1. Introduction
The Budget affects everyone and there is no escaping from it. However, the vast majority of employers are not concerned with discussions of the duty on a 20 pack of cigarettes going up by 25 cent or the reduction in legacy property reliefs. Therefore, Peninsula Business Services (Ireland) Limited has put together this short synopsis of the Budget and its impact on ‘employers’.
2. Key Aspects for Employers
- Income Tax to remain the same
- VAT top rate will be increased by 2%, from 21% to 23%
- Universal Social Charge (USC) basic exemption level rises from €4,000 to €10,036
- Redundancy rebate to be reduced from 60% down to 15%
- Corporation Tax Rate to remain at 12.5%
3. Income Tax
- Income Tax is to remain the same as income tax increases are deemed detrimental to job creation
- The income tax exemption for employees on the first 36 days of their illness/occupational injuries benefit. This is being introduced as a means of tackling the difficulties with absenteeism in both the public and private sectors
- Universal Social Charge (USC) basic exemption level rises from €4,004 to €10,036 from January 2012. In addition, the USC will now be taxed on a cumulative basis so that employees cannot avoid the charge through multiple jobs.
4. New Relief Programmes for Employers and Employees
- A Special Assignee Relief Programme is being introduced in order to encourage and aid multinational and indigenous companies in attracting key talent from abroad. This is designed to generate employment
- A Foreign Earnings Deduction relief is being introduced to incentivise and encourage employees to work abroad in the BRICS countries (Brazil, Russia, India, China and South Africa). This relief, which applies where employees work for 60 days or more in BRICS, is in place to encourage employees to support their employers in expanding into emerging markets whereas in the past it may have been difficult to do so due to employee concerns over taxation and social insurance implications abroad.
5. Pensions
- The current 50% Employer PRSI pension relief on employee contributions is to be abolished from January 2012
- No change as of yet to the marginal-rate tax relief on pension contributions
6. Direct Taxes and Reliefs for Businesses
- The corporation tax rate is to remain unchanged at 12.5%
- The corporation tax exemption which provides relief for start-up companies from taxes on their trading income and certain gains of new start-up companies in the first 3 years of their trading is to extended to include start-up companies which commence a new trade in 2012, 2013 or 2014.
- Improvements to the R&D tax credit scheme have been introduced. This means that the first €100,000 of qualifying R&D expenditure will benefit from the 25% R&D tax credit on a volume basis, whereas as previously this exemption only applied on an incremental basis. This will greatly aid SMEs in particular. The existing R&D tax credit system will continue to apply to incremental R&D expenditure in excess of €100,000
- Companies in receipt of the R&D credit scheme will be allowed to use a portion of their credit to reward and incentivise those key employees in the development of R&D. This allowance will be monitored closely however to ensure that this allowance is not being abused.
- The tax relief available for corporate investment in renewable energy projects is to be extended to the end of 2014. To qualify for the relief the energy project must be one approved by the Minister for Communications, Energy and Natural Resources and must be in the area of solar, wind, hydro (including ocean, wave or tidal energy) and biomass energy
7. Indirect Taxes for Businesses
- The top rate of VAT, which applies to items such as motor vehicles, petrol and electrical goods, will be increased by 2%, from 21% to 23%.
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The rates of motor tax for all vehicle classifications will be increased from January 2012. The rates will be as follows:
- Band A up €56 to €160
- Band B up €69 to €225
- Band C up €28 to €330
- The carbon tax on fossil fuels will increase from 07th December 2011 for petrol (1.4 cents per litre increase) and diesel (1.6 cents per litre increase) with oil and natural gas being targeted from May 2012.
- Redundancy Rebate: Importantly for employers, the rebate due to employers on redundancy payments made to their employees will be reduced from 60% to 15%. While not an actual tax the net effect of this is the same for employers who will be hard hit by this significant reduction which has been dubbed a “stealth tax” by opposition parties.
