What a difference a year makes. Last year, Budget 2021 was framed against the backdrop of COVID-19. This time last year vaccinations were not even on the horizon and the understandable focus of the Budget was in providing a safety net for all sectors of society. With the reopening of society there has been a rebound in the domestic activity leading in turn to inflationary pressure. The Minister commenting that “We are now entering a new phase where we will recover from the pandemic, restore our public services and living standards, repair our public finances. In framing this Budget, we have been conscious of the cost of living pressures that are currently confronting citizens and businesses”. Strong tax receipts throughout the year have allowed the Minister some room for manoeuvre.
As regards some of the specific taxation measures introduced in the Budget, a summary is as follows:
- Temporary Covid supports to be retained to support the most impacted. EWSS to be retained in a modified manner until 30 April 2022 in a graduated form
- The tax debt warehousing scheme will be expanded to allow self assessed income tax payers with employment income who have a material interest in their employer company to warehouse income tax liabilities relating to their Schedule E income from that employer company.
- An amendment will be introduced in the Finance Bill to amend the tax treatment of flight crew in international traffic. This will exclude non-resident air crew where certain conditions are satisfied.
- Income tax standard rate band to increase by €1,500 from €35,300 to €36,800
- Increase of €50 in each of the personal tax credit, the earned income credit and the PAYE tax credit
- Increase in the ceiling for the 2nd rate of USC to €21,295 from 1 January 2022
- From 1 January 2022 the weekly income threshold for the higher rate of employer’s PRSI will increase from €398 to €410.
- The current tax arrangements for working from home will be enhanced and legislated for in order to provide an income tax deduction amounting to 30% of the cost of vouched expenses for heat, electricity and broadband in respect of those days spent working from home
Entrepreneurs and Business
- Amendments to the EII scheme to include extension of scheme to the end of 2024. The scheme itself is being amended to make it more fit for purpose. The most significant of these changes is 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. It is also proposed to remove the rule that 30% of an investment in an EII company must be spent before relief can be claimed.
- Extension of start up relief for corporates to the end of 2026. It is currently available for the first three years trading, now to be extended to the first 5 years
- New refundable tax credit for digital gaming sector The relief will be available at a rate of 32%, on eligible expenditure of up to a maximum limit of €25 million per project.
VAT and Indirect Taxes
- Reduced VAT of 9% for the hospitality and tourism sectors to be retained until 31 August 2022.
- From January 2022 a revised VRT table is being introduced. The 20 band table will remain with an uplift in rates beginning with a 1% increase for vehicles that fall between bands 9-12; 2% for bands 13-15; and then a 4% increase for bands 16-20. The €5,000 relief for Battery Electric vehicles is being extended to end 2023. Increase excise duty on a pack of 20 cigarettes by 50 cents, with a prorata increase on other tobacco products.
- Decrease in the Farmers Flat Rate Addition from 5.6% to 5.5%
- The introduction of a zoned land tax to encourage use of land for homes. The tax will be targeted at land that is suitable for residential use and is serviced but not yet developed. Tax will be 3% of the market value of the land. It is intended that the tax will replace the current vacant site levy. Lead in time of 2 years for land zoned before Jan 2022 and 3 years for land zoned post Jan 2022).
- A number of Housing initiatives including the extension of Help to Buy to the end of 2022 and extension of pre-letting expenses for landlords to end 2024 (S97A)
- Targeted Climate change taxation policies to include a tax disregard (€200) in respect of personal income received by households who sell residual electricity that they generate back to the grid.
- The rate of carbon tax will increase by €7.50 from €33.50 to €41.00 per tonne of carbon dioxide emitted (as set out in Finance Act 2020). This applies from budget night for auto fuels and 1 May 2022 for all other fuels.
- Amendments to the Accelerated Capital Allowances (ACA) scheme to remove equipment directly operated by fossil fuels will no longer qualify. Extension of the scheme to include hydrogen powered vehicles and refuelling equipment
- Finance Bill 2021 will complete the introduction of the Anti-Tax Avoidance Directive into Irish legislation with the introduction of new interest relief limitations and anti-reverse hybrid rules. The new interest limitation rule will place a limit on deductible interest expenses of 30% of EBITDA for companies within scope of the measure. Disallowed interest may be carried forward and may be deducted in future periods. Further detail will be in the Finance Bill.
- Extension of stock relief
- Extension of Young Trained Farmer (Stamp Duty) Relief to the end of 2022
- Bank Levy extended to the end of 2022
The Minister has indicated that the goals of the Budget were “investing in our future, of meeting the needs of today, while putting the public finances on a sustainable path”. The amendments to EIIS in the Budget is very welcome. EIIS has been a disappointment, with the legislative provisions making it unattractive, a fact the Minister acknowledged. Hopefully the amendments to EIIS will result in a greater take up. The Minister also acknowledged the challenge Ireland faced over the last number of months with the pressure to sign up to the OECD proposals on a minimum corporate tax rate. Being inside the tent is clearly in Ireland’s long term interests and hopefully the debate on Ireland’s corporate tax can now move on. Certainty is key for businesses. Housing and climate change also loom large over this Budget, and likely over successive Budgets.