The Minister for Finance Paschal Donohoe presented his fourth Budget on Tuesday. As was well signalled, this Budget was framed against the backdrop of a potential no deal Brexit. Given the current reality of climate change, unsurprisingly climate related initiatives have featured prominently within the measures announced. The details announced also include certain tax increases, limited changes to personal tax, together with targeted measures for SMEs.
Climate Change Measures
New measures included:
An increase in the rate of carbon tax from €20 to €26 per tonne. The increase will apply to auto fuels from midnight on Budget Day. However, the Minister has delayed the increase on other fuels until May 2020, after the winter heating season. In addition, the Minister signalled the cross party support to increase the price of carbon to €80 per tonne by 2030. The Minister highlighted that the projected €90m raised from carbon taxes in 2020 will be ring-fenced to fund new climate action measures.
A replacement of the 1% diesel surcharge with a nitrogen oxide (NOx ) emissions based charge. This surcharge will apply to all passenger cars registering for the first time in the State with effect from 1 January 2020. The charge will apply on a euro per milligram/kilometre basis, with the rate increasing in line with the level of NOx emitted.
The extension of VRT relief for conventional hybrid and plug-in hybrid vehicles to 2020, subject to CO2 thresholds.
The introduction of an environmental rationale for benefit-in-kind (BIK ) for commercial vehicles from 2023.
The extension of a 0% BIK rate for electric vehicles to 2022, subject to €50,000 OMV cap.
The reduction in qualifying CO2 thresholds for reliefs in respect of capital allowances and VAT reclaim on commercial vehicles.
An equalisation of electricity tax rates for business and non-business customers in line with the recommendations of the Climate Action Plan.
The Minister announced a package of improvements to a number of tax supports for Irish SMEs:
In Budget 2018, the Minister introduced the Key Employee Engagement Programme (KEEP ) share based remuneration incentive to support SMEs in attracting and retaining key employees. However, the uptake to date has been disappointing.
Following a Department of Finance review, the Minister has signalled his intention to amend the existing legislation to facilitate greater flexibility for employees and employer companies to access the incentive, pending State Aid approval. Details on the proposed changes will be set out in the upcoming Finance Bill.
Modifications to the Employment and Investment Incentive (EII ) Scheme were also announced:
Allowing for the income tax relief to be provided in the year of investment rather than splitting it over years one and four.
Increasing the annual investment limit to €250,000 and introducing a new €500,000 annual investment limit for investors who are prepared to invest in EII for ten years or more.
The Minister also announced changes to Research and Development (R&D ) Tax Credit. The changes are subject to State Aid approval, but once approved should include:
Increasing the R&D credit from 25% to 30% for micro and small companies, and allowing an improved method of calculating the limit on payable credit.
Introducing a new provision to allow micro and small companies to claim the R&D tax credit on qualifying pre-trading R&D expenditure. While pre-trading, the credit will be limited to offset against VAT and payroll taxes.
Increasing the current limit to third level institutes of education from 5% to 15%.
Furthermore, the Special Assignee Relief Programme and the Foreign Earnings Deduction incentivises for cross border workers are being extended to the end of 2022. These programmes are available to enterprises of all sizes.
The excise duty on a packet of 20 cigarettes increased by 50 cent including VAT, with a pro-rata increase on other tobacco products. The Minister announced that this will bring the price of cigarettes in the most popular price category to €13.50. These changes are effective from midnight on Budget day.
The Minister announced changes to the Dividend Withholding Tax (DWT ) regime that will take place over two years. Firstly, an increase in the rate of DWT from 20% to 25% will apply from 1 January 2020. This is to be followed in 2021, by the introduction of a modified DWT regime. This new regime will utilise real-time data collected under the new PAYE system to allow a personalised rate of DWT for each taxpayer.
As anticipated, from 1 January 2020 there will be a 0.1% increase in the National Training Fund levy payable by employers. This increase represents an additional cost for employers, given that it is collected as part of Employer’s PRSI. The current rate of Employer’s PRSI of 10.95% will increase to 11.05% from 1 January 2020.
The Minister announced an increase to the rate at which the banking levy is charged from 59% to 170% of DIRT for base year 2017. The increase applies from midnight on Budget Day.
Personal Tax Matters
The Income Tax rate bands will remain unchanged for 2020. On this basis, a rate band of €35,300 will apply for single individuals, and €44,300 in the case of married one earner couples.
The Universal Social Charge (USC ) rates and bands will also remain constant for 2020, as follows:
The Home Carer Tax Credit has been increased from €1,500 to €1,600.
The Minister also announced that the Earned Income Credit, which applies for self-employed individuals and those not eligible for the PAYE Tax Credit, has been further increased from €1,350 to €1,500. However, the increased Earned Income Credit is still €150 lower than the corresponding PAYE credit available to most employees.
There were no other changes announced in connection with income tax rates or tax credits.
Social Welfare & Related
The Minister announced that a 100% Christmas bonus will apply to all social welfare recipients this year.
A €5 increase is to apply to the Living Alone Allowance to assist elderly and disabled people.
The One Parent Family Payment and Jobseeker Transition income disregards are to be increased by €15, while the Working Family Payment income threshold for families with up to three children will increase by €10.
The Minister also announced increases to qualified child payments for parent’s dependant on social welfare. The increases will provide an extra €2 per week for children up to 12 years of age and €3 for children over 12 years of age.
The Minister is also increasing the fuel allowance by €2 per week.
A €50 increase has been announced to the weekly medical card income thresholds for people over 70, while a €150 increase will apply in the case of a couple.
In addition, all prescription charges will be reduced by 50 cent. As a result, a prescription charge of €1.50 will apply for persons under the age of 70, while those over 70 will incur a charge of €1.
The monthly threshold for the Drugs Payment Scheme is being reduced further from €124 to €114.
The Minister reiterated the Government’s longstanding commitment to the 12.5% corporation tax rate.
As had been signalled, the Minister confirmed his intention to introduce new anti-hybrid mismatch rules in line with the Anti-Tax Avoidance Directive. Amongst other measures announced, the Minister also stated his intention to update Ireland’s transfer pricing rules. We await publication of the Finance Bill for further details on these provisions.
The Minister announced the introduction of relief from betting duty and betting intermediary duty up to €50,000 per annum. This is subject to State Aid rules.
Farm restructuring relief has been extended without change, to the end of 2022. This extension is subject to State Aid approval.
Capital Taxes, Housing & Property
The current tax-free threshold for Capital Acquisitions Tax which applies to gifts and inheritances from parents to children is to increase by €15,000 to €335,000 from midnight on Budget Day. This increase is a further attempt at restoring the threshold to previous levels which were in excess of €500,000 before the financial crisis.
The Minister announced that the rate of stamp duty applicable to non-residential property is to increase by 1.5% from 6% to 7.5% effective from midnight on Budget day. However, transitional arrangements will apply for transactions in process prior to Budget Day where executed before 1 January 2020.
Extensions were also announced to the Help to Buy scheme, which is now to run until the end 2021, and also to the Living City Initiative which continues until 31 December 2022.
Targeted anti-avoidance measures will seek to increase the tax take from REITs and IREFs.
Rainy Day Fund and Brexit
As part of Budget 2019, the Minister announced his intention to transfer €500 million to the Rainy Day Fund from the Exchequer this year, with an additional €1.5 billion being transferred from the Ireland Strategic Investment Fund.
During his Budget speech, the Minister renewed his commitment to transfer €1.5 billion to the Rainy Day Fund in 2019. However, he announced that in light of the increased likelihood of a no deal Brexit, he will not transfer the additional €500 million from the Exchequer this year.
The Minister separately announced funding of potentially over €1.2 billion to respond to Brexit. In part, this will involve the provision of funding to increase staffing levels, upgrade infrastructure at ports and airports and invest in IT. In the event of a no deal Brexit, €650m will also be made available to support the Agriculture, Enterprise and Tourism sectors and to assist affected citizens and regions.
This article was compiled by Terri Treacy, Paul Macken and Cathal Sherlock of KPMG, Dockgate, Dock Road, Galway. Tel: 091-534600. For further information on Budget 2020 log on to: kpmg.ie/budget2020