Finance (No.2) Act 2013 included a number of positive initiatives to help business and entrepreneurs. The significant changes introduced, together with clarification on the retention of existing tax rates and allowances, are provided below.
- No changes introduced in respect of income tax and USC rates.
- Top Slicing Relief ceased to apply to any termination payment that is made on or after 1 January 2014. Top Slicing Relief had ensured that the taxable amount of an ex-gratia lump sum of less than €200,000 received on retirement or redundancy was not taxed at a rate higher than the individual’s average rate of tax over the prior 3 tax years.
- The new single person child carer tax credit replaced the one-parent family tax credit on 1 January 2014. Although the credit amount of €1,650 has not changed, the new credit will only be available to the child’s primary carer and will not be claimable by both parents.
- The rate of DIRT and the rates of exit tax that apply to life assurance policies and investment funds increased to 41% in 2014. PRSI of 4% will also be applied to the interest income and other unearned income of chargeable persons for income tax who are under the age of 66. Thus, the effective tax rate on savings could now be 45%.
- The reduced rate of Employers PRSI of 4.25% introduced in 2011 for employees earning less than €18,512 per annum reverted back to 8.5% on 1 January 2014.
- Tax relief for health insurance policies renewed or entered into on or after 16 October 2013 have been restricted to the first €1,000 of an adult’s annual premium and the first €500 of a child’s annual premium. Previously tax relief was available at a rate of 20% for all qualifying medical insurance premiums.
- The Start Your Own Business scheme was announced to encourage long term unemployed people to start their own business. It provides an exemption from income tax on earnings of up to €40,000 per annum for a period of 2 years for qualifying individuals who set up an unincorporated business and who had been either continuously unemployed or in receipt of social welfare payments for at least 12 months immediately prior to commencing the business.
- A new Home Renovation Incentive Scheme was introduced which will operate in 2014 and 2015. A 13.5% tax credit will be given to homeowners who incur qualifying expenditure (expenditure subject to the 13.5% VAT rate) on repair, renovation or improvement work carried out on their principal private residence by a tax registered and tax compliant contractor. The minimum and maximum VAT inclusive amounts on which relief can be claimed are €5,000 and €30,000. The relief is given in the form of a tax credit split over the 2 years following the year in which the work is carried out. Thus, the scheme effectively results in the homeowner getting the VAT back as charged by the contractor.
- There has been a change in the calculation of the foreign tax credit available to an individual subject to the high earners restriction. Previously, the Irish effective tax rate was calculated before applying the high earners restriction which would result in an artificially low Irish effective rate. The high earners restriction is now included as taxable income which increases the Irish effective rate of tax. This should increase the foreign tax credit available and achieve a fairer tax position. This has effect for all tax returns filed on or after 31 January 2008.
- Tax relief for an individual on interest payments made on borrowings used to either purchase a share of, or invest in a partnership will no longer be available in respect of loans drawn down after 15 October 2013. The relief available on loans in existence on 15 October will be phased out over the next 3 years with a maximum deduction on interest paid restricted to 75% in 2014, 50% in 2015 and then finally 25% in 2016.
- The initial tranche of the Employment and Investment Incentive Scheme (EII) for investments made in qualifying companies between 16 October 2013 and 31 December 2016 will no longer be subject to the high earners restriction.
- The proposed changes to pay and file dates for self-assessed income will be introduced as part of the Finance Bill 2014. These changes will take effect from the 2015 tax year at the earliest. Any changes to the pay and file dates would have significant cash-flow and administrative implications for taxpayers.
Corporation Tax and Capital Taxes
- The 12.5% corporate tax rate on trading profits has been retained.
- Corporate residency rules have been changed to address the possibility of a company being “stateless”. An Irish incorporated company will now be regarded as Irish tax resident if it is managed and controlled in an EU Member State or in a country with which Ireland has a double taxation agreement and the country has a place of incorporation test but not one of central management and control for determining tax residence.
- The Research and Development tax credit scheme has been amended to increase the outsourcing limit from 10% to 15% of in-house R&D expenditure. There has also been an increase from €200,000 to €300,000 in the qualifying R&D expenditure that can now benefit from a R&D tax credit without reference to the 2003 base year.
- The capital gains tax exemption for land and buildings purchased and owned for 7 years has been extended for such acquisitions made up to 31 December 2014. This exemption applies to property purchased in any EEA state, not just Ireland. However the income arising must be liable to Irish income tax or corporation tax.
- A new capital gains tax relief was introduced being Entrepreneur’s Relief. It applies to individuals who reinvest the proceeds of previous asset disposals in a new business.
- The relief will apply where an individual, who has paid capital gains tax on the disposal of any asset after 1 January 2010, reinvests some or all of the consideration in acquiring chargeable business assets from 1 January 2014 to 31 December 2018 and subsequently disposes of the asset no earlier than 3 years after the date of investment. The CGT payable on the disposal of this new asset will be reduced by the lower of the proportion of the CGT paid on the previous disposal proceeds which were reinvested, or 50% of the CGT due on the disposal of the new asset.
- JobPlus is a new employer incentive scheme which takes effect from 1 July 2013 and encourages employers to hire jobseekers that have been out of work for over 12 months on a full time basis. This scheme provides for cash payments to employers to offset eligible jobseekers wage costs. The payments received by an employer under this scheme are exempt from income tax and corporation tax. The payments are made monthly in arrears over a 2 year period and are divided into two levels being €7,500 for each person employed who has been unemployed for between 12 – 24 months and €10,000 for each person employed who has been unemployed for more than 24 months.
- Amounts spent by qualifying film companies on the employment of non-EU individuals now qualify for film relief.
- The exemption for transfers of land to young trained farmers has been amended to include three new qualifying courses any of which must be passed by a young trained farmer to avail of the exemption.
- The 9% VAT rate has been retained without an expiry date for a range of tourism-related services.
- The annual cash receipts basis threshold for VAT will increase from €1.25m to €2m on 1 May 2014.
- Measures were introduced which require businesses that fail to pay their suppliers within 6 months (other than if the business satisfies Revenue that there are reasonable grounds for not paying the supplier), to repay the related VAT input credits previously reclaimed.
- The farmer’s flat-rate addition was increased from 4.8% to 5% on 1 January 2014. The flat-rate scheme compensates unregistered farmers for VAT incurred on their farming inputs.
- It has been Revenue practice to regard social welfare pension payments made in respect of qualified adult dependents as additional income assessable on the beneficiary of the pension even in circumstances where the qualified adult is the person getting the payment directly from the Department of Social Protection. Finance (No. 2) Act 2013 has put this on a statutory footing. This means that the qualified adult does not have an entitlement to a PAYE tax credit in his or her own right unless he or she has other relevant income.
- The Standard Fund Threshold (SFT) was reduced from €2.3 million to €2 million on 1 January 2014. As with previous reductions, individuals with pension rights in excess of the €2 million cap on 1 January 2014 will be able to claim a Personal Fund Threshold (PFT) of up to €2.3 million.
- Where an individual’s pension fund exceeds the SFT or the PFT, the amount above the threshold, being the chargeable excess, can be subject to taxes of up 65% excluding USC and PRSI. USC and PRSI will bring the effective rate to 71%.
- The reduction of the SFT increases the tax on retirement lump sums. From 1 January 2014, the first €200,000 remains tax free as before, the next €300,000 (previously €375,000) will be taxable at 20% whilst the balance over this amount will be taxable at marginal rates.
- A new pension levy rate of 0.15% took effect from 1 January 2014 and will remain in place until 31 December 2015. The current pension levy of 0.6% will cease on 31 December 2014. Thus, in 2014 the two levies will both apply resulting in a total pension levy of 0.75%. This will reduce to 0.15% in 2015.
- There was no change to tax relief on personal pension contributions.