Review of Budget 2013 Announcements

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….

TAXATION MEASURES

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.

-          PRSI

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.

CORPORATION TAX       

-          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

-          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.

PENSIONS

-          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

VEHICLES

-          VRT

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 DUTIES

-          Alcohol

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 5^th December 2012.

-          Tobacco

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 5^th 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.

-          Health

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.

-          Education

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.

Contact Details:

www.fenero.ie

01-6877400

info@fenero.ie

The Self-Employed and Jobseeker's Benefit/Allowance

One issue that we are commonly asked about is that of social welfare entitlements for the self-employed, in particular JobSeekers Benefit. If you are self-employed, what social welfare safety nets are there should your business fail or not provide you with sufficient income?

Qualifying for Jobseeker’s Benefit

Most self-employed people cannot qualify for Jobseeker’s Benefit due to the fact that it is only given to people who have paid PSRI at Class A. However, if you have previously worked and paid Class A PRSI as an employee before becoming self-employed you may be entitled to Jobseeker’s Benefit.

To qualify for Jobseeker’s Benefit you need:

·         At least 104 Class A PRSI contributions paid since you first started work

·         And have 39 Class A PRSI contributions paid or credited in the relevant tax year (a minimum of 13 weeks must be paid contributions*) or

·         Have 26 Class A PRSI contributions paid in the relevant tax year and 26 weeks Class A PRSI paid in the tax year immediately before the relevant tax year.

The relevant tax year is the second last complete tax year before the year in which your claim is made. So, for claims made in 2012, the relevant tax year is 2010.

If you are unsure as to how many Class A PRSI contributions that you have, you can check your PRSI record directly with the Department of Social Protection (contact details available at www.welfare.ie).

I do not qualify for Jobseeker’s Benefit. What happens next?

If you do not qualify for Jobseeker’s Benefit you may instead qualify for Jobseeker’s Allowance which is a means-tested social welfare payment. If you have applied for Jobseeker’s Benefit and did not qualify, you should be automatically assessed for Jobseeker’s Allowance. In fact, you cannot actually apply for Jobseeker’s Allowance until you have first applied for Jobseeker’s Benefit (even if you know that you will not qualify for Jobseeker’s Benefit).

Jobseekers Allowance – Means Test

If you do not earn enough from self-employment and you do not qualify for Jobseeker’s Benefit, you may be able to get Jobseeker’s Allowance if you pass a means test. To qualify, you must also be:

·         Over 18 and under 66

·         Unemployed and available for, capable of and genuinely seeking work

·         Habitually resident in Ireland

How can I be available for work if I am self-employed?

You will no doubt have noticed that one of the qualifying criteria is that you must be available for and seeking work. For the self-employed, you can remain so and can even be engaged in self-employment every day and still be entitled to receive Jobseeker’s Allowance, provided your overall income stays below a certain amount. The number of days you are engaged in self-employment is not relevant.

In order to satisfy the criteria of being capable of, available for, and genuinely seeking work, you must be able to show evidence of this to the Department of Social Protection.

Available for work

Essentially the Department of Social Protection considers that you are available for employment if you are prepared to accept any offers of suitable employment immediately. It is important to be aware that you can be regarded as not being available for work and therefore not entitled to Jobseeker's Allowance if you put unreasonable restrictions on the following:

·         The nature of the employment

·         The hours of work

·         The rate of pay

·         The duration of the employment

·         The location of the employment

Genuinely looking for work

You must be able to show that you are making genuine efforts to secure employment. You need to provide examples of such steps. Steps which would indicate that you are considered to be genuinely seeking work may include:

·         Making oral or written applications for work

·         Looking for information on the availability of employment from employers, advertisements and employment agencies

·         Taking up reasonable training opportunities

·         Acting on the advice given by a Job Facilitator, a FÁS adviser or other placement agency such as the Local Employment Service (LES)

·         Taking positive, well advised steps towards establishing yourself in self-employment such as researching possible areas of self-employment,

·         Preparing business plans for a self-employment project

·         Attending relevant "start your own business" courses or seeking information, advice or guidance in relation to any of these steps

How is the Means Test Carried Out?

For information on how the means test is carried out, watch out for a future blog post coming soon.

Other Benefits

If you qualify for Jobseeker's Allowance you may also be eligible to apply for secondary benefits such as a medical card, rent supplement, mortgage interest supplement, fuel allowance, assistance with school costs etc.

Contact Details

www.fenero.ie

info@fenero.ie

01-6877400