Budget 2023

Institute reacts to Autumn Statement announcements  17 November 2022 – Today’s Autumn Statement did little to support businesses and their employees through the tough times ahead, according to Chartered Accountants Ireland. The Institute, which represents over 5,200 members working in businesses and practices across Northern Ireland, commented as the Government announced its ‘Autumn Statement’ in Westminster, with the Chancellor acknowledging that the UK is in recession after the biggest monthly increase in inflation in over 40 years.  Commenting, Dr Brian Keegan, Director of Public Affairs, Chartered Accountants Ireland said,  “Businesses in Northern Ireland are feeling the effects of this inflationary crisis particularly acutely. These businesses are also dealing with continued uncertainty over trading arrangements in the context of the ongoing Protocol negotiations along with the absence of devolved government.  “We saw during the COVID-19 pandemic that the Government can react speedily at a time of crisis. As this crisis deepens, more needs to be done by the Government to develop and deliver much needed supports through the tax system. For many businesses, these could be a vital lifeline for survival and, ultimately, job protection.  “For example, the Government could reintroduce extended relief for trading losses, as it did during the pandemic. This would enable businesses to claim relief for losses much earlier which would generate vital tax refunds and improved cash flow. “Tax policy and the tax system can, and must, be used to not only build strong and sustainable economies but to provide crucial support via targeted interventions.” ENDS     

Despite the tough current climate, Budget 2023 made clear that action against climate change remains a priority for the government. Deirdre Hogan explains The Minister for Finance, Paschal Donohoe TD, delivered his Budget 2023 speech against a contrasting backdrop: the trilemma facing Irish businesses and individuals of energy, inflation and supply chains versus the recent positive reports on the exchequer finances. While the Budget’s focus was on solving the short-term cost of living crisis, the Minister noted that “climate change is one of the key challenges of our time”, indicating that the climate crisis remains a priority for the Government. Carbon tax As expected, carbon tax was increased by €7.50 from €41 to €48.50 per tonne of CO2. The carbon tax increase applies from 12 October 2022 for auto fuels but will be offset by a levy reduction, so we will not see a price increase. For all other fuels, carbon tax will increase from 1 May 2023.   Due to the current energy crisis, the government opted to extend the nine percent reduced rate applicable to electricity to February 2023 and maintain the excise reduction introduced last spring on marked gas oil, petrol, and diesel of five, 16 and 21 cents respectively, providing for costs in the winter months when energy usage will be at its highest.   The receipts from carbon tax are ringfenced to support wider sustainability initiatives and to support the costs of society and businesses in their transition from high carbon-emitting practices to more sustainable alternatives. Carbon tax is expected to generate €623 million in 2023, and almost 50 percent of that is earmarked to go into improving the energy efficiency of houses. Certain social welfare measures, such as Qualified Child Payment and the Fuel Allowance, will also be funded by the carbon tax. The Fuel Allowance is set to increase to €200 above the relevant State Pension Contributory, while those over 70 will see an increase in the Fuel Allowance to €500 for a single person and €1000 for a couple. Agriculture Farmers are set to receive €81 million to finance a new agri-climate rural environment scheme that will support up to 50,000 farmers who take action to improve biodiversity, climate, air, and water quality. Individuals Every household in Ireland will receive €600 in electricity credits over three €200 payments commencing pre-Christmas 2022. Businesses For businesses, a Temporary Business Energy Support Scheme is being introduced to assist businesses with their energy cost over the winter months. Other sustainability-related measures Other sustainability measures introduced include the announcement that €850 million will be spent on capital investment by the Department of the Environment, Climate and Communications in 2023 with over €337 million going towards grants for improved energy efficiency. This should fund over 37,000 home energy upgrades. In transport, the reduction of fares by 20 percent and the 50 percent reduction in the Youth Travel Card will both be extended until the end of 2023. Considering the current sustainability skills shortages in the labour market, the government provided for more than 2,000 apprenticeship places in areas around sustainable finance, green technology, and climate change. The above measures are all welcome and positive. However, there is more work to be done to help increase the pace of our climate or sustainability ambitions. Deirdre Hogan is Partner, Tax and Law from EY Ireland

  In this week’s sustainability/ESG bulletin, read about the climate and environmental aspects of Ireland’s Budget 2023, a new grant for Irish businesses to switch to renewable energy, a proposed EC ban on products made with forced labour, biodiversity and the EU’s calls for Ireland to halt peat cutting, and the UK Government’s independent review of its Net Zero Strategy, as well as articles and upcoming events.  Budget 2023 - climate and environmental impact Budget 2023 was announced on 27 September, with Minster for Finance, Pashcal Donohoe T.D., describing climate change as the one of the key challenges of our times. Read about the climate and environmental impacts of Budget 2023 here. Energy Update A Temporary Business Energy Support Scheme has been announced in Budget 2023 to assist businesses with their energy cost over the winter months. The Scheme will be open to businesses that carry on a Case I trade, are tax compliant and have experienced a significant increase (more than 50 percent) in their natural gas and electricity costs. Read more from our Tax Team here. New grant for businesses to switch to renewable energy Businesses looking to switch to renewable energy and reduce their energy bills can now apply to the Sustainable Energy Authority of Ireland (SEAI) for a grant for solar photovoltaic (pv) modules. The Non-Domestic Microgen Scheme (NDMS) provides financial assistance of up to €2,400 to help businesses and other sectors to install solar PV panels to generate electricity on site. BEIS commissions independent review of Net Zero The Business, Energy and Industrial Strategy (BEIS) Secretary of State has commissioned an independent review of the UK Government’s approach to delivering its net zero target. Reporting by the end of 2022, the review will ensure that delivering the net zero target does not place ‘undue burdens’ on businesses or consumers. EU, Ireland and biodiversity The EU Commission is calling on Ireland to take action to halt the continued cutting of peat in Special Areas of Conservation (SACs), designated to conserve raised bogs and blanket bogs under the Habitats Directive (Directive 1992/43/EEC). Their protection and restoration assist Ireland in meeting its climate change goals not only in keeping the peat in the ground, but also by avoiding the very high carbon and other air pollution emissions which are caused when peat is burnt as a fuel. Ireland has two months to respond and take necessary measures or the Commission may decide to refer Ireland to the Court of Justice of the European Union. Director General of the Environmental Protection Agency (EPA) Laura Burke reportedly described peatland restoration was a win-win for Ireland due to the many unique species on peatlands that can be protected. Ms Burke made the comments at the first meeting of Ireland’s Citizens' Assembly on Biodiversity Loss, which took place between 24 and 25 September in Dublin. The citizen’s assembly is the first such anywhere in the world focusing specifically on biodiversity loss. It is made up of 99 randomly selected Irish citizens who participate in the assembly's six-month programme of work. You can find out more on accountants and biodiversity in the Chartered Accountants Ireland Sustainability Hub. EC proposes banning products made with forced labour The European Commission has proposed to ban products made with forced labour on the EU market. The regulation is proposed to apply the ban to all products, including their components, all economic operators, economic sectors, stages of production or steps of value chains. Commenting, Executive Vice-President and Commissioner for Trade, Valdis Dombrovskis, said: “This proposal will make a real difference in tackling modern-day slavery, which affects millions of people around the globe.” You can read more about how accountants can join the fight against modern slavery on the Chartered Accountants Ireland Sustainability Hub.  Articles How to stop expensive heat leaking out your walls, windows and roof (Irish Times) Total funding for nature and biodiversity increased to more than €90m (Irish Times) Budget 2023 and Climate (Irish Independent) EU countries to back energy windfall levies, lock horns over gas price cap (RTE) Upcoming events Practical online workshop to help businesses understand and measure their carbon footprint (Carbon Footprinting – The Essentials) 5 October, 09.30-12.00pm. European Business & Nature Summit, 18-19 Oct The Business Case for Social and Circular (Register) 18 October, 12.00-1.00:  free, interactive webinar, experts Claire Downey, Chris MM Gordon and Kate van der Merwe discussing the social and circular economies, and how these alternative economic models are sources of innovation for mainstream business. Ireland Climate Finance Week, 17-21 Oct Ecosystems Knowledge Network, Natural Capital Finance & Investment Conference, 19 Oct (London) 20 Oct (Edinburgh)  Accountancy Europe, Sustainability Tax Systems, 25 Oct 9-11 GMT (10-12 CEST) You can find information, guidance and supports to help members understand sustainability and meet the challenges it presents in our online Sustainability Centre.

  Budget 2023 was announced on 27 September, with Minster for Finance, Pashcal Donohoe T.D., describing climate change as the one of the key challenges of our times, the effects of which are becoming more frequent and more destructive. Commenting, Minister Donohoe stated that “[p]rotecting our environment is the responsibility of us all and Government is acting to reduce emissions and support newer cleaner technologies, particularly in energy and transport”, before committing to continuing the additional funding needed for measures, such as retrofitting and more sustainable modes of travel. Minister Donohoe announced that there would be an increase of just over two cent VAT inclusive per litre of petrol and diesel. This is caused by the increase in the rate per tonne of carbon dioxide emitted for petrol and diesel from €41 to €48.50 from 12 October. However, this increase is to be ‘offset’ with a reduction to zero of the National Oil Reserves Agency (NORA) levy in recognition of the sharp cost of living challenges currently being faced by society. The price at the pump will not go up as a result of taxes or levies, so the measure is unlikely to have much impact in reducing the use of petrol and diesel by consumers.  In his speech, Minister for Public Expenditure and Reform, Michael McGrath T.D. described the need “to reduce our dependence on energy imports, particularly from Russia, by becoming more efficient in how we use energy and especially by accelerating the shift to renewable energy, in line with our existing climate goals”, before announcing the provision of €850 million in capital investment to the Department of the Environment, Climate and Communications in 2023. Positive climate and environmental measures in Budget 2023 include: €337 million to go towards grants for energy efficiency, to fund over 37,000 home energy upgrades including households in, or at risk of, energy poverty through the Warmer Homes Scheme, described by the Minister as “the highest funding ever committed to energy efficiency.” funding to be provided to support the introduction of a new low-cost loan scheme for residential retrofit extra funding and resources to be provided to the National Parks and Wildlife Service and the Marine Area Regulatory Authority (MARA) an increase of €0.8 billion in core capital expenditure funding for 2023, with a particular focus on climate action, alongside housing and health. This includes capital allocation to the Department of Transport for investment towards Active Travel, Greenways and the roads network, as well as the continued delivery of Transport’s ongoing Megaprojects MetroLink, DART+ Programme and BusConnects. This investment, along with the reductions announced in passenger fares, and the continued roll out of electric vehicle grants, aims to assist Ireland in meeting its ambitious climate targets. an extra €150 million in capital allocation to the Department of the Environment, Climate and Communications in 2023 to provide a response to the challenges presented in reducing carbon emissions, improving energy efficiency and facilitating the achievement of national goals set under the Programme for Government and the Climate Action Plan. funding to be invested through Skillnet Ireland to support business through upskilling in emerging technologies and expansion of programmes to include sustainable finance, green tech and responding to climate change €87 million in 2023 to retrofit at least 2,400 social homes to a Building Energy Rating of B2, in line with commitments in the Climate Action Plan funding for 4,800 additional apprenticeship places and 4,000 registrations to deliver on the Housing for All and Climate Action plans and for over 2,000 Skillnet places in sustainable finance, green tech and climate change The Department of Public Expenditure and Reform is currently working with the OECD to update Ireland’s Public Spending Code framework to ensure that it is robust in the face of changing priorities and to ensure that it takes appropriate account of the climate and environmental impact of investment decisions.   Carbon Tax Speaking about Carbon Tax, Minister McGrath stated that “[a]s set out in the Programme for Government, every additional euro raised in carbon tax will be returned to the people of Ireland through energy efficiency upgrades, social protection schemes to protect the most vulnerable and measures to incentivise farming in a more environmentally friendly way.” In 2023, the total Carbon Tax revenue available for investment will be €623 million. Almost half of this is to be invested in improving the energy efficiency of homes. It will allow for investment to support over 37,000 home energy upgrades, including bringing over 13,800 homes to a Building Energy Rating (BER) of B2, and 6,000 free upgrades to the homes of those in, or at risk of, energy poverty. 35 percent of the total Carbon Tax revenues expected to be raised will be spent on social protection measures this year to ensure that increases in the carbon tax are progressive. The total cost of these interventions is projected to be €57 million in 2023. The table below details the allocation of the increased carbon tax revenues in 2023: Table 15: Allocation of Carbon Tax Expenditures in 2023   € m - 2023 Department € m – 2022 1. Total Investment in Residential & Community Energy Efficiency (Cumulative funding from Carbon Tax increases from 2020 to 2023 inclusive) 291 DECC 202 2. Total Targeted Social Protection Interventions (Cumulative funding from Carbon Tax increases from 2020 to 2023 inclusive) 218 DSP 174 3. Incentivising farming in a greener and more sustainable way (Cumulative funding from Carbon Tax increases from 2020 to 2023 inclusive) 81 DAFM 3 4. Continuation of 2020 Carbon Tax Investment Programmes in Other Departments 33 Various 33 Total Expenditure 623   412    

The Minister announced the extension of reduced VAT rates for gas and electricity, with newspapers and certain health products becoming zero-rated. As signalled earlier this year, the reduced 9 percent VAT rate for the hospitality sector will not continue past 28 February 2023. Gas and Electricity The 9 per cent rate of VAT will be extended for gas and electricity to 28 February 2023. The measure was due to end on 31 October 2022. Newspapers Newspapers play a critical role in our society. In recognition of this, the Minister announced a reduction in the VAT on newspapers (including digital editions) from 9 per cent to zero rate from 1 January 2023. Health Products Automatic External Defibrillators will now be taxed at the zero rate. In addition, non-oral Hormone Replacement Therapies and non-oral Nicotine Replacement Therapies will be zero rated. These changes will be introduced from 1 January 2023 Hospitality The 9 per cent VAT rate which is currently in place for the benefit of the tourism and hospitality sector will cease after 28 February 2023 where the rate will revert to 13.5 per cent.

The Bank Levy has been extended to the end of 2023. It is expected that the amount collected in 2023 will be in the region of €87 million.

In an effort to ease the cost-of-living pressures brought about by rising prices and inflation, the Minister for Finance announced a €3,200 increase in the standard rate band, in addition to a €75 increase in the personal tax credit, employee tax credit and earned income tax credit. The home carer tax credit has been increased by €100. Additional measures announced include changes in the USC to ensure the increased minimum wage remains outside the top rates of the charge and an increase in the small benefit exemption for employees. Credits and rate bands The income tax standard rate bands will increase as follows: Single, widowed or surviving civil partner from €36,800 to €40,000; Single, widowed or surviving civil partners, qualifying for the Single Person Child Carer Credit from €40,800 to €44,000; Married couples or civil partners (one income) from €45,800 to €49,000; Married couples or civil partners (two incomes) from €45,800 to €49,000 (with an increase of €31,000 max) The personal tax credit, the employee tax credit and the earned income tax credit will all increase from €1,700 to €1,775. The home carer tax credit will increase from €1,600 to €1,700. Marginal tax rate payers will receive an additional € 830 in their take home pay, when USC changes are factored in (discussed below), while those earning below the standard rate band threshold will have the opportunity to earn additional income without paying tax at the marginal rate. The estimated cost of these measures is €1.226 billion 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 €10.50 to €11.30 from 1 January 2023 the ceiling of the second USC rate band will increase from €21,295 to €22,920. Workers with income above €22,920 will also benefit. The USC Rates & Bands from 1 January 2023 will be: €0 – €12,012 @ 0.5% - no change €12,013 – €22,920 @ 2% €22,921 – €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 €67 million in 2023 and €77 million per annum thereafter. The Minister also announced the extension of the reduced rate of USC for medical card holders by a further year. This measure is revenue neutral as it is already included in the tax base. Small Benefit Exemption Today the Minister for Finance announced changes to the Small Benefit Exemption, permitting two vouchers to be granted by an employer in a single year and increasing the annual limit per employee from €500 to €1,000 per annum. These changes will apply for 2022 and subsequent years. Sea-going naval personnel tax credit The sea-going naval personnel tax credit entitles certain individuals to a tax credit of €1,500. The Minister announced the extension of the credit to 31 December 2023. The credit is available to permanent members of the Irish Naval Service who spent at least 80 days at sea on board a naval vessel in the previous tax year. The cost of the extension of the credit is estimated to be €500,000. Foreign Earnings Deduction The Foreign Earnings Deduction (FED) will be extended to 31 December 2025. It provides relief from income tax on up to €35,000 of income for employees tax-resident in Ireland who travel out of the State to temporarily carry out duties of employment in certain qualifying countries. Compliance Revenue will conduct a range of targeted projects which will include PAYE compliance interventions involving a further focus on share schemes, and increased debt management activity. It is expected that these projects will yield additional Exchequer receipts of €80 million arising from increased taxpayer compliance.  

The Minister announced a scheme of accelerated capital allowances for farmers for the construction of modern slurry storage facilities and extended several important agricultural reliefs that were due to expire at the end of 2022. The following reliefs will be extended: Extension of Young Trained Farmer Relief from stamp duty Young Trained Farmer Relief (section 81 Stamp Duty Consolidation Act (“SDCA”) 1999) provides for a complete exemption from stamp duty for young trained farmers on the acquisition (by gift or purchase) of farmland and associated buildings. The scheme will now be extended to 31 December 2025, pending finalisation of issues relating to the EU Agricultural Block Exemption Regulations. Extension of Farm Consolidation Relief from stamp duty Farm Consolidation Relief (section 81B SDCA 1999) provides for a 1 percent rate of stamp duty on instruments which give effect to acquisitions and disposals of agricultural land where the land transactions involved qualify for a “Farm Restructuring Certificate” from Teagasc. The scheme will be extended to 31 December 2025, pending finalisation of issues relating to EU Agricultural Block Exemption Regulations. Farm Restructuring Relief from Capital Gains Tax Farm Structuring Relief (section 604B Taxes Consolidation Act (“TCA”) 1997) provides relief from CGT for land transactions qualifying for “Farm Restructuring Certificate” from Teagasc. The scheme will be extended to 31 December 2025, pending finalisation of issues relating to EU Agricultural Block Exemption Regulations. Young Trained Farmer and Registered Farm Partnership Stock Reliefs                                                                                                              Young Trained Farmer Stock Relief and Registered Farm Partnership Stock Relief (Part 23 Chapter 2 TCA 1997) are stock relief measures for young trained farmers and for registered farm partnerships respectively. The schemes will be extended to 31 December 2024, however the extension will be contingent on the update of the EU Agricultural Block Exemption Regulation. Accelerated capital allowances for the construction of slurry storage facilities The Minister announced a time-limited scheme of accelerated capital allowances for farmers for the construction of modern slurry storage facilities. The scheme will run for three years and will provide for the capital cost of the facilities to be written off over two years rather than seven years. This scheme will in turn assist Irish farmers adopt environmentally positive farming practices. Flat-rate VAT compensation percentage for farmers reduced to 5 percent The Minister announced that the flat-rate compensation percentage for VAT for farmers will be reduced to 5 percent (a reduction of 0.5 percent). The flat-rate scheme compensates unregistered farmers on an overall basis for VAT incurred on their farming inputs. The reduction is line with requirements under the EU VAT Directive. This change will be introduced from 1 January 2023.

In his speech the Minister commented on climate change and the increasing frequency and destructiveness of climate events. Finance Act 2020 set out the trajectory for increases in carbon tax, a key measure in combating climate change, with the pre-committed increases confirmed today. Carbon tax, calculated on the rate of carbon dioxide per tonne, will increase to €48.50 per tonne (previously €41 per tonne). Motor fuel The carbon tax increase will result in additional 2 cent per litre to the cost of petrol and diesel. This means that a 60-litre tank of diesel will increase by an estimated €1.48 and a similar tank of petrol will cost an estimated extra €1.28. Carbon tax will rise by the same amount in every Budget until 2029, further increasing the cost of petrol, diesel and home heating fuels.  Home heating The price of home heating oil, coal and peat will all increase from 1 May 2023. A 900-litre tank of home heating oil will cost €19.41 more while a 40kg bag of coal will cost 90 cents extra and a 12.5kg bale of peat briquettes will go up by 19 cents. The cost of annual natural gas usage will increase by an average of €16.98.   Funds raised from these increases are intended to go towards funding an increase in the fuel allowance in addition to programmes aimed at reducing the State’s overall carbon footprint, including the better insulation of homes. In recognition of the impact the increase in carbon tax will have on the cost-of-living, the impact of the increases will be offset by a reduction in the National Oil Reserves Agency (NORA) levy to 0 cent per litre. Carbon tax is estimated to raise an additional €114 million in 2023 and €151 million in 2024. The Government has committed the additional revenues to the Just Transition, fuel poverty prevention and funding to encourage greener and more sustainable farming. Windfall Energy Tax Ireland aims to be part of the EU-wide response to high energy prices which could see excess profits of energy taxes subject to a windfall tax. If agreement is not achieved at EU level, the Government will bring forward its own measures to capture excess profits of energy companies.