Top 5 Business Considerations following the 2021 Irish Budget

Top 5 Business Considerations following the 2021 Irish Budget

On the 13th October 2020, the Irish Financial Minister – Mr Paschal Donohoe T.D, released his statement for the 2021 Budget for Ireland, an unprecedented proposal, in both size and scale, with the government promising €17.5bn towards building a stronger, more resilient Ireland.

The 2021 budget has been composed against the backdrop of extraordinary ambiguity in regards to economic and fiscal prospects, with Mr Donohoe stating that he hopes the budget acts ‘as a bridge to a better future’. Due to the international pressures that face and in return affect Ireland, the Minister’s department has articulated the Budget based on two presumptions;

  • The budget has yet again been framed on the basis that no mutual trade deal between the EU and the UK will be achieved regarding BREXIT – which, if the case, has predicted a reduction in Irish growth by 3% in 2021
  • On the assumption that there will be a continued presence of Coronavirus in 2021 without the presence of a widely available vaccine.

Of the predicted budget the Irish Government plans to divide the nearly €18bn as so;

  • €8 ½ billion to public services, to support against challenges they have faced against COVID 19. Including €2.1 billion in contingency funding;
  • €3.8 billion to be spent on supporting existing services across a range of departments, in particular, the Department of Health
  • €1.6 increase in expenditure in relation to core capital programmes
  • €3.4 billion to establish a Recovery Fund to stimulate demand and employment.
  • €10.1bn increase in Capital Expenditure the largest amount that has ever been allocated to investment in schools, homes and public transport.
  • And an additional €270 million to go towards a net tax package.

Here are our Top 5 key updates and schemes to come from the 2021 Budget

COVID-19 Support Scheme

This COVID-19 Support Scheme has been designed by the Financial Department to protect businesses whose trade has been significantly impacted or temporarily closed as a result of COVID-19.

Businesses who meet the requirements for the scheme can apply to Revenue for a cash payment which will represent advance credit for trading expenses which will be tax-deductible for income/corporation tax.

Businesses who operate in Level 3 areas or higher can claim off this scheme whilst restrictions are in place, however, must cease once the restrictions have been lifted. The scheme will be available to businesses from 13th October 2020 until 31st March 2021, with first payments being made to affected businesses by Mid-November. Payments for the new scheme will be calculated on the basis of 10% from the first €10m in turnover, and then 5% thereafter – based on that businesses average VAT turnover from 2019. The maximum weekly payment for the scheme will be €5,000.

Corporate Taxes

Within the updated budget Ireland has confirmed the continuation of its attractive 12.5% Corporate tax rate, one of the lowest in Europe.

The Budget Update also promised the release of a new corporation tax roadmap, refreshing the previous one which was released in September 2018. The new roadmap allows for reflection on the actions taken to reach the current corporation reform, and an opportunity to highlight key areas for consideration, consultation and further actions for improvements.

The Corporation tax roadmap plans to address the OECD BEPS 2.0 blueprints, published on the 12th October 2020. These proposals were split into two broad pillars;

  1. Focussing on profit allocation and new taxing rights in market jurisdictions
  2. Seeking to implement a global minimum corporation tax rate

The OECD has opened public consultations on a number of matters with regard to pillars one and two, which are due to close on 14 December 2020. Following this, they have plans to meet mid-2021 for a final agreement on actions moving forward in regards to the aforementioned structure.

VAT

Previously, as part of the July Stimulus, Mr Donoghue announced a reduction in the standard rate of VAT from 23% to 21%, effective between 1st September 2020 to 28th February 2021. However, in recognising sectors who have faced unparalleled challenges, the Minister of Finance has now announced a further 4.5% VAT reduction, going from 13.5% to 9% with effect from 1st November 2020 to December 2021. Mr Donoghue has implemented this scheme to come into effect as soon as possible, to provide as much additional support as possible to businesses for the next year.

Business Support

In his Budget Statement, Mr Donoghue also detailed a desire to further implement support to Small and Medium-Sized enterprises, as he believes they will be central to a broader national recovery. Declaring that he believes SME’s are ‘the backbone of our domestic economy’, the Finance Minister detailed the range of supports he believes will help Ireland’s SMEs recover from the immediate impact of the pandemic, the accelerated market and technological changes.

The support schemes include extending interest-free Debt warehousing provisions for 1 year to allow taxpayers to defer payment for a yearlong period, after which 3% will apply with no surcharge. Furthermore, the finance department announced they will be providing an extension of tax warehousing schemes, including repayments of Temporary Wage Subsidy Schemes, in order to provide further additional liquidity support for employers.

Mr Donoghue also announced the formation of a consultation group, comprised of representatives from the Department of Business, Enterprise and Innovation, Enterprise Ireland, the Ireland Strategic Investment Fund, The European Investment Bank and The European Investment Fund, reporting to the Minister of Finance develop new proposals to leverage European capital and establish an equity fund with a mandate to invest in domestic innovative enterprises.

The Government has also promised to provide an initial €30 million in funding through the Ireland Strategic Investment Fund (ISIF) to support appropriate and effective schemes to thereby leverage matching funding for early-stage seed and growth capital.

The Budget Statement also cited a new Tax credit available for Digital Gaming Enterprises from Jan 2022 to complement existing Research & Development Scheme, with Knowledge Development Box Scheme being extended for an extra 2 years. This will be welcomed by many businesses as this scheme looks to boost Ireland to a level position with other countries, assisting in the construction of their competitive edge.

Employment tax update

Whilst the standard rate income tax band has remained unchanged for 2021, Self-Employed income credit has now been raised by €150, now amounting to €1650, furthermore with effect from 1 January 2021 the minimum wage is increasing from €10.10 per hour to €10.20 per hour.

The ceiling of the second Universal Social Charge is also due to an increase from €20,484 to €20,687 as follows:

  • Incomes of €13,000 or less are exempt. Otherwise,
  • €0 to €12,012 @ 0.5%
  • €12,013 to €20,687 @ 2%
  • €20,688 to €70,044 @ 4.5%
  • €70,045 to €100,000 @ 8%
  • PAYE income in excess of €100,000 @ 3%
  • Self-employed income in excess of €100,000 @ 11%

And, the weekly threshold for the higher rate of employer’s PRSI will be increased from €394 to €398.

If you require any support or guidance based on the information provided above, get in touch with Animo Associates today. With expert local knowledge, our Dublin offices will be happy to advise you on your businesses best practice moving forward. Get in contact today by calling them on +353 (0) 1663 9646, sending an email to info@animoassociates.co.uk or by completing the contact form below.

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