Budget 2021: Business Highlights

14 Oct 2020 | 11.05 am

Budget 2021: Business Highlights

Budget 2021 details new Covid Restrictions Support Scheme

14 Oct 2020 | 11.05 am

VALUE ADDED TAX

Finance minister Paschal Donohoe has announced a reduced VAT rate for the hospitality and tourism sector from 13.5% to 9.0% from November 1.

The measure is the main business support in Budget 2021 announced today. The reduced rate will be in place until December 2021.

The Department of Finance estimates that the reduction will mean that hospitality and tourism businesses will remit €400m less in VAT payments than would otherwise be the case.

Covid Restrictions Support Scheme

The minister also announced a new Covid Restrictions Support Scheme (CRSS) to provide targeted support for businesses that have to shutter due to Covid restrictions.

He said CRSS is designed to assist those businesses whose trade has been significantly impacted or temporarily closed as a result of the restrictions as set out in the government’s ‘Living with Covid-19’ plan. The scheme will generally operate when Level 3 or higher is in place and will cease when restrictions are lifted.

The sectors impacted by the current Level 3 nationwide restrictions are accommodation, food, the arts, recreation and entertainment. If the government decides to move to a higher level of restriction then other sectors may qualify.

“For these businesses, the government will make a payment, based on their 2019 average weekly turnover, to provide support at a difficult time. The scheme will apply to business premises where the government restrictions directly prohibit or restrict access by customers,” he stated.

“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 will be effective from today until 31 March 2021, and the first payments will be made to affected businesses by mid-November.

“Payments will be calculated on the basis of 10 per cent of the first €1 million in turnover and 5 per cent thereafter, based on average VAT exclusive turnover for 2019. It will be subject to a maximum weekly payment of €5,000.”

According to Donohoe, once the scheme is operational and a county or region is subject to government restrictions of Level 3 or above, qualifying businesses can claim in week 1 and valid claims will be repaid for the entire period of the restriction within 2-3 working days. Payments will automatically cease at the end of the Covid restriction period. If restrictions are extended a subsequent claim can be made.

The scheme will operate on a self-assessment basis, and qualification will require a business to demonstrate that their turnover has been severely impacted and that it may not exceed 20 per cent of the turnover for the corresponding period in 2019. It will run from Budget day until 31 March 2021 and will be brought into effect by Finance Bill 2020.

Wage Subsidies

The Employment Wage Subsidy Scheme is currently set to continue until 31 March 2021. Donohoe stated that a similar type scheme will be needed “out to the end of 2021” to provide businesses with greater levels of certainty.

“There will be no cliff edge to this vital scheme. It will continue during 2021 and the government will decide on the form of its extension when economic conditions are clearer,” the minister promised.

Daryl Hanberry, tax partner in Deloitte, commented: “What will be crucial in the coming months and in the design of any long term wage support scheme is that the Department of Finance and the Revenue Commissioners leverage off the infrastructure already utilised during 2020 to ensure cash is returned to businesses in as efficient a manner as possible.

“In addition, it would be hoped that continued qualification for the EWSS is based on straightforward, easy to understand qualification criteria.”

Additional Rates Waiver

Michael McGrath, Minister for Public Expenditure and Reform, said he is providing €500m in additional expenditure measures to support businesses and communities.

“I am announcing a further commercial rates waiver for the final quarter of this year at a cost of €300 million. This will provide significant relief for businesses, and brings to €900 million the total amount of local authority rates waived in 2020,” he stated.

Tax Warehousing

The finance minister also declared that he will provide for an extension of the tax warehousing scheme to include repayments of Temporary Wage Subsidy Scheme funds owed by employers and preliminary tax obligations for the adversely affected self-employed.

Donohoe stated: “I am aware that not all self-employed taxpayers can benefit from the losses provision introduced in the July Stimulus but will have suffered a significant drop in income and will struggle to pay their 2019 balance and preliminary tax for 2020.

“Therefore, I will provide that the debt warehousing provisions be extended to include the 2019 balance and 2020 preliminary tax to allow such taxpayers to defer payment for a period of a year with no interest applying; 3 per cent will apply thereafter and will attract no surcharge.”

Frank Greene, Head of Tax at Mazars Ireland, observed: “The ability to warehouse additional tax liabilities for 2019 and 2020 will be of significant benefit, and the scheme to give tax rebates to the most effected business should go some way towards covering the weekly fixed costs that arise when a business is closed or operating at a very low level.”

Marc O’Dwyer, CEO of Big Red Cloud, commented: “This should mean the difference between many small businesses staying afloat or going out of business. However, the deferment could lead to a tsunami of tax debt that many may struggle to cope with while keeping their current taxes up to date.

“Even if these businesses get back to normal turnover volumes sometime next year, it’s unlikely that new business will be sufficiently booming to enable them to pay a double tax liability. The real hope is that there will be little or no tax due for 2020 as it was so poor, which would only leave the balance of 2019 and preliminary for 2021 to pay.”

Earned Income Credit

In other Budget measures, the self-employed and proprietary directors will see their Earned Income Credit raised by €150 to €1,650 in 2021, the same as the PAYE credit. The ‘tax cost’ of this increase is €24m.

Tax Increases

Increased tax revenues have been targeted through a €7.50 increase in the Carbon Tax Rate to €33.50 per tonne, which will extract an extra €150m per annum from motorists and domestic gas users.

The Coach Tourism and Transport Council said the Carbon Tax hike will add €10 to an average coach filling a 400-litre tank of diesel.

Chairman John Halpenny said: “We feel completely abandoned and let down. The hiking of taxes on diesel in the Budget has been a devastating blow and will do nothing to assist the industry that is already on its knees through no fault of its own.

“Advancing green credentials while decimating a sustainable transport service provided by private bus and coach operators around the country makes absolutely no sense whatsoever. We are now demanding that action is taken to help the survival of our sector and ensure passengers can be assured of essential connectivity to work, college, school and hospitals coming out of this pandemic.

“This need is acute now more than ever given the fact Bus Eireann has ceased operations on a number of inter-city routes. We had asked for a fuel rebate scheme to offset any potential carbon tax increases but our pleas have been ignored,” Halpenny added.

More pain has been heaped on smokers too, with a 50c per packet increase in tobacco tax. The Minimum Excise Duty rate on cigarettes is increasing such that any 20 pack priced below €11.50 will be subject to excise as if it were priced at €11.50.

Motor Taxes

Motor Tax and VRT are set to become even more complicated.

For Vehicle Registration Tax, a new rates table is being introduced. The charging structure for the NOx surcharge is also adjusted so that 1-40 mg are charged at €5 per mg, and 41-80 mg are charged at €15 per mg.

The €5,000 relief for Battery Electric Vehicles is being tapered for vehicles with an OMSP over €40,000, so that no amount of relief is available for BEVs with a value of over €50,000.

With Motor Tax, a new motor tax rates table is being introduced for WLTP cars first registered in the state from 01/01/21. Minor rates changes are implemented in the existing rates table for cars taxed on CO2 emissions (cars first registered in the state between July 2008 and end 2020). There are no changes to the rates table for cars taxed based on engine size (pre July 2008).

According to motor industry body SIMI:

• With the full implementation of the new emissions testing system, WLTP, from January 2021 a new structure of rates and bands for VRT and motor tax will see an increase in the number of VRT Bands to 20, with a wider gap between the highest and lowest VRT rate (7% to 37%).

• To create a level playing field between new cars and used imports, which have been subject to different emissions tests, used imports subject to the old emissions test will have their CO2 values uplifted to a level equivalent with the WLTP test to which all new cars are subject.

• 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.

• Taper relief for Battery Electric Vehicles – the changes to the VRT rates and bands compensates for the changes to these reliefs.

• Following on from its introduction in last year’s Budget, adjustment of the Nitrogen Oxide (also known as NOx) surcharge bands so that higher NOx emitting vehicles will pay more.

• Motor Tax rates will remain unchanged for all cars in the engine sized regime and all but the most pollutant cars in the post-2008 regime.

• A third Motor Tax table for cars registered from the 1st of January next year to take account of the introduction of the WLTP emissions test.

SIMI director general Brian Cooke commented: “In the context of the current economic climate and an already depressed new car market, the industry is disappointed with the increase in VRT announced in Budget 2021.

“Overall the changes to the VRT system result in an average €1,000 increase on the price of a new family car. This will make the new car market even more challenging for next year, reducing demand and slowing down the replacement of the oldest cars in the national fleet with newer lower emitting cars, which in turn will make it more difficult to drive down emissions.”

Steve Tormey, chief executive of Toyota Ireland, stated that Budget changes will see new car buyers who opt for more sustainable vehicles such as hybrid electrics and EVs benefit with better value through lower VRT, while petrol and diesel cars with higher emissions will be more expensive. He cited the example of a €360 VRT reduction on the Toyota Corolla self-charging hybrid.

Capital Taxes

There’s no mention of adjustments to capital taxes such as CGT in Budget 2021.

Brian Keegan, Director of Public Affairs with Chartered Accountants Ireland, commented: “The decision once again this year to not reduce the CGT rate from 33% to a more palatable 25% is a missed opportunity.

“A temporary reduced CGT rate would have brought in much needed tax revenue from a pent-up appetite for transactions which must go unsatisfied for now.

“The tax system can be used to encourage private risk-based investment in startups. Private investors have cash doing nothing on deposit and all they need is a government initiative to channel much needed investment into startups.

“Plans for another review of the Employment Investment Incentive Scheme need to deliver real change to drive private investment to support startups,” Keegan added.

Photo: Ministers Michael McGrath (left) and Paschal Donohoe. (Pic: RollingNews.ie)

 

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