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Analysis of Budget 2020

Minister Donohue delivered his “no surprises” Budget 2020 in the shadow of Brexit. Despite our economy being in a strong position and with a general election on the horizon, this was no give-away Budget. Both Minister Donohue and the Taoiseach had managed expectations in advance with talk of “safe choices in relation to taxation” and “modest, targeted welfare increases”.  Prudence seemed to be the order of the day.

There will be no deposit to our rainy day fund this year as the Government expects to have to borrow in 2020 to deal with a potential hard Brexit. A package of over €1.2 billion, excluding EU funding, was announced in the Budget to respond to Brexit.

Climate change was the other main influencer of Budget 2020. Increased carbon tax and other changes to vehicle-related taxes were all designed to support our transition to a low carbon economy. The balancing act for the Government was to ensure that the cost of these changes was distributed fairly. An increase to the weekly fuel allowance and allocations of €3 million to pilot new Agri-environmental schemes and €2.7 billion to the Department of Transport, Tourism and Sport in 2020 were some of the responses to this.

This Budget must have been a difficult one for the Government and partners to agree upon. It makes no moves towards the Taoiseach’s pledge to raise the 40% tax rate threshold to €50,000 and contains minimal social welfare increases. It looks like the possibility of a no-deal Brexit will haunt Irish politicians on the doorsteps long after Halloween and the current proposed Brexit date has passed!

For more information, please contact Eddie Murphy, Partner and Head of Tax Services.

Highlights from Budget 2020

Budget 2020 was delivered by Finance Minister Paschal Donohoe today. Below we highlight the main changes that could affect you.

Climate Measures and Carbon Tax

  • Benefit-in-kind on commercial vehicles to be linked to emissions from 2023.
  • Emissions thresholds in respect of capital allowances and VAT reclaim on commercial vehicles to be reduced.
  • 0% benefit-in-kind on electric vehicles will be extended until the end of 2020.
  • A Carbon tax increase of €6 per tonne likely to result in an increase of about 2c per litre of petrol and diesel immediately and about €15 per tank of home heating oil from May 2020.
  • Relief to be provided to hauliers through the Diesel Rebate Scheme for the increased cost of fuel.
  • A new nitrogen oxide (NOx) surcharge will replace the 1% diesel surcharge and will apply to all passenger cars registered from 1 January 2020.
  • VRT relief for hybrid vehicles will be extended until the end of 2020.
  • The weekly fuel allowance will increase by €2.

Brexit Package

  • A package of over €1.2 billion announced, excluding EU funding, to respond to Brexit. This includes:
    • €220 million immediately on October 31st if a no-deal Brexit occurs.
    • €110 million for the agriculture sector
    • €40 million for the tourism sector
    • €365 million for extra social protection expenditure in the event of a rise in unemployment
    • €390 million for Brexit contingency expenditure

Personal Tax

  • The reduced rate of Universal Social Charge for medical card holders to be continued until the end of 2020.
  • Income tax bands and rates remain unchanged.
  • The Home Carer Credit will increase from €1,500 to €1,600.
  • The Earned Income Credit will increase from €1,350 to €1,500.
  • Help to Buy Scheme will be extended until the end of 2021.
  • Living City Initiative will be extended until the end of 2022.

Corporation Tax

  • Confirmation of the 12.5% rate of tax.
  • Special Assignee Relief Programme (SARP) and Foreign Earnings Deduction will be extended until the end of 2022.
  • Enhancements to the Key Employee Engagement Programme (KEEP) and Employment and Investment (EII) programme announced.
  • For micro and small companies:
    • R&D Tax Credit to increase from 25% to 30%.
    • R&D Tax Credit will now be available for certain pre-trading expenditure.
  • The qualifying spend limit for R&D outsourced to third level institutions to be increased from 5% to 15% for R&D Tax Credit purposes.
  • New Anti-Hybrid Rules will be introduced, in line with the Anti-Tax Avoidance Directive (ATAD).
  • Transfer Pricing rules to be brought in line with OECD standards with effect from 1 January 2020.
  • Anti-avoidance measures to be introduced to the IREF and REIT regimes with immediate effect.

Agri Measures

  • Farm Restructuring Relief will be extended until the end of 2022.

Capital Gains Tax and Capital Acquisitions Tax

  • Capital Acquisitions Tax and Capital Gains Tax remain at 33%.
  • The threshold for capital acquisitions tax that applies to children receiving gifts or inheritances from their parents will increase by €15,000 to €335,000.

Other Measures

  • The rate of stamp duty on non-residential property will increase from 6% to 7.5%.
  • A new stamp duty charge of 1% will apply where a scheme of arrangement, in accordance with Part 9 of the Companies Act 2014, is used for the acquisition of a company.
  • The rate of Dividend Withholding Tax to be increased from 20% to 25% from 1 January 2020 with further changes to the DWT regime to follow from 2021.
  • The excise duty on a packet of 20 cigarettes is being increased by 50 cents with a pro-rata increase on other tobacco products.
  • A new relief from betting duty and betting intermediary duty up to a limit of €50,000 per calendar year to be introduced.

Social Welfare

  • The 100% Christmas bonus will be paid out in 2019.
  • The Living Alone Allowance to be increased by €5 in 2020. Increases announced in the Qualified Child Payment of €3 for over 12s and €2 for under 12s.
  • Free GP care will be extended to under-eights and free dental care to under-sixes.
  • Prescription charges for the over 70s are to be reduced from €1.50 to €1 per item.
  • There will be a reduction in the monthly threshold for the Drugs Payment Scheme from €124 to €114.
  • Medical card income threshold for the over 70s to be increased by €50 to €550 for a single individual and by €150 to €1,050 for a couple per week.

For more information, please contact Eddie Murphy, Partner and Head of Tax Services.

Budget 2019 increased the Home Carer Tax Credit from €1,200 to €1,500 per annum. This tax credit is available to married couples or registered civil partners, where one spouse stays at home to care for a “dependant”.

A dependant can be:
  • a child for whom child benefit is payable;
  • a person aged 65 years or over; or
  • an incapacitated individual.

It does not include a spouse or partner. Often there may be one or more dependants being cared for by the carer spouse. This does not increase the tax credit available.

The Home Carer Tax Credit is often unclaimed as there is a misconception that you must be caring for a sick relative. This is not the case.

Conditions to qualify:
  • You must be jointly assessed for income tax.
  • The dependant person must normally reside with the carer for the tax year. However, if the dependant person is a relative, they can live next door, on the same property or within 2kms of the carer. A relative includes a relative by marriage or a person for whom the claimant is a legal guardian, but not a spouse or civil partner. However, there must be a direct communication link between the two residences such as a telephone or alarm system.
  • The carer spouse must have income of €7,200 per annum or less (excluding any carers benefit or payments received from the Department of Social Protection). If you earn more than €7,200 but less than €10,200 per annum, you may claim a reduced credit:

For example, if the carer spouse earns €8,200 per annum, the maximum tax credit that can be claimed is reduced by the additional earnings as follows €8,200-€7,200=€1,000/2 = €500. The tax credit is reduced by €500 giving a maximum credit of €1,000 available.

If the carer spouse earns €10,200 or above, no Home Carer Tax Credit is available.

This tax credit cannot be claimed alongside the increased standard rate bands for married couples/civil partners. Revenue will grant you the more beneficial option.

Remember; if you qualified for the Home Carer Tax Credit in any of the past 4 tax years (2018, 2017, 2016, and 2015), you can still make a claim to Revenue for it.

If you require any assistance with the home carer tax credit, please contact Michelle Mangan, Manager of Tax Services.

Budget 2019 was delivered by Minister Donohoe, the country’s first balanced Budget in over 10 years. With the Irish economy and the national tax-take set to continue to grow impressively, and with a general election expected in the near-term, it was left to prudence and Brexit to influence the Minister’s Budget restraining measures. With Budget surpluses expected for the next few years, it was confirmed that these would be used to pay down that eye-watering national debt that we don’t really like to talk about.

The Minister kicked-off our rainy day fund with €500m from Corporation Tax we unexpectedly received as a one-off from a small number of multinational companies.  So who gained from this Budget? Everyone, of course!

Continuing the theme of the past few years, Budget 2019 gave a little to employees, social welfare recipients, home carers, back to school-ers, self-employers, educators, farmers, small business owners, social house seekers, rent takers, baby makers…….BUT….would it be better if instead of trying to appease all, the strategy was to target in an even more meaningful way, the homeless/housing issues that are affecting such a large number of people?

The giveaways were funded, in the main from re-instating the 13.5% VAT rate to the Tourism related businesses, small increases in VRT, betting tax and of course from the vast swathe of employees who have their payroll taxes withheld automatically.

Ireland’s annual family finances are in good order, stable and broader-based than in our recent past. Let’s see if the government (whichever one!) can manage to provide the basic services to all of its people and in a timely manner.

 

Edward Murphy
Partner and Head of Tax Services
edward.murphy@crowleysdk.ie

 

 

 

If you would like further information, please contact our Tax Team.


View the key highlights from Budget 2019