The Ministers for Finance and Public Expenditure & Reform, Paschal Donohoe and Michael McGrath presented their Budget speeches on Tuesday 13th October 2020. The following changes were announced and are due to take effect from 1st January 2021, unless otherwise stated.
Tax Rates and SRCOPs
There has been no change to tax rates for 2021. The standard rate will remain at 20% and the higher rate at 40%.
SRCOPs will remain unchanged for 2021 and are outlined as follows.
|Single/Widowed Person or||First €35,300 @ 20%||First €35,300 @ 20%|
|Surviving Civil Partner||Balance @ 40%||Balance @ 40%|
|Qualifying for the Single Person||First €39,300 @ 20%||First €39,300 @ 20%|
|Child Carer Tax Credit||Balance @ 40%||Balance @ 40%|
|Married Couple or Civil||First €44,300 @ 20%||First €44,300 @ 20%|
|Partnership – One Income||Balance @ 40%||Balance @ 40%|
|Married Couple or Civil||First €44,300 @ 20%||First €44,300 @ 20%|
|Partnership – Two Incomes||Plus an amount equal to the lower income (subject to a maximum of €26,300)||Plus an amount equal to the lower income (subject to a maximum of €26,300)|
|Balance @ 40%||Balance @ 40%|
Personal Tax Credits
The following changes to tax credits will apply for 2021:
Earned Income Tax Credit
The Earned Income Tax Credit will be increased by €150 from €1,500 to €1,650 to bring it in line with the PAYE tax credit.
Where an individual qualifies for the Earned Income Tax Credit and PAYE Tax Credit, the combined tax credits cannot exceed €1,650.
Dependent Relative Tax Credit
The Dependent Relative Tax Credit will be increased by €175 from €70 to €245.
Sea-going Naval Personnel Tax Credit
The Sea-going Naval Personnel Tax Credit will be increased by €230 from €1,270 to €1,500.
Universal Social Charge (USC)
There was no change to the USC exemption threshold of €13,000.
The threshold for the 2% rate will be increased by €203 from €20,484 to €20,687 in line with the increase in the national minimum wage. As a result, the amount of income liable to USC at 4.5% reduces from €49,560 to €49,357. There has been no change to the rates of USC.
For 2021, USC will apply at the following rates for those earning in excess of €13,000:
|Up to €12,012||0.5%|
Non PAYE income in excess of €100,000 will continue to be subject to a 3% USC surcharge.
Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed €60,000 will continue to pay a maximum USC rate of 2% in 2021.
The rate of 8% USC will continue to apply under the Emergency Basis.
An employer is permitted to make tax free payment of up to €3.20 per working day to e-workers to cover additional utility costs incurred by employees working from home. Where an employer does not pay €3.20 to an e-worker, the employee is entitled to make a claim for tax relief in respect of the light and heat expenses. For 2020, broadband costs will also be allowable in respect of employees working from home. In addition, tax relief can be claimed in respect of any expenses incurred wholly, exclusively and necessarily in the performance of duties.
Wage Subsidy Scheme
The current Employment Wage Subsidy Scheme is due to expire on 31st March 2021. Minister Donohoe announced that a wage subsidy scheme of some form will continue until the end of 2021.
Help to Buy (HTB) Incentive
The Help to Buy (HTB) incentive scheme which allows first time buyers to claim tax relief up to €30,000 will be extended until the end of 2021.
Warehousing of Tax Liabilities
The tax debt warehousing scheme will be expanded to include repayments of the Temporary Wage Subsidy Scheme owed by employers and preliminary tax obligations for adversely affected self-assessed taxpayers.
Employment and Investment Incentive Scheme
The employment and investment incentive scheme will be reviewed considering the current crisis with a view to improving support for start-up companies.
The 13.5% VAT rate for the tourism and hospitality sector on food, accommodation and similar goods and services will be decreased to 9% from 1st November 2020 until 31st December 2021.
The Farmer’s Flat Rate Addition will increase from 5.4% to 5.6%.
Covid Restrictions Support Scheme (CRSS)
A new scheme will be introduced to provide targeted support for businesses whose trade has been significantly impacted or temporarily closed as a result of the restrictions set out in the Government’s Living with Covid-19 Plan.
The scheme will be operational from 13th October 2020 until 31st March 2021 and will generally apply where Level 3 restrictions or higher are in place which prohibit or restrict access by customers. The sectors currently impacted are accommodation, food and the arts, recreation and entertainment.
The payment will be calculated as percentage of the business’s average weekly VAT exclusive turnover in 2019 subject to a maximum weekly payment of €5,000.
The excise duty (including VAT) on cigarettes will increase by 50 cent on a packet of 20, with a pro-rata increase on other tobacco products, from midnight on 13th October 2020.
Carbon tax will increase by €7.50 from €26.00 to €33.50 per tonne. This will apply to auto fuel (e.g. petrol and diesel) from midnight on 13th October 2020 and to all other fuels (e.g. coal, peat, gas, home heating oil, etc.) from 1st May 2021.
This will add approximately an additional 2.5 cent per litre to the price of diesel and petrol.
Vehicle Registration Tax (VRT)
VRT for cars is based on the open market selling price (OMSP) and the CO2 emission level of the car. Currently, there are 11 bands of VRT rates ranging from 14% to 36% of the OMSP. The new VRT rates being introduced for 2021 will have 20 bands ranging from 7% to 37% and will be based on the new emissions test for cars known as WLTP (Worldwide Harmonised Light Vehicle Test Procedure). This new regime will be based on emissions performance levels which are much closer to real world performance levels than is currently the case.
VRT reliefs for Plug-in Hybrid Electric Vehicles and hybrids will be allowed to expire having regard to the fact that there will now be much lower VRT rates for low emission cars.
Currently there are 2 tables of Motor Tax in operation. From 2021, there will be 3 tables of Motor Tax in operation as follows:
- Cars registered pre-2008 will continue to be taxed on engine size.
- Cars registered pre-2021 and cars registered in 2021 where the CO2 emissions of the car were assessed using the pre-existing NEDC emissions test (e.g. a second hand import).
- Cars registered in 2021 where the CO2 emissions rating is based on the WLTP emissions test.
Finance Bill 2020
The Department of Finance is due to publish the Finance Bill 2020 on Thursday 22nd October 2020.
National Minimum Wage
The National Minimum Wage will increase by 10 cent from €10.10 to €10.20 gross per working hour in respect of hours worked on or after 1st January 2021.
The Budget provides for 3 additional weeks of paid parent’s leave per parent (i.e. Parent’s Benefit payable by the DEASP) which must be taken during the first year following the birth of a child increasing the leave and benefit to 5 weeks.
Social Protection Measures
The weekly threshold for the higher rate of employer PRSI under Class A will increase from €395 to €398 in line with the increase in the national minimum wage. This will ensure that an employer will pay the reduced rate of employer PRSI of 8.8% in respect of an employee working a 39 hour week who is paid the national minimum wage.
Social Welfare Payments
There will be no broad increases to social welfare payments. Some targeted increases are as follows:
– The rate payable in respect of a qualifying child will be increased by €5 from €40 to €45 in respect of a child aged 12 years or over and by €2 from €36 to €38 in respect of a child who is under 12 years of age.
– The weekly Fuel Allowance will increase from €24.50 to €28 and continue to be payable for 28 weeks of the year.
– The Living Alone Allowance will increase by €5 from €14 to €19 per week which is payable to people aged 66 or over who are living alone.
– The Island Allowance, which is payable to people living on certain offshore islands, will increase from €12.70 to €20 per week in January 2021.
– The Carers Support Grant will increase from €1,700 to €1,850.
– The earnings disregard for people who are working and in receipt of Disability Allowance will increase by €20 from €120 to €140.
– The income limit of €425 which currently applies to those in receipt of One Parent Family Payment will be removed from April 2021.
– An earnings disregard will be introduced in respect of self-employed individuals who are claiming the Pandemic Unemployment Payment (PUP) which will enable them to earn up to €480 per month while still retaining their PUP payment.
– A Christmas bonus of 100% of an individual’s weekly payment will be paid in the first week in December to recipients of long-term Social Welfare payments. For 2020, the bonus will be paid on an exceptional basis to recipients of Jobseeker’s Benefit and PUP who have been receiving these payments for 4 months or more.
– A €10 increase in the weekly income threshold for Working Family Payment for families with up to 3 children.
– Newly widowed parents with dependent children will receive a grant of €8,000 from January 2021, an increase of €2,000.
Reduction in Waiting Days for Illness Benefit
The number of waiting days for Illness Benefit will reduce from 6 days to 3 days for all new claims from the end of February 2021. This may reduce the cost to employers who provide a sick pay scheme for employees.
State Pension Age
The age to qualify for the State Pension was due to increase from 66 to 67 in 2021, however, the Minister for Public Expenditure and Reform confirmed that pension age will remain at 66 years for next year.
Student Universal Support Grant (SUSI)
The SUSI fee grant for postgraduate study will be increased by €1,500 from €2,000 to €3,500 and the income eligibility threshold for the grant will be adjusted.
Annual Update Day
Our Annual Update Day will provide delegates with a comprehensive update on TWSS and EWSS and will cover the relevant changes to PAYE, PRSI and USC introduced in Budget 2021 and Finance Bill 2020. In addition, this Update Day will cover the main changes affecting the ongoing operation of payroll to include any proposed changes for the coming years.
A representative from Revenue’s PAYE Team will provide an update on the Temporary Wage Subsidy Scheme (TWSS), Employment Wage Subsidy Scheme (EWSS), Stay and Spend Tax Credit, and more.