So the speculation is over and the announcements have been made. For a round up of all the main announcements made in today’s Budget, read on….
INCOME TAX CHANGES
- Universal Social Charge (USC)
Currently reduced rates of USC apply to the over 70s and full medical card holders. From 1 January 2013 the standard USC rates will apply to both the over 70s and full medical card holders earning more than €60,000 per annum.
The minimum annual PRSI contribution for the self-employed is increasing from €253 to €500.
The weekly PRSI allowance for PAYE employees is to be removed. Currently the first €127 of weekly pay for a PAYE employee earning more than €18,305 is exempt from PRSI. This relief is to be abolished in a move that will cost PAYE employees earning over €18,305 an extra €264 per annum.
PRSI to be payable on passive income e.g. rental and other investment income.
- Maternity Benefit
Maternity Benefit is to become a taxable source of income with effect from 1 July 2013.
- Top Slicing Relief
Top Slicing Relief will no longer be available, from 1 January 2013, on ex-gratia lump sums in respect of termination and severance payments where the non-statutory element is €200,000 or over.
- Charitable Donations
A number of changes to the administrative regime of tax relief for donations to charities and approved bodies have been announced. One new blended tax rate for relief on charitable donations of 31% to be introduced.
- Benefit in Kind
The specified interest rate used in calculating benefit in kind on preferential loans (other than home loans) is to increase from 12.5% to 13.5%. However the specified rate of 5% for home loans is to be reduced to 4%.
- Film Relief
The current film relief scheme is to be extended to 2020. However the scheme will be removed and will move to a tax credit model from 2016.
- 3 Year Corporation Tax Exemption
An extension to the 3 year corporation tax exemption for new start-up companies is to occur. The relief is being extended to allow any unused relief arising from insufficient profits during the first 3 years trading to be carried forward for use in future years. However the maximum allowable relief cannot exceed the eligible amount of Employers PRSI in the year claimed.
- R&D (Research and Development) Tax Credit
The amount of qualifying expenditure which can benefit from the tax credit without reference to the 2003 threshold is being increased from €100,000 to €200,000.
- Close Company Surcharge
Close Companies are currently exempt from the surcharge where the amount of any undistributed investment income is less than €635. This threshold is being increased to €2,000. The majority of Irish companies are Close Companies. A Close Company is a company that is controlled by five or fewer participators or is controlled by any number of participators who are directors.
- VAT rate for the tourism sector
The 9% VAT rate for the tourism (and certain other) industries is to be retained.
- Threshold for accounting for VAT on a cash receipts basis
Businesses with an annual turnover of €1 million or less are currently eligible to account for VAT on a cash receipts basis. This threshold is to be increased to €1.25 million. Accounting for VAT on a cash receipts basis is a significant cash flow advantage for businesses.
- Access to pension fund pre-retirement age
Individuals will be allowed a once-off option to withdraw up to 30% of the value of their AVCs prior to retirement. However any withdrawals will be liable to tax at the individual’s marginal rate. This option will remain in place for three years after the passing of Finance Bill 2013.
- Changes to maximum tax relief on pension contributions
The government plans to introduce a cap on tax relief for pension contributions into pension funds which will provide annual pension income of more than €60,000.
- Pension Levy
The annual Pension Levy of 0.6% of pension funds levied to fund the Jobs Initiative is set to end as planned in 2014.
CAPITAL GAINS TAX
The current rate of 30% is to be increased to 33% and will apply to disposals made after 5 December 2012.
Relief to capital gains tax will be available for farm restructuring. This will be available where the proceeds of the sale of a farm are reinvested for the same purpose.
CAPITAL ACQUISITIONS TAX
The current rate of 30% is to be increased to 33% and will apply to gifts and inheritances received after 5 December 2012. The current group tax free thresholds are also being reduced by 10% with effect from the same date.
DIRT (TAX ON SAVINGS)
The rate of DIRT is to be increased from 30% to 33% for savings products which pay interest annually or more frequently. For products which pay interest less frequently than annually the applicable rate will be 36%. These increased rates will apply from 1 January 2013.
LOCAL PROPERTY TAX
The new local property tax will take effect from 1 July 2013. A half-year payment will be charged in 2013.
The tax will be charged at a rate of 0.18% on properties valued at less than €1 million and at a rate of 0.25% will apply to any excess value over €1 million. Importantly these rates will be known as the “central rates” but from 2015 onwards, local authorities will be able to vary the rate of the tax by up to +/- 15%. Therefore different rates will apply depending on the local authority that you live under.
The Household Charge will cease with effect from 1 January 2013 as this local property tax is to replace it. In addition the NPPR (non principal private residence) charge will cease with effect from 1 January 2014. Any unpaid Household Charge or NPPR taxes will remain as a charge on the related property however.
For full details on the local property tax, see our separate blog article at: http://smallbusinessadviceireland.blogspot.ie/2012/12/overview-of-new-local-property-tax.html
Vehicle Registration Tax (VRT) rates are to be increased with effect from 1 January 2013. VRT reliefs currently in place for electric vehicles and certain hybrid vehicles are to be retained until the end of 2013.
- Motor Tax
Motor tax rates will increase from 1 January 2013 across all categories although the rate for electric cars is being reduced to €120.
A full list of current and the new revised motor tax and VRT rates is available from page 2 onwards at: http://budget.gov.ie/Budgets/2013/Documents/Annex%20C%20-%20VRT%20and%20Motor%20Tax.pdf
Excise duty on a pint of beer and cider, and on a standard measure of spirits, is being increased by 10 cent. The excise duty on a 75cl bottle of wine is to be increased by 1 euro. Pro-rata increases take effect on other products. These increases take effect from midnight 5th December 2012.
Excise duty on a packet of cigarettes is to be increased by 10 cent with a pro-rata increase on other products. Excise duty on roll-your-own tobacco will increase by 50 cent per 25g pouch with effect from midnight 5th December 2012.
SOCIAL WELFARE AND EXPENDITURE MEASURES
- Statutory Redundancy Payments
The partial refund of statutory redundancy payments to employers, which was substantially reduced last year, is to be abolished completely.
The prescription charge for medical card holders to be increased from 50c to €1.50 per item and the monthly cap for a family is being increased from €10 to €19.50.
Drug Payment Scheme threshold is being increased from €132 to €144 per month.
Medical cards to be replaced by GP only cards for persons aged over 70 with a weekly income of €600-€700 for single persons and €1,200-€1,400 for a couple.
- Social Welfare Changes
No change to core weekly payment rates.
Child Benefit to be reduced by €10 per month.
The length of time which an individual can claim Jobseeker’s Benefit will be reduced by 3 months, from 12 months to 9 months. After 9 months a means test will be required.
Telephone and electricity allowances which are currently available under the Household Benefits package are to be reduced.
For third level students, the student contribution to fees will be increased by €250 for the years 2013 to 2015.
Disclaimer: The above list is not an exhaustive list of proposed changes. In addition, the above notes are based on the budget speech and not on draft legislation, which will not be available until the Finance Bill is published. Fenero accepts no responsibility for any action which any individual or business may take or not take based on their reading of this article. Professional advice should be taken before any action is taken.