Minister for Finance, Paschal Donohoe, and Minister for Public Expenditure, Michael McGrath delivered the 2021 Budget on Tuesday 13 October 2020.
Amidst a global health pandemic which has already wreaked havoc on the economy, the Government are also faced with the prospect of a ‘No Deal’ Brexit in a matter of weeks.
With the SME sector, in particular, bearing the brunt of lockdowns and restrictions on their trading activities, businesses across all sectors were looking to the Ministers for some relief to ensure that they could face in to 2021 with at least some silver lining to the dark clouds that rolled in during 2020.
As it turns out, a budgetary package of almost € 18bn, including a recovery fund of € 3.4bn to tackle COVID-19 and Brexit, was announced.
Here, we take a look at how Budget 2021 affects small businesses and the self-employed.
SUMMARY
Earned Income Tax Credit for the self-employed increased by € 150.00 to € 1,650.00.
COVID-19 Restrictions Support Scheme announced for businesses forced to close or whose trade has been severely impacted by Government restrictions during COVID-19.
Changes to Pandemic Unemployment Payment: Self-employed can earn up to € 480.00 per month whilst still qualifying for the payment.
VAT rate on hospitality and tourism sector cut from 13.5% to 9%.
Tax Debt Warehousing Scheme set to be extended to include Temporary Wage Subsidy scheme repayments and 2020 Preliminary Income Tax payments.
Commercial rates holiday extended for remainder of 2020.
Employment Wage Subsidy Scheme to be extended beyond March 2021.
State pension age to remain at 66 – had been due to increase to 67.
Enhanced Help to Buy Scheme extended for a further 12 months.
Carbon Tax has been increased by € 7.50 to € 33.50 per tonne.
Farming – Stamp Duty reliefs for transferring agricultural land extended.
IN MORE DETAIL
BUSINESS SUPPORT PACKAGE
COVID-19 RESTRICTIONS SUPPORT SCHEME (CRSS)
The COVID-19 Restrictions Support Scheme (CRSS) provides support for businesses who have had to prohibit or restrict access to customers due to Level 3 or higher restrictions.
Accommodation, food and the arts, recreation and entertainment are the sectors which would currently qualify for the scheme although more businesses may become eligible should the country move to a higher level of restriction.
Under CRSS the Government will make a payment, based on the 2019 average weekly turnover. Qualifying businesses can apply to the Revenue Commissioners for a cash payment in respect of an advance credit for trading expenses for the period of the restrictions.
The scheme comes into effect today and will run until 31 March 2021. The first payments will be made to affected businesses by mid-November.
Payments will be calculated on the basis of 10% of the first € 1 million in turnover and 5% thereafter, based on average VAT exclusive turnover for 2019. It will be subject to a maximum weekly payment of € 5,000.00.
Qualification will require a business to demonstrate that their turnover has been severely impacted; turnover may not exceed 20% of the turnover for the corresponding period in 2019.
COMMERCIAL RATES HOLIDAY EXTENDED
The Commercial Rates Holiday has been extended through to the final quarter of 2020.
VAT REDUCTION FOR TOURISM/ HOSPITALITY SECTOR
The rate of VAT applying to the hospitality and tourism sector will be reduced from 13.5% to 9%, with the reduction taking effect on 01 November 2020 and will continue until 31 December 2021.
DEBT WAREHOUSING SCHEME
In response to the challenges of COVID-19, the Government legislated earlier this year to allow for tax debts associated with the COVID-19 crisis to be deferred or ‘warehoused’. The scheme allows for the deferral of unpaid VAT and PAYE (Employers) debts arising from the COVID-19 crisis with reduced interest rates being applied while these balances remain outstanding.
It was today announced that this scheme was being expanded to include repayments of the Temporary Wage Subsidy Scheme owed by employers and Preliminary Tax due for 2020 for self-assessed taxpayers.
GOVERNMENT AGENCY FUNDING
Minister Michael McGrath announced an allocation of € 1.1bn to the Department of Enterprise to deliver:
Supports through the Local Enterprise Offices and Enterprise Ireland including the Regional Enterprise Development Fund and the Sustaining Enterprise Fund to assist SMEs and companies with the negative impact of COVID-19;
Further funding for R&D through the COVID-19 products scheme; and
Funding for the SBCI Credit Guarantee Scheme and the Future Growth Loan Scheme to ensure that liquidity supports are in place to assist firms.
SECTORAL ENTERPRISE SUPPORTS
Minister Michael McGrath also announced a number of new funds and initiatives to support those industries hardest hit by COVID-19.
The headline figures include:
€ 55 million for a Tourism Business Support Scheme
€ 5 million for Tourism Product Development
€ 50 million in Live Entertainment Supports
INCOME TAX
The Earned Income Tax Credit for the self-employed will be increased by € 150.00 to € 1,650.00 from 1 January 2021.
The Dependant Relative Tax Credit, which is available to those who maintain a dependant relative at their own expense, will increase from € 70.00 to € 245.00 per annum.
EMPLOYERS
EMPLOYMENT WAGE SUBSIDY SCHEME
The Employment Wage Subsidy Scheme, which came into effect on 1 September 2020 as a replacement for the initial Temporary Wage Subsidy Scheme, is due to expire on 31 March 2021.
The Minister has indicated that some form of this scheme will remain in place beyond this date. He declined to give any more detail, however, saying that the level of any extended scheme would depend on budgetary and economic conditions next year.
APPRENTICE INCENTIVISATION SCHEME
The Apprenticeship Incentivisation Scheme provides financial support for apprenticeship employers who take on apprentices on all national apprenticeship programmes.
Apprenticeship employers are currently eligible for a € 3,000.00 payment for each new apprentice who is registered between the period 1 March and 31 December 2020.
This scheme will now be extended in to 2021.
MINIMUM WAGE INCREASE
In line with the recommendation from the low pay commission the statutory minimum wage will increase by 10 cents to € 10.20 per hour from 1 January 2021
CAPITAL TAX CHANGES
CAPITAL GAINS TAX – ENTREPRENEURS RELIEF
A minor amendment was announced to the CGT relief known as Entrepreneurs Relief. This allows qualifying business owners to avail of a preferential rate of CGT of 10% when they sell certain business assets.
Budget 2021 will amend the ordinary shareholding requirement so that an individual who has owned at least 5 per cent of the shares in a company for a continuous period of any three years qualifies for this relief.
Previously, a person had to own at least 5 per cent for a continuous period of 3 years in the 5 years immediately prior to the disposal.
SOCIAL WELFARE
PANDEMIC UNEMPLOYMENT PAYMENT (PUP)
The rules governing the PUP will be amended to allow the self-employed to undertake some work whilst receiving the payment and still remain eligible.
A self-employed individual will be able to earn € 480.00 per month and still retain their right to claim the PUP.
RETIREMENT
It was also announced that the planned move to increase the age at which people became eligible for the state pension to 67 has been delayed.
66 will remain the age at which you can qualify for the payment.
PROPERTY
HELP TO BUY SCHEME
The Help to Buy Scheme allows first time buyers of newly built houses who are saving for a deposit to reclaim some of the Income Tax and Deposit Interest Retention Tax (DIRT) that they have paid in the previous 4 tax years.
Originally capped at 5% of the purchase price of a qualifying house subject to a maximum refund of € 20,000.00, it was announced in the July Stimulus Package that the rebate was being increased to 10% of the purchase price with the maximum refund being increased to € 30,000.00.
This increase was due to expire on 31 December 2020, but has now been extended for 12 months to 31 December 2021.
STAMP DUTY RESIDENTIAL DEVELOPMENT REFUND SCHEME
This scheme provides for a refund of a portion of the Stamp Duty paid on the acquisition of non-residential land where that land is subsequently developed for residential purposes.
This scheme is currently due to expire on 31 December 2021, but changes announced today will see it extended to 31 December 2022, and the time allowed between commencement and completion of a qualifying project being extended by 6 months to two-and-a-half years
FARMING
CONSANGUINITY (STAMP DUTY) RELIEF
This relief, which is being extended from its current expiry date of 31 December 2020, to 31 December 2023, provides, under certain conditions, for a 1% rate of stamp duty to be applicable where a transfer of agricultural land (by sale/purchase, exchange or gift) is made to certain close relations, such as a mother to son or uncle to niece.
The standard rate of stamp duty applying to the transfer of agricultural land is 7.5%.
FARM CONSOLIDATION (STAMP DUTY) RELIEF
This relief, which is being extended from its current expiry date of 31 December 2020, to 31 December 2022 provides for a reduced stamp duty rate of 1% (as opposed to the general rate on non-residential property of 7.5%) to apply where a farmer disposes of and purchases land and/or exchanges land with another farmer in order to consolidate an existing farm.
VAT FLAT RATE ADDITION
Farmers who are not VAT registered are compensated for the VAT they are charged on purchases by means of a flat rate addition to the prices they receive from VAT registered customers for their products, cattle, milk, grain, etc.
The Flat Rate Addition is being increased from 5.4% to 5.6% from 1 January 2021.
CORPORATION TAX
KNOWLEDGE DEVELOPMENT BOX
The Knowledge Development Box is a regime for the taxation of income which arises from patents, copyrighted software and other intellectual property.
The profits arising from patents, copyrighted software etc. are taxed at an effective rate of 6.25% under these rules.
The scheme has now been extended for a further 2 years to 31 December 2022.
CLIMATE CHANGE
CARBON TAXES
Carbon Tax has been increased by € 7.50 per tonne to € 33.50 per tonne. For a 60 litre tank of petrol this will add € 1.30, with €1.50 being the increase for a similar size tank of diesel.
Other fuels like home heating oils will also see increases in prices. To combat this increased cost for the vulnerable, an increase of € 3.50 per week to the weekly fuel allowance has been announced.
The increases for petrol and diesel will take effect from midnight tonight with home heating oil increases set to be deferred until May 2021.
ACCELERATED CAPITAL ALLOWANCES FOR ENERGY EFFICIENT EQUIPMENT
The scheme which allows the costs of purchasing energy efficient equipment for use in a business to be fully written off against tax in the year of purchase has been extended for a further 3 years to 31 December 2023
VEHICLE REGISTRATIONS TAX (VRT)
The rate of VRT for low emission and electric vehicles will be reduced whereas the rates for models seen to be less climate friendly will be increased.
The existing system of 11 categories/bands will be replaced by 20 bands with the larger and less efficient cars falling into the higher brackets. This will mean increased prices for some of the country’s most popular makes and
models.
MOTOR TAX
In line with the changes to the VRT system, the motor tax charging system is being overhauled. The new rules will come into effect for cars registered on or after 1 January 2021 with any cars registered before this date seeing minimal changes.
SUMMARY OF RATES
Income Tax 2021 2020
Top rate of tax 40% 40%
Higher rate entry point (single person) € 35,300 € 35,300
Income Tax Bands 2021 2020
Single/widowed (not a principal child carer) € 35,300 € 35,300
Single/widowed (principal child carer) € 39,300 € 39,300
Married couple (one income) € 44,300 € 44,300
Married couple (two incomes) € 70,600 € 70,600
Income Tax Credits 2021 2020
Single person € 1,650 € 1,650
Married couple € 3,300 € 3,300
Employee Tax Credit € 1,650 € 1,650
Earned Income Credit € 1,650 € 1,50
Dependent Relatve Tax Credit € 245 € 70
USC 2021 2020
Income of € 13,000 or less is exempt, otherwise:
0.5% rate band (no change) € 12,012 € 12,012
2% rate band (no change) on the next € 8,675 on the next €8,472
4.5% rate band (no change) on the next € 49,357 on the next €49,560
8% rate band income > €70,044 income > €70,044
11% rate band (self-employed +€ 100k) income > €100,000 income > €100,000
PRSI 2021 2020
Class A - most employed people
Employer € 398.01 per week or more 11.05% 11.05%
(€ 394.01 or more up to 31 December 2020)
Employer less than € 398 per week 8.8% 8.8%
(less than € 394 up to 31 December 2020)
Employee € 352 per week or more 4% 4%
(tapered relief on income up to €424 per week)
Class S1 - self employed and proprietary directors
Employer 0% 0%
Employee 4% 4%
Corporate Tax Rates 2021 2020
Trading income (including certain dividends) 12.5% 12.5%
Other income (excluding capital gains) 25% 25%
Capital Gains Tax 2021 2020
Capital gains tax (CGT) 33% 33%
CGT Entrepreneur Relief
(up to a limit of €1 million) 10% 10%
Capital Acquisitions Tax 2021 2020
Gifts and inheritances 33% 33%
Tax fee thresholds
Group A (Parent to child) € 335,000 € 335,000
Group B (Other blood relative) € 32,500 € 32,500
Group C (Anybody else) € 16,250 € 16,250
Value Added Tax 2021 2020
Standard 23%/21%* 23%/21%*
Reduced: land and buildings,
building services, heating, electricity etc 13.5% 13.5%
Hospitality/Tourism 9% 13.5%**
Stamp Duty 2021 2020
Certain stocks and shares 1% 1%
Private residential property
Up to €1,000,000 1% 1%
Private residentil property
Any excess over €1,000,000 2% 2%
Non-residental property 7.5% 7.5%
* The standard rate of VAT was temporarily reduced to 21% between 1 September 2020 and 28 February 2021
** The 9% rate of VAT will apply from 1 November 2020