Budget News

Revenue has provided the Institute with clarifications on a number of points related to the expanded debt warehousing scheme following the update provided by the Collector General’s Division to Chartered Accountants Ireland on how certain directors and employees with a “material interest” in their employer company will be allowed warehouse income tax liabilities relating to their Schedule E income from that company. Revenue confirmed that where the Schedule E liability has been warehoused as a result of section 997A TCA 1997, interest will not arise on the 2020 preliminary tax underpaid as a result of the Schedule E liability. In circumstances where the Schedule E (PAYE) liability will be warehoused, the taxpayer will avail of the warehousing interest rates. This is subject to the taxpayer continuing to satisfy the debt warehousing scheme requirements e.g., filing tax returns by the due date as they arise. See here for information on the debt warehousing scheme. Revenue confirmed that for preliminary tax 2021, the director may warehouse their Schedule E (PAYE) liability, the portion of which has been warehoused by the employer company, subject to meeting the conditions previously outlined i.e. where a director / employee has a “material interest” in the company that pays their emoluments, and section 997A TCA means the director / employee is not entitled to a credit for the tax deducted due to the company warehousing its PAYE (Employer) liabilities, and the director/employee does not satisfy the 25% reduction of income threshold to avail of income tax debt warehousing. Revenue also confirmed that directors who warehouse their Schedule E liability under the terms of the expanded warehousing scheme can avail of the extended filing date of 17 November 2021, where the return is filed via ROS and the non-Schedule E liability payment is made via ROS on or before 17 November 2021 For those who have already filed their 2020 Form 11, and wish to avail of the expanded warehousing scheme, Revenue advises that: Where a director has already filed their 2020 income tax return prior to the Budget Day announcement and the director satisfies the requirements as outlined to avail of debt warehousing for only their Schedule E (PAYE) liability which has been warehoused by the employer company, they may submit a request via MyEnquiries outlining that they wish to warehouse their Schedule E (PAYE) liability. The taxpayer should submit a request via MyEnquiries using the following pathway when submitting the notification: MyEnquiries – Select “Collector General’s” and More Specifically “General Query” The notification should outline the specific circumstances of the case and confirm that the taxpayer satisfies the conditions to avail of debt warehousing for their Schedule E (PAYE) liability which has been warehoused by the employer company. The notification must outline the amount of Schedule E (PAYE) liability which the taxpayer wishes to warehouse and must include confirmation that the non-Schedule E liability has been paid. The taxpayer must include the following declaration in the notification: “Although my income has not reduced by 25% when compared to 2019, I wish to warehouse my Schedule E (PAYE) liability in respect of the tax deducted from director emoluments as set out in my Income Tax return on the basis that I am restricted by Section 997A TCA 1997 from claiming credit for tax deducted from those emoluments as a result of my employer company warehousing their PAYE (Employer) liabilities.”

Revenue published its Budget 2022 summary, detailing the key measures in the Budget Statement of 12 October 2021. Revenue Summary

As signalled early this year, the reduced 9 percent VAT rate for the hospitality sector will remain in place until 31 August 2022. The Minister announced that a decrease in the farmers’ flat rate addition from the current 5.6 percent to 5.5 percent is warranted for the year 2022, following a review of macro-economic data. The flat-rate scheme compensates un-registered farmers for VAT incurred on their farming inputs.  

This year Minister Donohoe could not reaffirm his commitment to the 12.5 percent rate as the Government has taken the historic decision to join the global international tax agreement which will see the corporate tax rate increase to 15 precent for large multinational companies. The Budget measures announced today are aimed at supporting enterprise with the extension of tax relief for start-up companies and the introduction of a digital gaming tax credit. Also announced was the final transposition of the EU’s Anti-Tax Avoidance Directive (ATAD). Relief from tax for certain start-up companies The relief for certain start-up companies from corporation tax (Section 486C TCA 1997) is extended for a period of five years until 31 December 2026. The relief is granted by reducing corporation tax payable on the profits of the new trade and gains on the disposal of any assets used for the purposes of the new trade. The amount of relief available is directly linked to the amount of employers’ PRSI paid. During his speech, Minister Donohoe announced that in view of the challenges companies currently face in utilising the relief due to the impact that pandemic related supports have had on Employers’ PRSI payments, the relief will also be amended so that start-up companies will be able to avail of the relief for up to five years, in place of the current three years. Tax credit for digital gaming sector This new relief will support digital games development by companies by providing a refundable corporation tax credit for expenditure incurred on the design, production and testing of a digital game. The relief will be available at a rate of 32 percent, on eligible expenditure, up to a maximum limit of €25 million per project. There will also be a per project minimum spend requirement of €100,000. Relief will not be available for digital games produced mainly for the purposes of advertising or gambling. A claimant will not be allowed to qualify for additional relief under Section 481 TCA 1997 (Film Relief) or the Research and Development tax credit. A claim for the tax credit for digital games can only be made in respect of a digital game which has been issued with a cultural certificate from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media. Full details will be published in the Finance Bill 2021 and will be implemented subject to commencement order because European State aid approval is required for the credit to be introduced. Interest Limitation Rules Budget 2022 confirmed the introduction of a new Interest Limitation Rule in line with Article 4 of the EU Anti-Tax Avoidance Directive (ATAD). For companies within the scope of these rules, this measure will place a limit on deductible interest expenses equivalent to 30 percent of EBITDA, commencing on or after 1 January 2022. Disallowed interest may be carried forward and may be deducted in future years if the company has sufficient interest capacity. A de-minimis rule will apply where net interest deductions are below €3 million, and exemptions will apply for standalone entities, legacy debt where the terms were agreed before 17 June 2016, and certain long-term infrastructure projects. Companies may operate the restriction on a single entity or local group basis, and certain group reliefs may apply where the Irish taxpayer is part of a consolidated worldwide group for accounting purposes. Full details of the measure will be contained in the Finance Bill. Anti-reverse hybrid rules Anti-reverse-hybrid rules in line with Article 9(a) ATAD are being introduced. This measure will bring certain tax transparent entities (such as partnerships) within the scope of Irish tax where the entity is 50 percent or more owned or controlled by entities resident in a jurisdiction that regard it as tax opaque and, as a result of this hybridity, double non-taxation occurs. Full details of the measure will be contained in the Finance Bill. International corporation tax reform The Irish Government has signed up to OECD proposals for a global minimum effective tax rate of 15 percent for multinationals with global revenues in excess of €750 million. Ireland has negotiated an effective minimum rate set at 15 percent instead of the original “at least” 15 percent proposal by the OECD and endorsed by the G7 in July this year. Ireland has also secured agreement that the 12.5 percent rate continues to apply to companies below the €750 million revenue threshold. The new rules are expected to be implemented as early as 2023. Bank levy (Stamp duty) The bank levy, which was due to expire in 2021, is being extended for one further year. It will apply to a reduced number of institutions, as, Ulster Bank Ireland DAC and KBC Bank Ireland plc are being excluded from its scope due to the fact that they are exiting the market. The banks to whom the levy will continue to apply to will not pay any more in 2022 than they did in 2021, thus explaining why the level collected will be in the region of €87 million.

In addition to the announcement of a decrease in the farmers’ flat rate addition for VAT in 2022 (see VAT measures), stock relief under section 666 TCA 1997 is extended for a further three years and enhanced stock relief is extended for a further year. The young trained farmer stamp duty relief will also continue to the end of next year. Stock relief Section 666 TCA 1997 is being extended for a further three years. This section provides for stock relief at a rate of 25 percent of the amount by which the value of farm trading stock at the end of an accounting period exceeds the value of farm trading stock at the beginning of the accounting period. Section 667B TCA 1997, and Section 667C TCA 1997, which provide for, respectively, enhanced stock relief at a rate of 100 percent for young trained farmers; and at the rate of 50 percent for farmers who are partners in registered farm partnerships are both being extended for a further year. Young trained farmer stamp duty relief This measure extends the full relief from stamp duty on the conveyance of farm land available, which would normally be charged at 7.5 percent, to eligible young (i.e. not yet 35 years old) trained farmers, provided for under section 81AA SDCA 1999 to the end of 2022. As the enhanced stock relief measures for young trained farmers and farm partnerships and young trained farmer stamp duty relief are deemed to be a State Aid, which are allowable under the Agriculture Block Exemption Regulation, scheduled to expire on the 31 December 2022, the Minister is limited in extending these reliefs. However the Minister is hopeful, based on advised by the Department of Agriculture, that reliefs of this nature will continue to be considered an acceptable form of State aid under the terms of any revised regulation. As a result the Minister for Finance hopes to be able to provide for a further extension to these reliefs next year.

Following an assessment carried out by the Department of Finance earlier this year to consider how the EII scheme could be enhanced, the Minister for Finance announced both an extension and expansion of the EII scheme to the end of 2024. EII is a tax incentive which allows an individual investor to obtain income tax relief of up to 40 percent on investments for shares in certain companies up to certain limits each tax year. However, the 2014 revision of EU General Block Exemption Regulation (GBER) for State Aid significantly restricted the scope of the EII scheme and its effectiveness as a workable tax relief. During his speech, the Minister said that the EII scheme could be a real driver of investment in early-stage companies and high-potential start-ups, but recognised that the scheme “has yet to reach its potential”.   The Minister has therefore announced the extension of the scheme for a further three years, along with further modifications to the scheme. Following consultation with relevant stakeholders, the Minister announced his intention to open up the scheme to a wider range of investment funds in order to attract more investors into the scheme. It is also proposed to allow greater capacity for investors to redeem their capital without penalty - the so called 'capital redemption window' and to remove the rule that 30 percent of an investment in an EII company must be spent before relief can be claimed.  The 30 percent  requirement places a significant administrative burden on early-stage companies in tracking expenditure and it also reduces the attractiveness of EII schemes due to the lack of clarity on when the investor can claim tax relief.  The CCAB-I made a number of recommendations in its response to the public consultation on the EII scheme, including that a statement of qualification should be issued once an investment has been made in a qualifying company.  

The weekly income threshold for the higher rate of employer’s PRSI increases to €410 following the announcement of an increase in the hourly minimum wage. The Government accepted the recommendations of the Low Pay Commission and announced an increase in the national minimum wage by 30 cent to €10.50 per hour, and the change follows a recommendation to ensure that the increase in the hourly minimum wage does not lead to work disincentives for workers, in particular those seeking to work full-time. The increase in the weekly income threshold for the higher rate of employer’s PRSI from €398 to €410  will take effect from 1 January 2022. 

In an effort to ease the cost of living pressures brought about by rising prices and inflation the Minister for Finance announced a €1,500 increase in the standard rate band in addition to a €50 increase in the personal tax credit, employee tax credit and earned income tax credit. Additional measures announced include changes in USC to ensure the increased minimum wage remains outside the top rates of the charge and amendments to the operation of remote working relief for employees. Credits and rate bands The income tax standard rate bands will increase as follows: Single, widowed or surviving civil partner from €35,300 to €36,800; Single, widowed or surviving civil partners, qualifying for the Single Person Child Carer Credit from €39,300 to €40,800; Married couples or civil partners (one income) from €44,300 to €45,800; Married couples or civil partners (two incomes) from €44,300 to €45,800 (with an increase of €27,800 max) The personal tax credit, the employee tax credit and the earned income tax credit will all increase from €1,650 to €1,700. Marginal tax rate payers will receive an additional €415 in their take home pay, when USC changes (discussed below) are also considered. Those earning below the standard rate band threshold have the opportunity to earn additional income without paying tax at the marginal rate. The estimated cost of both measures is €597 million on a full year basis. USC To ensure that the salary of a full-time worker on the minimum wage will remain outside the 4.5 percent rate of USC when the minimum wage increases from €10.20 to €10.50 from 1 January 2022 the ceiling of the second USC rate band will increase from €20,687 to €21,295. Workers with income above €21,295 will also benefit. The USC Rates & Bands from 1 January 2022 will be: €0 – €12,012 @ 0.5% - no change €12,013 – €21,295 @ 2%  €21,296 – €70,044 @ 4.5% €70,045+ @ 8% Self-employed income over €100,000: 3% surcharge *Incomes of less than €13,000 are exempt from USC. The estimated cost of these changes in USC is €26 million on a full year basis. The Minister also announced the extension of the reduced rate of USC for medical card holders by a further year, at an estimated cost of €62 million in 2022 and €72 million per annum thereafter. This measure is revenue neutral as it is already included in the tax base. Working from home Today the Minister for Finance announced that an income tax deduction amounting to 30 percent of the cost of vouched expenses for heat, electricity and broadband incurred while working from home will be available to employees. Remote working measures are to be formalised in legislation through the Finance Bill. Results of a survey conducted by the Institute during 2021 indicated a strong desire for remote working to continue beyond the pandemic. Remote or hybrid working arrangements are expected to play a significant role in Irish employment, with 95 percent favouring remote working in a National Annual Remote Working Survey.  However, as drawn out in the Next Financial Year it is necessary to ensure that undue financial hardship or administrative burdens must not be placed on employers. The CCAB-I called for the tax system in this area to be reformed given the array of health, social and commercial benefits. The detail of the legislation contained within the Finance Bill will be eagerly anticipated by many. The anticipated annual cost of this measure is estimated at €11 million. Aviation Owing to the heavy price paid by international crews in the aviation sector during the pandemic, the Minister announced that the forthcoming Finance Bill is to amend the tax arrangements applying under section 127B TCA 1997, to exclude non-resident air crew where certain conditions are satisfied. Sea-going naval personnel tax credit The sea-going naval personnel tax credit will be extended to 31 December 2022.  

The Employment Wage Subsidy Scheme (EWSS) will be extended beyond 31 December 2021 until 30 April 2022, in a graduated form. The Minister confirmed that there would be no change to the operation of the scheme throughout October and November 2021, however changes to the rates of subsidy paid and an end to the reduced rate of employer's PRSI are forthcoming. The tax debt warehousing scheme is extended to facilitate self-assessed taxpayers with a material interest in their employer company to warehouse income tax liabilities relating to their Schedule E income from that employer company. Employment Wage Subsidy Scheme The Minister confirmed that the EWSS will be closed to new employers from 1 January 2022. Employers who are availing of the EWSS on 31 December 2021 will continue to be supported under the scheme, subject to eligibility until 30 April 2022. Rate of subsidy The rate of weekly subsidy received by the employer per paid eligible employee since October 2020 is as follows: Employee gross weekly wage Subsidy payable Less than €151.50 Nil From €151.50 to €202.99 €203 From €203 to €299.99 €250 From €300 to €399.99 €300 From €400 to €1,462 €350 More than €1,462 Nil   The Minister confirmed that no changes will be implemented to the EWSS for the months of October and November. Across December 2021, January 2022 and February 2022 the original two-rate structure as set out below will apply: Employee gross weekly wage Subsidy payable Less than €151.50 Nil From €151.50 to €202.99 €151.50 From €203 to €1,462 €203 More than €1,462 Nil   For March and April 2022, a flat-rate subsidy of €100 will be put in place. Reduced rate of employer’s PRSI The current terms of the scheme provide a reduction in employer's PRSI to 0.5% in respect of employees for whom the subsidy is payable. The Minister for Finance confirmed in his speech that reduced rate of PRSI will no longer apply for the final two months of the scheme in March and April 2022. Cost of EWSS The estimated cost of extending the EWSS until April 2022 is €1.26 billion, which is to be funded by the Department of Social Protection. Tax debt warehousing The tax debt warehousing scheme will be expanded to allow self-assessed income taxpayers who have a material interest in their employer company to warehouse income tax liabilities relating to their Schedule E income from that employer company. Commercial rates waiver The commercial rates waiver will continue until 31 December 2021. The waiver of commercial rates was originally introduced as a COVID-19 emergency support measure in March 2020. The extended waiver applies to the hospitality, arts and tourism-related sectors.