Building Your Business
Budget 2014 - Summary of Key Tax Changes

16 October 2013

 A PLATO EBR Company, BMS Chartered Management Accountants, based in Navan has taken the time out to digest the main changes and implications for businesses in the SME sector as a result of the newly announced Ireland Budget 2014. A useful summary is provided below:-

PERSONAL TAX

Changes to Income Tax

There is no change in the standard rate (20%) or the marginal rate (41%) of Income Tax.

There is also no change to the standard rate bands.

 

One Parent Family Tax Credit

This credit is to be replaced with a new single person Child Carer Tax credit with effect from 1 January 2014. This new credit will be to the same value but will only be available to the principal Carer of the child.

 

Universal Social Charge

There is no change in the rates of USC

 

PRSI

Unearned income for non self employed persons will be subject to PRSI in 2014 onwards. Unearned income includes rental income, investment income and dividends and deposit interest.( 2013 measure)

 

Deposit Interest Retention Tax ("DIRT")

The standard DIRT rate has been increased by 8% from 33% to 41%. (The rate which applies to interest paid less frequently than annually will be increased to 41% from 36%). These increases apply to interest payments made on or after 1 January 2014.

 

Tax Relief for Medical Insurance

From 16 October 2013, Tax relief for medical insurance premiums will be restricted to the first €1,000 per adult insured and the first €500 per child insured.

 

Home Renovation Incentive (HRI)

Tax relief of 13.5% will be available for qualifying expenditure on home renovation and improvement work. The relief will be granted by way of a tax credit split over two years following the year in which the works are carried out. The minimum expenditure must be €5,000 and relief will be provided up to a maximum of €30,000. The relief will be linked to the Principal Private Residence of an individual and the contractor must be tax compliant.

 

Start Your Own Business (SYOB)

An exemption from Income Tax up to a maximum of €40,000 per annum will be provided for a period of two years, to individuals who set up a qualifying, un-incorporated business, having been unemployed for a period of at least 15 months prior to establishing the business.

Top Slicing Relief

Top Slicing Relief will no longer be available from 1 January 2014 in respect of all ex-gratia lump sum payments.

 

High Earner Income Restriction

Capital allowances and losses on plant and machinery used in manufacturing trades which are claimed by passive investors will be included as a specified relief for the purposes of the high earners’ restriction.

 

Tax Relief on Loans to Acquire an Interest in a Partnership

Tax relief will be withdrawn of a phased basis over 4 years. Relief will not be allowed for new loans taken out from 15th October 2013. Existing Claimants will retain the relief, on a reducing rate basis until 1 January 2017. 

Employment and Investment Incentive (EII)

The initial 30% relief available for investments under the Employment and Investment Incentive is being removed from the high earners restriction for a period of 3 years. This restriction limits the amount of tax reliefs that can be claimed by high income individuals. The EII provides that a maximum of €150,000 can be invested by an individual per annum. Therefore, by lifting the restriction on the initial 30% relief, these investors should be encouraged to invest more funds in the EII and improve the availability of funds to SMEs

 

Film Relief

Extend the definition of ‘eligible individual’ to include non EU talent, in conjunction with the introduction of a withholding tax. Subject to EU State Aid approval and a commencement order.

Pensions

The 0.6% stamp duty levy on pension fund assets is to increase to 0.75% for the year 2014. The levy will be reduced to 0.15% for 2015.

The Standard Fund threshold "SFT "is being further reduced as on and from 1 January 2014 from €2.3 million to a new lower amount of €2 million.

 

BUSINESS TAX

Corporation Tax rate

The standard rate of Corporation Tax remains unchanged at 12.5%.

Research & Development Credit

Finance Act 2012 provided that the first €100,000 of qualifying R&D expenditure would benefit from the tax credit without reference to the 2003 base year and Finance Act 2013 increased this amount to €200,000. The amount of expenditure so allowed is now being increased to €300,000.

 

Outsourcing

The amount of expenditure on R&D outsourced to third parties which is allowed to qualify for the credit is limited to 10% of the total amount of expenditure on R&D qualifying for the credit in a given year. This limit is being increased from 10% to 15%.

Key Employee

Since 2012, a company with an entitlement to the R&D Tax Credit can surrender a portion of the credit to employees who meet the definition of a ‘key employee’. Subject to certain conditions, the employee can use the benefit of the tax credit to reduce their own income tax liability.

Amendments are being made to this element of the scheme to remove some barriers to uptake.

 

FARMERS

CGT Exemption for leased land

CGT retirement relief is being further extended to disposals of leased land in circumstances where, among other conditions, the land is leased over the long-term (a minimum lease of 5 years) and the subsequent disposal is to a person other than a child of the individual disposing of the farmland. The purpose of the measure is to encourage older farmers who have no children to whom to transfer their farm to lease out their farmland over the long term to younger farmers.

 

Review of Farmers Taxation

The Departments of Finance and the Department of Agriculture, Forestry and the

Marine will conduct an independent review of farmer taxation in 2014 to ensure that

tax relief’s are focused on those areas where they are needed most and also to ensure tax payer value for money

CAPITAL ACQUISITIONS TAX

The rate of Capital Acquisitions Tax remain the same-33%

CAPITAL GAINS TAX

The rate of Capital Gains Tax remains the same-33%

Property purchase incentive

The inventive relief from CGT (in respect of the first 7 years of ownership) for properties purchased between 7 December 2011 and 31 December 2013 introduced in Budget and Finance Act 2012 is being extended by one year to include properties bought to the end of 2014. Where property purchased in this period is held for seven years the gains accrued in that period will not attract CGT.

CGT entrepreneurial Relief

A new CGT incentive is being introduced to encourage entrepreneurs (in particular "serial" entrepreneurs) to invest and re-invest in assets used in new productive trading activities.

The measure will apply where an individual, who has paid capital gains tax on the disposal of assets, makes investments in a new business in the period 1 January 2014 to 31 December 2018 and subsequently disposes of this investment no earlier than three years after the date of investment. The CGT payable on the disposal of this new investment will be reduced by the lower of (i) the CGT paid by the individual on a previous disposal of assets in the period from 1 January 2010 and (ii) 50% of the CGT due on the disposal of the new investment. Commencement of this measure is subject to receipt of EU State Aid approval.

 

VALUE ADDED TAX

Retention of the 9% reduced VAT rate. The 9% reduced VAT rate, which was introduced in 2011 as part of the Government Jobs Initiative for tourism related services, is due to revert to 13.5% on 31 December 2013. The 9% VAT rate is being retained.

Increase in VAT Cash Accounting Threshold. The annual VAT cash receipts basis threshold for small and medium enterprises is being increased from €1.25 million to €2 million with effect from 1 May 2014.

 

Increase in the Farmer’s Flat-Rate Addition from 4.8% to 5%

The farmer’s flat-rate addition will be increased from 4.8% to 5% with effect from 1 January 2014. The flat-rate scheme compensates unregistered farmers for VAT incurred on their farming inputs.

 

VAT Anti-Fraud Measures

(i)Disallowance of input VAT – Business which have not paid for supplies (in full or part) within a six month period will be required to repay the VAT claimed on those supplies.

(ii) Quick reaction mechanism – Allows Revenue to apply an emergency and temporary reverse-charge measure to certain goods or services to address sudden and massive VAT fraud.

(iii) Requirement to keep specific records – Provision is being made to allow Revenue issue a notice requiring businesses to procure specific information in circumstances where Revenue has reasonable grounds for believing that the records specified might assist in identifying VAT fraud

 

EXCISE DUTY

Cigarettes: The Excise Duty on a packet of 20 cigarettes is being increased by 10 cents (including VAT) with a pro-rata increase on the other tobacco products, with effect from midnight on 15 October 2013.

Alcohol Products Tax: The excise duty of a pint of beer or cider, and a standard measure of spirits is being increased by 10 cent (including VAT); the duty on a 75cl bottle of wine is being increased by 50 cent (including VAT), with effect from midnight on 15 October 2013

 

Shadow Economy: A continued focus on the shadow economy in the mineral oil and alcohol products sectors will lead to additional yield and provide a significant boost to the legitimate trade

Air Travel Tax: The Air Travel Tax is being reduced to zero with effect from 1 April 2014.

TAX Administration: The Appeal System for Tax Matters

Reform the role, functions and structure of the Office of the Appeal Commissioners, who hear appeals against assessments, decisions and determinations of the Revenue Commissioners on a variety of taxes, and of the tax appeals system.

Funding Growth in SME Sector

Trade Finance Initiative

The Trade Finance Initiative would involve a tailored measure to support the growth of the export sector in Ireland thereby increasing investment, economic activity and employment. Discussions are taking place with the EIB to consider the feasibility of support being granted by the bank to underpin additional trade by Irish companies.

Credit Review Office – Increase Threshold

Increase in the threshold for applications that can be reviewed by the Credit Review Office from €500,000 to €3m. The increase in the number of reviewers sanctioned in Budget 2013 will ensure that the increased workload arising from this measure will be handled in a timely and comprehensive manner

SME Communications Strategy

Communication strategy to increase awareness of State supports amongst SMEs. This strategy will also ensure that there is a greater awareness amongst businesses of the soon to be re-launched credit guarantee scheme

 

Building Business Capacity

A programme, consisting of 2 days dedicated off site training together with expert mentoring support, to enhance SMEs business and financial capacity in relation to understanding and utilising a broader range of financial products, as well as equipping them with the necessary tools to make a strong business case when applying for credit. The programme will be launched on a pilot basis with 1,000 SMEs taking part next year.

 

 

  • Cavan
  • Louth
  • Meath
  • Monaghon