Budget 2025

1 in 4 SMEs surveyed by Chartered Accountants Ireland in April reported that their business has lost employees or seen prospective employees unable to take a role due to the unavailability of affordable housing. This is evidence of the economic impact the housing crisis is now having according to the Consultative Committee of Accountancy Bodies – Ireland (CCAB-I), the umbrella group for professional accountants, as it published its 2026 Pre-Budget submission today.   The OECD has noted that Ireland’s housing stock lacks the flexibility to meet the increasing demand for housing, and only last Tuesday, the Economic and Social Research Institute (ESRI) told the Oireachtas Committee on Housing that there will be no major uptick in housing supply in 2025 and 2026. CCAB-I notes this market failure, and calls for a targeted, time bound and regularly reviewed tax intervention to correct it.   Cróna Clohisey, Director of Members and Advocacy at Chartered Accountants Ireland said  “Viability of certain construction projects, namely apartments, student accommodation, and independent living facilities has been cast into sharp focus in recent months, with knock on impacts on the costs of rent, availability of student accommodation and the lack of options for downsizers. Recent data from the CSO shows that there was a drop of 24% in apartment completions from 2023 to 2024.   “October’s Budget should include tax measures to stimulate the development of such dwellings, but they need to be targeted, time-limited, and regularly reviewed to ensure that they are cost effective and do not repeat the mistakes of the past. We welcome the opportunity to discuss with government how tax might work as a lever in this regard.”    Regulatory burden  57% of SMEs surveyed by Chartered Accountants Ireland last month cited regulatory compliance as the area they most need help from the government in tackling (rising to 75% amongst small practices). In its Pre-Budget submission, CCAB-I identifies key areas where the intersection of tax law and administration are loading uncertainty and burden onto businesses, and calls for the following measures to be considered in Budget 2026:  Key proposed simplification measures   Simplify tax filing by introducing a single pay-and-file date for capital gains tax aligned with the annual income tax return.   Simplify the reporting of tax-free small benefits and expenses (the Enhanced Reporting Requirements rules) by replacing real-time reporting with monthly or quarterly returns. CCAB-I also recommends that penalties of €4,000 that are potentially chargeable where a reportable item is missed are made proportionate with the fact that the payments are non-taxable.   Introduce legislation enabling businesses to provide their staff with reasonable levels of hospitality while working without having to apply a benefit-in-kind tax charge. This would provide much needed certainty to business as to what they can provide in terms of lunches and teas and coffees and would critically support the local economy and hospitality sector. As we operate within a self-assessment tax system, employers should be empowered to determine what is a reasonable accommodation.  Cróna Clohisey, Director of Members and Advocacy at Chartered Accountants Ireland said  “A single pay-and-file date for capital gains tax aligned with the annual income tax return would alleviate the administrative burden of what is a low-yielding tax. 2024 Exchequer receipts from CGT accounted for approximately €1.7 billion, only 1.6% of the total tax receipts in that year.   “There is similar scope to ease administrative burdens for SMEs when it comes to the reporting of tax-free small benefits and travel expenses. The requirement to report these benefits “on or before” the time they are made or paid is excessive and should be replaced by monthly or even quarterly reporting. For example, in order to reduce the number of returns and the administrative headache of this requirement, many businesses now only reimburse travel expenses to workers on the same day as payroll. This means workers can be out of pocket for longer.  “Our research also shows that the regulatory compliance burden is particularly acute for SMEs with fewer than 50 staff; 35% have sought advice on how to reduce this burden, and they are the least likely to be able to shoulder it.”  Measures to support SMEs   The Programme for Government 2025 committed to rigorously implement the SME test to scrutinise every new piece of legislation and regulation for its impact on SMEs and examine the regularity of SME reporting and filing requirements.  CCAB-I calls for consideration to be given to enhancing the R&D tax credit regime for SMEs which has played an important role in promoting innovation and job creation in Ireland. The existing regime is limiting for the SME sector due to the restrictions on relief available for third party costs, and the use of third parties to carry out research and development on behalf of the SME is an indispensable option for Ireland’s SMEs. The automatic qualification for the R&D tax credit for SMEs in receipt of RD&I funding from Enterprise Ireland would also benefit the sector and remove complexity and uncertainty in this area.   Businesses are facing substantially higher employment costs, so CCAB-I is also asking that Government commits to no further increases in the rate of Employers’ PRSI for the next four years. Incremental increases across all classes of PRSI are planned up to 2028. Consideration should also be given to reducing the rate of Employers’ PRSI on minimum wage workers by 1.5% to help with the initial costs of pension auto enrolment which will likely come in next year.   Clohisey concluded:  “According to research we conducted last month among SMEs, 3 in 4 (77%) said that business costs have increased in the past six months, with staff costs the biggest challenge. There is anecdotal evidence that increases in minimum wage are causing employers to reduce hours to offset the increased costs, so committing to no further increases in the rate of Employers’ PRSI for a set period of time would go some way in trying to stem increasing labour costs.”  ENDS  Pre-Budget Submission 2026: Addressing the ongoing housing shortage

In addition to the targeted VAT supports announced under the banner of cost of living and supporting climate action, the VAT registration thresholds will also increase for a second year in a row. The flat rate compensation for farmers who are not registered or required to register for VAT will also increase.  VAT registration thresholds   From 1 January 2025, the VAT registration thresholds will increase from €40,000 for services to €42,500, and from €80,000 to €85,000 for goods. The increases aim to ensure that small businesses remain below these thresholds and do not have to register. The full year cost of the increases is estimated to be €15 million.  Farmer’s flat rate compensation  The flat rate compensation for farmers will increase from 4.8 percent to 5.1 percent from 1 January 2025.  The flat-rate compensation scheme is a special scheme for farmers who are not registered, or required to register, for VAT. The scheme is designed to compensate flat-rate farmers for the VAT they incur on farming costs without having to register for VAT. 

A range of measures to further the transition to an ever “greener” economy were also announced which included the expected €7.50 increase to carbon tax, a reduced VAT rate for heat pumps, and a new benefit in kind exemption for electric vehicle charging facilities.   Carbon tax   The rate per tonne of carbon dioxide emitted for petrol and diesel will increase from €56.00 to €63.50 from 9 October as per the trajectory set out in the Finance Act 2020. This increase will be applied to all other fuels with effect from 1 May 2025.   Emissions based Vehicle Registration Tax (VRT) for Category B Vehicles   An emissions-based approach to VRT for category B commercial vehicles is being introduced. This proposal will introduce a lower 8 percent rate for category B vehicles with CO2 emission of less than 120 grams per kilometre with a view to incentivising uptake of these lower emissions vehicles.  The weight carriage ratio for electric commercial vehicles is also being changed to enable them to qualify for the VRT rate of €200.  VAT rate on the supply and installation of heat pumps  Following amendments in the VAT Directive it is possible to apply a reduced VAT rate on heat pumps meeting specific technical standards. A VAT reduction to 9 percent for heat pumps is proposed from 1 January 2025 to incentivise homeowners to install heat pumps.  Accelerated Capital Allowances: gas and hydrogen vehicles  The Accelerated Capital Allowances scheme for gas and hydrogen-powered vehicles and refuelling equipment provides a tax incentive for companies and unincorporated businesses who invest in such vehicles and equipment for the purposes of their trade. The relief will be extended for a further year, to 31 December 2025, to allow the Department of Transport time to review the climate policy objectives underlying the scheme and to determine its future trajectory.  Benefit In Kind (BIK) treatment of Battery Electric Vehicle home chargers  A BIK exemption is being provided in circumstances where an employer incurs an expense in connection with the provision of a facility for the electric charging of vehicles at the home of a director or employee.  Emission thresholds for vehicle capital allowances  The CO2 thresholds for claiming capital allowances on business cars are being adjusted downward in light of improved vehicle emissions standards.   From 1 January 2027, an expenditure of €24,000 will be allowable for cars with CO2 emissions of 0-120g/km. A reduced amount of €12,000 will be allowable for vehicles with CO2 emissions of 121-140g/km. There will be no allowable expenditure for vehicles with emissions >141g/km. 

The announcements featured a range of supports in recognition of the importance of agriculture and the agri-food sector in the economy.   Accelerated Capital Allowances: Farm Safety Equipment  Accelerated capital allowances for expenditure incurred by farmers on certain farm safety equipment, and adaptive equipment for farmers with disabilities are available at 50 percent per annum over two years for eligible equipment.   Under Budget 2025, this measure is being broadened to allow for relief in respect of expenditure by famers on certain Targeted Agriculture Modernisation Schemes (TAMS).   Stock Reliefs   Stock reliefs are given as a deduction from trading income and are available in respect of the computation of farming profits. Subject to meeting certain conditions, a person carrying on the trade of farming is entitled to a stock relief deduction for an accounting period in which there is an increase in the value of the trading stock of the farming trade over the accounting period.   The following three stock reliefs, which were due to expire on 31 December 2024, are now being extended for a further three years to 31 December 2027:   General Stock Relief,   Young Trained Farmer Stock Relief, and   Stock Relief for Registered Farm Partnerships. 

An additional €1.37 billion in funding for childcare provision and extended mortgage interest tax relief for a further year were the main features. The 9 percent rate of VAT on gas and electricity will continue until April 2025.  Childcare provision  This additional funding will support the continued implementation of the National Childcare Scheme (NCS) subsidy, the Early Childhood Care and Education (ECCE) programme as well providing additional allocations toward Core Funding to support employers in meeting further increases in minimum rates of pay for those working in the sector.   In addition, two double payments of Child Benefit will be made to all qualifying households before the end of the year.  Mortgage interest tax relief  Mortgage interest tax relief, which was introduced on a temporary basis in Budget 2024, is being extended by one further year. Qualifying homeowners will be eligible for the relief in respect of the increased interest paid on their mortgage in the calendar year 2024 over the calendar year 2022 at the standard rate of income tax (20 percent), capped at €1,250 per property.   There is no change to the qualifying criteria for the relief, including that qualifying homeowners must have an outstanding mortgage balance on their principal private residence of between € 80,000 and €500,000 on 31 December 2022.  9 percent VAT for gas and electricity  It is proposed to extend the 9 percent VAT rate from 1 November 2024 to 30 April 2025 to address cost of living pressures associated with the price of gas and electricity. 

The key changes announced in Budget 2025 are: Increases to tax credits and bands as well as a 1 percent reduction in the USC,  An increase in the rental tax credit to €1,000, including a retrospective increase to its level in 2024,  The first increases in the CAT group tax free thresholds since 2019,  Enhancements to some business and investor reliefs, including a change to the proposed €10 million cap on retirement relief for family transfers of businesses, The small gift exemption which allows an employer to reward employees has been enhanced to allow five non-cash gifts up to a value of €1,500 per year,  Revenue will conduct a range of targeted compliance management activities in 2025, and  Confirmation that the participation exemption for foreign sourced dividends will commence as expected from 1 January 2025.  The Institute has a webpage dedicated to Budget 2025 where you can find further information.