income tax reductions.

The increase in rate should not affect agricultural land, the Minister for Agriculture, Food and the Marine said and this was reiterated by Minister Donohoe but, as ever, we need to see the detail in the Finance Bill. Farm sales between relatives would be subject to a 1% rate where consanguinity relief is available, otherwise the 2% rate applies. Young trainee farmers will remain exempt, subject to examining the details in the Bill. 

The 4% stamp duty rate increase may initially seem harsh. However, this new rate is still lower than the 9% rate which applied on such transactions up to 2008. The 2% rate was introduced in 2011 as a means to encourage a then-deteriorating property market. 

Chartered Accountants with interests in intellectual property will be acutely familiar with the recommendation in the Coffey report to restrict the deduction for capital allowances for intangible assets (and any related interest expense) to 80% of the relevant income arising from the intangible asset. This measure featured in the Budget. A tax deduction for capital expenditure incurred on the acquisition of specified intangible assets (SIA) such as patents/registered designs, trademarks/brand names and know-how, is provided for under section 291A TCA 1997. The relief is seen as an essential part of our FDI offering. Like the stamp duty rate increase, this measure took effect from midnight on Budget night. 

Chartered Accountants have an opportunity to have their say on Ireland’s international tax strategy as the Minister launched a public consultation running until 30 January 2018. This consultation is in response to the recommendation in the Seamus Coffey report on Ireland’s corporate tax regime. 

What would you describe as the most positive and least positive aspects of the Budget from our members’ perspective?

The changes to the USC rates and income threshold, and the income tax rate band moving from €33,800 to €34,550, for single individuals are positive as this cohort faced a sharp income tax hike on moving from the 20% rate band to the 40% rate band. The changes will alleviate the disincentive to work overtime or take on additional jobs as more euros can be earned before half is taken in income tax, USC and PRSI. 

While financial assistance for the SME and Agri-food sectors are positive, there needs to be a change to VAT import rules to deal with upfront VAT costs under the current system which will take effect when the UK leaves the EU. Brexit concerns for Irish businesses which trade in UK imports were not adequately addressed. It is also disappointing that much needed enhancements to the CGT relief for entrepreneurs did not feature in the Budget.

Do you expect any significant new measures in the Finance Bill?

The Bill usually includes new measures not previously announced, particularly in the area of Revenue powers and anti-avoidance. I expect we will see something in this area. I also expect to see legislation for the new PAYE system, PAYE Modernisation, and stamp duty legislation to pick up on changes needed arising from the Companies Act 2014. 

Kimberley Rowan is a Tax Manager at Chartered Accountants Ireland.