Today, the Minister for Finance, Pascal Donoghue, and Minister for Public Expenditure & Reform, Michael McGrath, have announced Budget 2021.
While previous budgets took place against a backdrop of relatively strong economic growth, the backdrop of today’s budget has been the Covid-19 crisis and Brexit.
Since March of this year, we have seen record levels of unemployment and the unemployment rate continues to rise at a high pace due to the pandemic.
Taxation receipts have been stronger than expected, however, the country still finds itself with a deficit of approximately €21 billion for 2020.
The outlook for 2021 is not much better and it is on this basis that most of Budget 2021 has been framed.
- The retention of existing income tax rates (of 20% and 40%) and tax bands (€35,300 for single individuals and €44,300 for married single earner couples).
- An increase in the earned income tax credit (introduced in 2015 for self-employed individuals) from €1,500 to €1,650 - finally achieving parity with the PAYE credit.
- In a surprise move, the seldom claimed Dependant Relative Tax credit, has seen a jump from €70 to €245. It is estimated that nearly 200 thousand people have a qualifying relative living with them, and they may be more tuned into claiming this now (please note: your children do not qualify you for this credit).
- An increase in the home carer tax credit from €1,500 to €1,600.
- USC rates remain the same, although the bands have changed slightly, to allow for the increase in the minimum wage to €10.20.
- Homeworkers can now claim a portion of their broadband as a tax allowable expense.
- Children’s allowances are also set to increase €5 for children over 12, and €2 for children under 12, per week, respectively.
Employment and Business supports
- Debt warehousing has been added as a new variant of the employment wage subsidy scheme. This will provide continued support to businesses affected by COVID-19.
- A new scheme, for businesses which have had to close because of COVID-19 Level 3 or higher restrictions, will see grants available of up to €5,000 per week.
- Commercial Rates are to be waived for the rest of 2020.
- Changes to the international tax framework were flagged and we should expect Corporation tax to look a little different in future years.
- Corporation tax receipts from multinationals for the first 8 months of 2020 have generated a remarkable €7.5 billion. No changes are made to the headline rate of 12.5% on trading activities, non- trading 25% and surcharges of 20% for estate income and 15% for Professional Services still apply.
- Revised rules for the tax treatment of Intangible assets apply from tonight, this is targeted at the multinational sector, and is linked to a move to a digital tax.
- Digital Gaming Sector – Work will take place in 2021 on the development of a tax credit for the digital gaming sector.
- Rates remain unchanged. Though there is a small increase to the weekly income threshold for the higher rate of employers PRSI, this €4 increase brings it to €398 per week.
- The July stimulus package seen the standard VAT rate drop from 23% to 21% on September 1st.
- Further VAT cuts were announced in today's budget showing a return to the 9% VAT rate which had previously applied for the tourism and hospitality sector. This change will take place on November 1st.
- Changes to this had been suggested by various pre-budget commentators, however, this has been left alone and no changes will take place.
- A slight amendment to the shareholding requirements has been made, allowing some 5% shareholders a greater time span for their qualification to the scheme.
R&D Tax Credits
- No changes to the existing rules in place, and as always, any claim will need to be substantial to ensure value.
- The residential development (stamp duty) refund scheme has been extended until 31st of December 2022.
- The Help to Buy scheme which has proven to be successful for first time buyers trying to get on the property ladder has been extended to the end of 2021.
- The planned state pension age increase to 67 has been scrapped.
This will now remain at 66.
- We haven't heard very much of this term of late, but the government have managed to introduce a range of stealth taxes in this budget, primarily for those who a diesel car, have an open fire and enjoy a cigarette!
- The cost of the price of cigarettes has increased by 50 cents.
- Vehicle tax increases, carbon tax increases, vehicle registration tax increases, petrol and diesel increases are all hallmarks of a Green Party power play.
The pandemic has dictated the direction in which this budget was laid before us.
In many ways, lessons learned from 10 years ago are now coming into play, immediate supports for education, reskilling, and retraining are most welcome.
Additional supports for home workers, students studying from home, and those currently receiving the pandemic unemployment payment show that this government is capable of fast response.
Clearly, the health sector will require an enormous amount of funding over the next 18 months, Budget 2021 has achieved this without pain being inflicted on the workers of Ireland.
It remains to be seen if the same scraping and scrimmaging will be available to us in future years.
As always, we will need to see the contents of the Finance Act 2021, where changes, additions and amendments to today’s budget are finalised.
We will provide further updates when this is published next month.