This year sees the first mid-October Budget. The process was brought forward from December to coincide with EU norms and to allow the Finance Act to be passed before the new year begins.
Certain aspects (e.g. increases in tax on alcohol and cigarettes) need to take effect at midnight so temporary legislation is put in place. The Finance Bill will be published in the coming weeks and debated until passed as Finance Act 2014 in December.
Changes affecting income taxes usually take effect from 1st January. Most payroll software providers will have distributed updates to account for the Budget changes. Also, in January and February 2014, the Revenue Commissioners will distribute Tax Credit Certificates to employees and employers.
What follows is a summary of the main tax measures by Paul Brady of taxandlegal.ie.
Medical Insurance Premiums
Tax relief for medical insurance premiums has been limited to the first €1,000 for every adult insured and €400 for every child insured.
Start Your Own Business (SYOB)
Individuals unemployed for 15 months or more who establish a business as a sole trader will be entitled to a two-year exemption from income tax on profits up to €40,000. While this appears very generous, the detail remains to be seen in the Finance Bill. A similar existing scheme for companies is linked to the amount of PRSI paid by the business. The government estimates the total amount of relief which will be claimed at €1 million.
Employment and Investment Incentive Scheme
The EIIS provides a tax refund for money invested in a trading company. The investor gets a tax credit of 30c per euro invested initially and a further 11c per euro invested if employment in the company increases by the end of 3 years. Since inception, there has been very little take up of the scheme.
The high earners’ restriction prevents high earners from using various tax reliefs to reduce their effective rate of tax below 30%. In an effort to jump-start the EIIS, relief under the scheme has been removed from the list of reliefs subject to the high earners’ restriction.
The maximum permitted tax relieved pension has been capped at €2 million from 1st January 2014. Funding above this level will trigger punitive taxes.
Top Slicing Relief
Top slicing relief refers to employment termination payments. The relief means that a person in receipt of a lump sum will pay no more tax on that sum than their effective rate of tax for the final 3 years of employment. The relief is abolished from 1st January.
Loans to acquire an interest in a partnership
Relief for interest paid on loans to acquire an interest in a trading partnership will be abolished from today. Existing claims will be phased out by 31st December 2016.
Home Renovation Scheme
Homeowners who renovate their homes in 2014 and 2015 will be entitled to a tax credit equivalent to 13.5% of qualifying expenditure incurred between €5,000 and €30,000. The credit will be split over two tax years.
Capital Gains Tax
7 Year Exemption
Currently, where property is bought before 31st December 2013 and held for 7 years, no capital gains tax will be charged on any increase in value of the property over that period. The deadline has now been extended to 31st December 2014.
CGT Entrepreneurial Relief
This is a new and somewhat convoluted measure designed to encourage investment in new business ventures. If, between 1st January 2014 and 31st December 2018, a person sells assets and invests the proceeds in a business and, after 3 years, disposes of their investment, any CGT will be reduced by the lower of i) the CGT paid on the original asset sale, or ii) half the CGT payable on the sale of the investment.
Value Added Tax
Special Lower Rate
The special lower rate of 9% for the hospitality industry is being retained for the time being. This has been broadly welcomed by the sector.
Cash Receipts Basis
The turnover threshold below which business can account for VAT based on cash receipts rather than invoices issued has been increased from €1.25 million to €2 million. This will provide a cash flow bounce for businesses with turnover between these amounts who choose to switch.
The standard rate of corporation tax remains at 12.5%. The Minister announced measures to tax Irish companies with no tax residence. However, this will do little to counteract tax minimisation by multinationals.
R&D Tax Credit
The credit for Research and Development has been increased to 25% of expenditure up to €300,000. This threshold was previously €200,000. Above the threshold, the credit must be computed by reference to expenditure incurred in 2003. The limit on the portion of relieved expenditure which may be outsourced has been increased to 15%.
Probably the most dramatic change announced is an increase in Deposit Interest Retention Tax from 33% to 41% from 1st January 2014. Theoretically, this will reduce savings to the benefit of investment and equalise tax on earned and unearned income.
Financial Institution Levy
A levy designed to raise €150 million per annum will be imposed on financial institutions between 2014 and 2016. Details will be included in the Finance Bill. No doubt, the levy will be passed on to consumers.
Pension Fund Levy
The pension fund levy of 0.6% of fund assets was originally introduced for 4 years and due to end in 2014. A new, separate levy of 0.15% is being introduced from 1st January 2014. It is unclear whether this second levy will cease on 31st December 2015. The total levies for 2014 will be 0.75%.
From midnight on 15th October, the price of 20 cigarettes increases by 10c and a pint of beer increases by 10c. The price of 75cl bottle of wine increases by 50c.
Taxandlegal.ie, 77 Sir John Rogerson’s Quay in Dublin’s docklands business district.