October 13, 2018
On the 9th October Paschal Donohoe has delivered his budget speech as Minister for Finance and set out the budgetary measures from the Government in a time where we are watching many risks to the economy unfold such as a US trade war, a possible EU crisis with Italy in the mix and closer to home the all encompassing Brexit or no Brexit deal which has the capacity to send Ireland back into a recession.
We at, John M Shanahan & Co, Chartered Accountants, Tullamore, Co Offaly have looked at the main points for inclusion in Budget 2019.
Budget 2019 tried to do something for many tinkering with the funds available as well as future tax collections. A hike in the tourism VAT rate, a 50 cent rise in the price of a packet of fags and a doubling of betting duty allowed the Minister to significantly increase spending and paved the way for €291 million in personal tax cuts. As expected, the housing crisis dominated the headlines as it had pre-budget, but there is no quick fix. The small amount of money left to go around saw the squeezed middle continuing to feel the squeeze even feeling somewhat neglected.
The main items of focus were:-
Income tax credits.
The earned income credit for the self-employed will increase by €200 to €1,350. However this credit still falls €300 short of the PAYE credit of €1,650 for employees. An additional €300 will be added to the Home Carer Credit to bring it up to €1,500. Overall these increases will cost a total of €72 million in a full year.
Standard rate Tax Band.
The standard rate band will increase by €750 to €35,300, as per previous year. Over the course of the last two Budgets, the entry point to the 40 percent rate of income tax will have increased by €1,500 for all single earners and to €44,300 for married couples with one income earner.
The 2019 change will mean a further €150 tax reduction per year for individuals paying tax at the top rate – a saving of €300 in total over 2018 and 2019.
From 1 January 2019 the lower rate of employers PRSI will apply to income of €386 or less per week. This follows a recommendation of the Low Pay Commission to ensure that the increase in the hourly minimum wage does not lead to work disincentives for workers, in particular those seeking to work full-time.
Also, from 1 January 2019, Employers PRSI will increase from 10.85 percent to 10.95 percent and is set to increase again in 2020 to 11.05 percent.
A reduction in the 4.75 percent middle rate to 4.5% coupled with an increase in the 2 percent rate band threshold were on offer; details as follows:
• €12,012 – €19,874 @ 2 percent (income threshold increased from €19,372)
• €19,874 – €70,044 @ 4.5 percent (reduced from 4.75 percent and is the second 0.25 percent drop)
The entry rate remains at 0.5 percent for income up to €12,012 and the balance of income from €70,045 remains subject to the USC at 8 percent. There was no change announced to the income exemption of €13,000 per year. For self-employed income over €100,000 there was no change to the 3 percent surcharge.
Enterprise Incentive and Investment Scheme (EIIS).
Whilst no firm announcements were made on Budget day in respect of the EIIS, the Minister does intend to include a “priority” package of measures in the Finance Bill to address the main problems identified in a recent consultation on this incentive which will hopefully increase its efficiency and effectiveness.
VAT & Excise.
The expected hike in the special VAT rate for the tourism sector from 9 percent to 13.5 percent eventually materialized. According to the Minister, the economic analysis conducted on the 9 percent rate found that the rate “had done its job”. VAT will increase from 1 January 2019 which, according to the Minister, will raise €560 million in a full tax year. This change won’t apply to newspapers or sporting facilities.
VAT on publications.
To enable national and regional newspapers to remain competitive and meet the challenges of the modern media landscape, the rate of VAT on electronic publications will fall from 23 percent to 9 percent from 1 January 2019, at a cost of €8 million. This follows recent agreement among EU Finance Ministers to allow Member States to apply reduced VAT rates on digital publications. The 9 percent rate of VAT for newspaper publications remains unchanged
Fuel excise duty remains unchanged. The excise duty on a packet of 20 cigarettes is being increased by 50 cents (including VAT) with a pro-rata increase on the other tobacco products and there will be an additional 25 cents on roll your own tobacco. The minimum excise duty on tobacco products is increasing so that all cigarettes sold below €11 will have the same excise applied as cigarettes sold at €11.
The Economics and Social Research Institute to carry out a review of carbon tax the report the report reveals that increases in the carbon tax affects the prices of diesel and petrol the most. This is the most likely reason why the Minister did not announce increases in carbon tax at Budget 2019 but there is an intention to put in place “a long-term trajectory for carbon tax increases out to 2030” in line with the recommendations of the Climate Change Advisory Council.
Vehicle Registration Tax.
For non-hybrid vehicles, a 1 percent surcharge for diesel passenger vehicles registering in Ireland will apply across all vehicle registration tax (VRT) bands from 1 January 2019. However VRT relief for conventional hybrids and plug-in electric hybrids is being extended and will continue until the end of 2019. The net tax take from these two measures is an extra €9 million for a full year.
The Minister then intends to review these reliefs in the context of the overall changes to VRT brought about by the new emissions measurement system which will increase the amount of VRT payable on many new cars.
Finally, the 0 percent benefit-in-kind rate for electric vehicles is being extended for a period of 3 years, with a cap of €50,000 on the original market value of the vehicle.
The Minister’s speech acknowledged the difficult year that faced those operating in the farming sector. A number of tax measures were announced to help alleviate the economic difficulties and plan for sustainability with Brexit posing specific challenges and threats.
The Minister provided for a 3 year extension to the existing stock relief measures which aim to encourage investment in improving stock quality and output. The stock relief measures are:
• 25 percent general stock relief on income tax
• 50 percent stock relief on income tax for registered farm partnerships
• 100 percent stock relief on income tax for certain young trained farmers
These measures are expected to have a full year cost to the exchequer of €8 million in 2019.
To help support more farmers to cope with the problem of income volatility, the Minister removed restrictions relating to farmers with off-farm income which often prevented farmers from claiming income averaging.
Income averaging allows eligible farmers to calculate their taxable income as the average of their income in the current year and the previous 4 years, smoothing their tax liability over 5 years. This is expected to have a full year cost of €2.5 million to the exchequer.
Stamp Duty Extended.
There will be a 3 year extension of the Young Trained Farmer stamp duty relief to the end of 2021. This relief was due to expire at the end of this year. The extension of this relief is expected to cost the exchequer €15 million in 2019.
Local property Tax
There were no changes to local property tax announced although the Minister said that following on from the public consultation that took place earlier this year, he noted the concerns that rising property prices have caused. Any future changes will therefore be “moderate and affordable”.
Although not mentioned in the Minister’s speech, it seems that the Help to Buy scheme will be retained until 2019.
Mortgage interest relief
Although not specifically referenced in the Minister’s Budget speech, a commitment was made in last year’s Budget to extend mortgage interest relief on a reducing basis for owner occupiers who took out qualifying mortgages between 2004 and 2012.
From 2019, relief will be reduced to 50 percent of the qualifying interest while the rate will be 25 percent in 2020. The relief will cease on 31 December 2020.
Landlords - deduction for interest.
In an apparent effort to stop landlords leaving the rental market, from January 2019 landlords will be given a 100 percent deduction against rental income for mortgage interest arising on any loan used to buy, improve or repair a residential rental property. Budget 2017 had promised to restore the relief to 100 percent on a phased basis by 2021 but the relief has now been accelerated.
The Minister has reaffirmed Ireland’s commitment to retaining the 12.5 percent corporation tax rate amidst the changing international tax environment. In recent days an unexpected once-off surge of €1 billion in corporate tax revenues is predicted to hit the exchequer before the end of the tax year. Recognising the volatility that such receipts could cause, the Minister is putting some of this into the Rainy Day Fund, which could be drawn if Brexit crashes on our borders.
Today’s measures introduce with immediate effect a new exit tax on unrealised gains of assets located in Ireland as well as a new system of accelerated capital allowances for gas-propelled vehicles.
Three year start up relief.
Recognising the value of SMEs to the economy particularly in terms of job creation, the Three Year Start-Up relief for companies which was due to expire at the end of 2018 has been extended to the end of 2021. The relief provides corporation tax relief for profit making start-up companies in the first three years of operation, and is a welcome measure.
Film corporation tax credit
The film corporation tax credit will be extended until December 2024. The scheme provides relief in the form of a corporation tax credit related to the cost of production of certain films. The credit is granted at a rate of 32 percent of qualifying expenditure, capped at €70 million. A new regional uplift of an additional 5 percent that will taper out over 4 years is to be introduced in 2019, subject to State aid approval.
Accelerated capital allowances for employer provided fitness and childcare facilities
This is an incentive to encourage employers to provide fitness and/or childcare facilities for their employees. This measure, first announced as part of Finance Act 2017 measure will come into effect from 1 January 2019.
Accelerated capital allowances for Gas-Propelled Vehicles and Refuelling Equipment.
In an environmentally friendly move to encourage less use of diesel vehicles, accelerated capital allowances will be available when gas-propelled vehicles and refuelling equipment are purchased. This relief will be particularly aimed at the purchase of large vehicles such as HGVs and busses.
With no enhancements to entrepreneurs’ relief, no significant changes to either capital acquisitions tax (CAT) or capital gains tax (CGT) rates and a very modest increase in the Group A tax free thresholds for CAT, capital taxes were largely untouched in the Budget 2019 announcements.
Capital Acquisitions Tax
The Group A tax free threshold which applies primarily to gifts and inheritances from parents to their children increased by €10,000 to €320,000 and applies in respect of gifts or inheritances received on or after the 10th of October. This move is expected to cost the Exchequer €6.9 million in 2019.
The Group B threshold of €32,500 and the Group C threshold of €16,250 remain the same.
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