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Irish Tax Institute on Budget 2019
Minister for Finance, Public Expenditure and Reform Paschal Donohoe T.D. delivered Budget 2019 today. In his Budget speech, the Minister confirmed his full support for the recommendations of the independent review of the operations and resources of the Tax Appeals Commission and that he would be providing additional staffing and funding to the Commission.

The Institute has long campaigned for additional resources for the Tax Appeals Commission to address the backlog in the tax appeals system. Institute President, Marie Bradley, welcomed the Review of the Workload and Operations of the Tax Appeals Commission.

She said: “The report recommends extra resources and investment in the Tax Appeals Commission; this is an important step forward for the future operation of the tax appeals process and a genuine recognition that the tax appeals system was not working properly. In commissioning the report, Minister Donohoe has acknowledged the challenges with the tax appeals process and has expressed his commitment to the recommendations in the report. This is a significant review that will hopefully pave the way for future improvements to what is an important pillar in the tax administration system of the country”.

Access the Budget speech and related documents on our Budget 2019 webpage
Read our press release
The following topics are covered:
Personal Tax 
USC reductions and increase to the income tax standard rate band
As widely reported in the run up to the Budget, Minister Donohoe announced a number of changes aimed at easing the tax burden on low and middle-income earners. These include:
  • Reducing the 4.75% USC rate to 4.5%
  • Widening the band to which the USC 2% rate applies to €19,874 from €19,372
There are no changes to the other USC rates and the entry point to USC remains at €13,000.

The income tax standard rate band will increase by €750. This will raise the entry point to the 40% income tax rate from €34,550 to €35,300 for single individuals and from €43,550 to €44,300 for married couples (with one earner).

The combination of these measures means that the marginal rate of tax for those earning between €35,301 and €70,044 will be 48.5%. However, the marginal rate of tax for those earning over €70,044 will remain 52% (for employees) and 55% (for self-employed earning over €100,000).

The new USC bands and rates for 2019 are outlined below.
New USC bands and rates
Income Band USC Rate %
Employee
Up to €12,012
 
0.5%
€12,013 -  €19,874 2%

€19,875 - €70,044

4.5%

Over €70,044
 
8%
Self-Employed Up to €12,012 0.5%

€12,013 - €19,874

2%

€19,875 - €70,044

4.5%

€70,045 - €100,00

8%

Over €100,000

11%
 
Home Carer Credit
The Home Carer Tax Credit will be increased by €300 to €1,500. This credit can be claimed by a jointly-assessed couple where one spouse or civil partner works in the home to care for children or other dependents.
 
Employer’s PRSI
The weekly income threshold for the higher rate of employer’s PRSI will increase from €376 per week (€19,552 per annum) to €386 per week (€20,072 per annum). The purpose of the new PRSI threshold is to ensure that the increase in the hourly minimum wage to €9.80, does not act as a disincentive to those seeking to work full-time.
 

National Training Fund Levy
The National Training Fund Levy will increase again by 0.1% (from 0.8% to 0.9%) from 1 January 2019. The levy forms part of employer’s PRSI for Class A and Class H employments. There will be a further 0.1% increase in the National Training Fund Levy from 1 January 2020, which will bring the Levy to 1% from 2020.

 

Self-employed
The Earned Income Credit for the self-employed will increase by €200 to €1,350 for 2019.

The Government has confirmed that it will extend Jobseeker’s Benefit to the self-employed in 2019.

Brexit and SME measures

To support SMEs with the challenges posed by Brexit, Minister Donohoe announced the launch of a Future Growth Loan Scheme for SMEs and the agricultural and food sector. In addition, €110 million will be provided to Government departments for Brexit measures, including customs requirements. A Disruptive Technologies Innovation Fund of €500 million has also been established.

The Minister also announced plans to amend the KEEP and the EII.

KEEP
The Minister announced three separate amendments to the Key Employee Engagement Programme (KEEP).
  1. An increase in the ceiling on the maximum annual market value of shares that can be awarded to equate to the full amount of the employee’s salary.
  2. Replacement of the three-year limit with a lifetime limit. (Currently, there is a cap of €250,000 on the value of options which can be granted over three consecutive years.)
  3. An increase in the value of shares that can be granted under the scheme from €250,000 to €300,000.
As there is limited information available on these changes to the KEEP in the Budget documents, we await further clarification on the measures in the forthcoming Finance Bill.

In our Pre-Finance Bill 2018 submission, the Institute made a number of recommendations to address certain limitations in the KEEP. These related to the design of the remuneration limits and the narrow definition of a qualifying holding company under the rules, which can make it difficult for many SMEs to qualify for the KEEP.
 
EII
Minister Donohoe intends to bring forward a “priority package of measures in the Finance Bill” to address the main problems identified with the Employment and Investment Incentive (EII) and to increase its efficiency and effectiveness. According to the Minister, these measures “will provide certainty for businesses to enable them to plan for the future.”

Earlier this year, Indecon Economic Consultants were commissioned to carry out an independent review of the EII and SURE schemes. The Institute responded to a public consultation which formed part of the review process and outlined in
our submission the difficulties members are experiencing with the operation of the EII. The findings of the Indecon review have not yet been published.
Agri Sector
The Minister announced a number of tax measures to support the agricultural sector. These reflect recommendations made by the Institute in our response to the public consultation on the implementation of the 2014 Agri-tax review and related measures in May.
Income averaging
The Minister is proposing to remove the restriction on income averaging for farmers with off-farm income. Currently, where a farmer, or their spouse, carries out another trade or profession or owns more than 25% of the share capital of a trading company, they cannot avail of the income averaging provisions.
 

Stamp Duty Relief for Young Trained Farmers
The Young Trained Farmer Stamp Duty Relief was due to expire at the end of 2018, but it will now be extended for a further three years to 31 December 2021.

 
Stock Relief
The existing stock relief measures will be extended for a further 3 years, until 31 December 2021.
Corporation Tax

Controlled Foreign Company (CFC) rules
As expected, the Minister confirmed that new CFC Rules will be introduced in Finance Bill 2018, which will come into effect for accounting periods beginning on or after 1 January 2019. The Institute responded to the Department of Finance’s CFC Feedback Statement last month. The submission focused on the areas of concern that were raised by members on the proposed CFC rules and it highlighted the need for guidance on several key definitions within the Irish CFC charging section.

 

Exit Tax
Ireland had committed to introducing a new exit tax regime that would be compliant with the EU Anti-Tax Avoidance Directive (ATAD) by 1 January 2020. The Minister announced today that he is bringing forward the implementation of the new exit tax rules to midnight tonight. From midnight, exit tax of 12.5% will apply to any unrealised capital gains arising where a company migrates or transfers assets outside of Ireland.

The Institute had recommended in our
response to the Department of Finance "Consultation on Coffey Review" earlier this year, that the corporation tax rate of 12.5% should be imposed when adopting the new ATAD exit tax provisions, instead of the current CGT rate of 33%.

The Financial Resolution introducing the exit tax is available
here.

 

Film Relief
Film relief, which was due to expire at the end of 2020, has been extended until 2024. Film relief credit is granted at a rate of 32% of qualifying expenditure which is capped at €70 million. A new short-term regional uplift of 5% (which will taper out over 4 years) will be introduced, subject to State aid approval. The additional uplift will apply for productions being made in areas designated under the State aid regional guidelines.

 

Three Year Start Up relief
The three year corporation tax relief for certain start-up companies has been extended until the end of 2021.

Property
Interest relief for landlords
Interest relief on loans used to purchase, improve or repair a rental property will be increased from 85% (in 2018) to 100% in 2019.
 
CAT Threshold
The CAT Group A tax-free threshold has been increased by €10,000 to €320,000 for gifts and inheritances received on or after 10 October. Group A broadly applies to gifts and inheritances from parents to their children.
 
CGT rate
There was no mention of any changes to CGT rates in the Budget.
VAT
9% VAT rate
The 9% VAT rate on tourism activities will be increased to 13.5% with effect from 1 January 2019. In his Budget speech, Minister Donohoe said that an economic analysis of the 9% rate was carried out and the review found that the reduced rate has “done its job”.

Acknowledging the challenge the change may present for the tourism sector, the Minister has allocated €35 million to the Department of Transport, Tourism and Sport in order to provide more targeted sector supports. This allocation includes €4.5 million for regional initiatives, such as Ireland’s Hidden Heartlands and the Wild Atlantic Way, and nearly €10 million for the further development of Ireland’s greenways.

The reduced 9% VAT rate will be retained for newspapers and sports facilities.
 
VAT on electronically supplied publications
The VAT rate on e-books and electronically supplied newspapers will be reduced from 23% to 9% with effect from 1 January 2019. This follows a recent agreement by EU Finance Ministers to allow Member States to align the VAT rates set for e‑publications with the more favourable regime currently in force for printed publications.
Compliance measures

PAYE modernisation
Once implemented, PAYE modernisation is expected to yield additional Exchequer savings of €50 million for 2019.

 
Evaluation of Budget 2017 Compliance measures
Budget 2017 included a “compliance measures” item among the tax policy changes. This item outlined projected yields from Revenue’s focus on three areas; section 110 companies, offshore evasion and the use of additional audit staff and IT resources. Revenue has released a paper evaluating the yield from these measures.


Read Revenue’s paper
Other measures
  • A 1% VRT surcharge will apply to diesel engine passenger vehicles registered in Ireland from 1 January 2019.
  • The VRT relief available for conventional hybrids and plug-in electric hybrids is being extended for one year, until end 2019.
  • The 0% Benefit-in-kind rate for electric vehicles is being extended for a period of 3 years, with a cap of €50,000 on the Original Market Value of the vehicle.
  • The Finance Bill 2017 measure to allow accelerated capital allowances for employer-provided fitness and childcare facilities will be amended. The provision will now take effect from 1 January 2019.
  • An accelerated capital allowances scheme will be introduced for gas-propelled vehicles and refuelling equipment.