Contractor Budget Update for 2015

budget2015

The budget for 2015 was announced by the Minister for Finance, Michael Noonan on 14th October 2014.

There have been a number of measures introduced which will affect the computation of PAYE, PRSI & USC payable in 2015, and most importantly, the net take home pay available each month.

We have analysed the changes carefully, and noted the ones that we feel are of relevance to the clients of Icon Accounting.

The Main Items of Note:

1. Income Tax Bands & Rates
2. Universal Social Charge
3. Water Charges tax credit
4. Rent a Room Relief
5. DIRT Exemption for First Time Buyers
6. Increase in Child Benefit
7. Other Items

Income Tax Bands & Rates
The standard rate band, (the amount of annual income taxed at the standard rate of 20%) is increased as follows:

– €32,800 to €33,800 per individual
– €41,800 to €42,800 for a married couple

This means that there will be an extra €1,000 per year taxed at 20% instead of 41%, yielding an annual tax saving of €210.

The marginal rate of income tax is reduced from 41% to 40%.
This will yield a tax saving for individuals paying tax at the higher rate.

Universal Social Charge

Increased Exemption Threshold

Individuals with income up to €12,012 in a year will be exempt from the USC.
This is an increase of €1,976 on the current exemption limit.

Revised Banding

There are new bands and rates for USC effective from 01/01/2015 as follows:
2015 2014

2015

2014

First €12,012 at 1.5%

First €10,036 @ 2%

Next €5,563 at 3.5%

Next €5,980 @ 4%

Next €52,467 at 7%

Over €16,016 @ 7%

Over €70,000 at 8%

 

The main change to note is the increased rate of 8% for income over €70,000.
For individuals with non PAYE income in excess of €100,000, this income will be subject to USC at a rate of 11%.
The 11% rate will not apply to self-employed contractors in an Umbrella company / PLC as the taxes are operated through the PAYE system.
Medical card holders with income up to €60,000 will pay a maximum rate of 3.5%.

Water Charges Tax Credit
A new credit for water charges up to a maximum of €500 per year at the standard rate of 20% was announced.
Individuals can reduce their income tax liability by a maximum of €100 per year. This credit will be applied in arrears.

Rent-A-Room Relief
Individuals can now earn €12,000, up from €10,000, a year from renting a room in their private home tax free.

Relief for First Time Buyers
A refund of DIRT paid on savings used to purchase a house or apartment will be available by making a claim to Revenue.
The refund is for DIRT paid in the 48 months prior to the purchase and the refund is limited to 20% of the amount of the consideration paid.
This relief will apply from Budget night (14 October 2014 to 31 December 2017).
Child Benefit
The Child benefit payment will increase by €5 per month per child from January 2015. The government has indicated that it will further increase this in 2016

Other Items

Corporation Tax
There was a commitment announced to phase out the so called ‘Double Irish’ tax regime, which allows multinational corporations to avoid significant tax bills, by availing of a loop hole in the residency rules for Irish incorporated companies. This will come into effect for new companies from 1 January 2015, and will be phased out for existing companies by 2020.
The three year start up relief for new trading companies has been extended to 2015, it was due to expire in 2014.

VAT
The 9% VAT rate which was introduced in 2011 is being retained which will be hugely welcomed by businesses operating at that rate. This included the hospitality & tourism sector which benefits hotels, restaurants and Hairdressers.

Seed Capital Scheme
The SEED capital scheme is also being re-launched; this scheme allows tax relief to entrepreneurs who start a new business, having previously been employees.

Pension Levy
The government have not renewed the 0.6% Pension Levy which will be a relief for members of Private Pension Schemes and the Pension industry in general. The lower levy of 0.15% will continue until end of 2015.

Capital Gains Tax
The windfall tax is being abolished from 1 January 2015. This was a tax of 80% of gains arising on the disposals of land which were attributable to planning decisions.
The property incentive relief from CGT in respect of the first 7 years of ownership for properties purchased between 7 December 2011 and 31 December 2014 is being removed as planned from 31 December 2014.

The Special Assignee Relief Programme (SARP) and Foreign Earnings Deduction (FED) schemes have also been altered, in the hope that more people can avail of them. The earnings limit of €500,000 for SARP has been abolished, and the need to be solely tax resident in Ireland has also been removed. The purpose of these schemes originally was to entice employers outside Ireland to send skilled workers in (SARP) and for Irish companies to expand into new markets by sending Irish based employees to carry to these countries (FED).

Kathryn Waller BSc. ACA – Icon Accounting