The Home Carer Tax Credit has been increased from 1,200 to 1,500 per annum.

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2 Income Tax Personal Taxes Budget 2019 made only minor changes in the area of personal taxes. We have set out below details of the changes to Income Tax and USC which will take effect from 1 January Examples of the impact of the changes to individuals net income are set out in the attached Appendices. Income Tax bands have increased by 750 per individual. For example, the entry point to the 40% rate of Income Tax for a single person has increased from 34,550 to 35,300. No changes have been introduced to Income Tax rates for The Home Carer Tax Credit has been increased from 1,200 to 1,500 per annum. The Earned Income Tax Credit has been increased from 1,150 to 1,350. The Earned Income Tax Credit is available to self-employed individuals and proprietary directors who are not eligible for the PAYE tax credit. The purpose of the credit is to address the disparity in take home pay between employees and self-employed individuals. The credit is expected to increase to 1,650 in the coming years. All other personal tax credits remain the same as in USC Minor changes were made to USC bands in the Budget as follows: Pre-Budget 2019 PAYE Self- Employed Post-Budget 2019 PAYE Self- Employed Band Rate Rate Band Rate Rate Income < 13,000 Exempt Exempt Income < 13,000 Exempt Exempt First 12, % 0.5% First 12, % 0.5% 12,013-19,372 2% 2% 12,013-19,874 2% 2% 19,373-70, % 4.75% 19,875-70, % 4.5% 70, ,000 8% 8% 70, ,000 8% 8% Balance 8% 11% Balance 8% 11% Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed 60,000 pay a maximum USC rate of 2%. 2

3 Personal Taxes PRSI From 1 January 2019, the weekly income threshold for the higher rate of employer s PRSI will increase from 376 to 386 to account for the increase in the minimum wage. Employer s PRSI will increase by 0.1% for Class A and Class H employments from 1 January 2019 i.e. from 8.6% to 8.7% in respect of employees earning up to 386 per week and from 10.85% to 10.95% in respect of employees earning over 386 per week. This measure will be effected through an increase in the National Training Fund levy payable by employers. The Minister announced that the rates will also increase by 0.1% in No changes have been made to employee PRSI rates and bands for The employee PRSI rate remains at 4% for weekly income over 352. DIRT Deposit Interest Retention Tax (DIRT) rates were not mentioned in the Minister s Budget 2019 speech. Finance Act 2016 legislated for a reduction in the rate of DIRT from 37% to 35% from 1 January Finance Act 2016 also provided for a further reduction in the DIRT rate by 2% for 2020, bringing the DIRT rate back to 2013 levels. While this is to be welcomed, with interest rates at current lows, the benefit of this measure will be limited for most deposit holders. Interest Relief Rented Residential Property The tax deduction available for landlords against rental income for qualifying interest payments on borrowings for the purchase, improvement or repair of residential property was reduced to 75% in Finance Act 2009 in respect of interest accruing on or after 7 April Budget 2017 announced that this tax deduction was to be increased to 80% in 2017 and would increase annually by a further 5% until 100% deductibility is reached in However, Budget 2019 has accelerated the availability of a 100% deduction such that mortgage interest arising in respect of rented residential properties should be fully deductible from 1 January This measure will apply to both new and existing mortgages. The aim of the measure is to ease the tax burden for landlords in the hope that it will increase the number of properties available for rent. While the increase in this deduction is to be welcomed, the actual savings to landlords as a result are unlikely to be significant due to current low interest rates, particularly for landlords on tracker mortgages. Landlords should ensure that each tenancy is registered with the Private Residential Tenancies Board in order to qualify for the mortgage interest deduction. 3

4 Business Taxes Corporation Tax Rate The standard rate of corporation tax remains at 12.5%. The Minister reiterated the Government s commitment to maintaining the 12.5% rate. BIK Exemption for Electric Vehicles Budget 2018 introduced an exemption from Benefit-in-Kind charges where employees use an electric company car for private purposes. The exemption includes any electricity used to charge the vehicle. This exemption was due to expire on 31 December 2018 but has been extended by three years to 31 December However, the extended relief will only be available in respect of vehicles with an Original Market Value (i.e. cost when new) of 50,000 or less. It appears that vehicles with an Original Market Value in excess of 50,000 will be subject to the normal BIK rules. Tax Relief for Start-Up Companies This relief provides relief from corporation tax on trading income (and certain capital gains) of start-up companies in the first 3 years of trading. Under current legislation, the relief would not be available in respect of trades commenced after 31 December However, the relief is being extended to start-ups commencing to trade on or before 31 December Therefore, a start-up company which commences a new trade before 31 December 2021 may be exempt from Corporation Tax for the first three years of trading if its corporation tax liability in each of those years does not exceed 40,000. Film Relief Film relief in its current form provides significant tax relief to companies involved in film production. The relief takes the form of a payable corporation tax credit (i.e. if the corporation tax liability is less than the film tax credit, the difference should be paid by Revenue to the company). The relief was due to cease on 31 December 2020 but will be extended to

5 Business Taxes Key Employee Engagement Programme ( KEEP ) KEEP is effectively a share option scheme which was designed to assist SMEs with the hiring and retention of key employees. Gains arising to employees on the exercise of share options generally attract income tax. Where KEEP applies, the employees are only subject to Capital Gains Tax when the shares are ultimately disposed of by the employee (no tax cost arises on acquisition). The Minister confirmed that the uptake of KEEP has been low and therefore announced the following changes: Currently the value of options granted to an employee cannot exceed 50% of the employee s annual salary. The cap is being increased to 100% of salary. An employee cannot receive options valued in excess of 250,000 in any consecutive three year period. This cap will be increased to 300,000 but it appears that the increased limit may be a lifetime limit. Further detail is awaited. 5

6 Business Taxes Capital Allowances for Childcare and Fitness Facilities Finance Act 2017 introduced incentives in the form of capital allowances in respect of expenditure incurred by an employer on the provision of childcare and/or fitness facilities for staff. The incentives provide a 100% capital allowance in year 1 in respect of plant and machinery used in such facilities. Capital Allowances for Gas-Propelled Vehicles Accelerated capital allowances will be available in respect of gas-propelled vehicles and refuelling equipment. The measure will provide for the acceleration of existing allowances, presumably by way of 100% allowances in the year of expenditure although this has not been confirmed. Further detail is awaited. The provisions also provide for the availability of Industrial Buildings Allowances in respect of the cost to an employer of constructing buildings used for the provision of childcare or fitness facilities for staff. Allowances would be available at 15% per annum for 6 years and 10% in the 7 th year. The incentives have not yet come into force as a commencement order is required. It was announced in Budget 2019 that the provisions will apply from 1 January 2019, subject to certain amendments which have not yet been disclosed. 6

7 International Matters Controlled Foreign Company ( CFC ) Rules CFC rules are designed to prevent companies in higher tax jurisdictions from moving profits to lower tax jurisdictions through the use of subsidiary companies. Ireland does not currently have CFC rules however such rules have been in effect in many other countries for a number of years. The Minister announced that Ireland will introduce CFC rules in Finance Act The introduction of CFC rules flows from the European Commission s Anti Tax Avoidance Directive ( ATAD ). There are few jurisdictions with a corporation tax rate lower than 12.5%. For this reason, it is unlikely that the new CFC rules will have a significant impact. Transfer Pricing Transfer pricing rules apply where a company supplies goods or services to an associated company. Transfer pricing rules require a market rate to be imposed on such supplies, thus ensuring that profits are not artificially moved to low tax jurisdictions. Currently, Ireland s transfer pricing rules do not apply to SMEs and therefore are of limited application. Exit Tax Exit taxes are intended to tax uncrystallised gains attaching to assets when a company migrates its residence from one jurisdiction to another. Ireland s current exit tax is of limited reach as it does not apply if a company is ultimately controlled by individuals who are tax resident in a jurisdiction with which Ireland has a double tax agreement. For example, Company X is Irish tax resident but intends to migrate its residence such that it will become tax resident in Hong Kong. If Company X is owned by individuals that are tax resident in, say, Spain, Irish exit tax should not arise under the current rules. If the shareholders are residents of, say, the Cayman Islands, Irish exit taxes could arise. Under the current rules it is possible for a company to exit Ireland without incurring exit taxes while also obtaining an uplift in base cost in the new jurisdiction, thus potentially avoiding taxes. The European Commission is seeking to prevent such tax avoidance via the implementation of the Anti Tax Avoidance Directive ( ATAD ). The Minister announced that Ireland will implement new ATAD compliant exit tax rules with effect from 10 October Details of the exit tax and the legislation required to effect same are awaited. However, the Minister has confirmed that the rate of exit tax will be 12.5%. The Minister has highlighted that a review of Ireland s Transfer Pricing regime will be carried out in

8 Indirect Taxes Tourism & Hospitality With effect from 1 January 2019, the 9% VAT rate applicable primarily to the hospitality and tourism sectors will revert to 13.5%. This change will affect all sectors currently benefitting from the 9% rate other than printed newspapers and the provision of sporting facilities (e.g. golf/gym membership). Among the businesses which will be affected by this measure are hotels and guesthouses, restaurants and catering providers, cinemas, theatres, museums and hairdressers. Excise Excise duty on a packet of 20 cigarettes has been increased by 50 cent (including VAT) with a pro-rata increase on other tobacco products. The duty on roll your own tobacco products will increase by 25 cent. These measures are effective from 10 October There will also be an increase in the Minimum Excise Duty on tobacco products with the result that all cigarettes sold below 11 will have the same excise applied as cigarettes sold at 11. The 9% VAT rate was introduced on 1 July 2011 in order to stimulate growth in the tourism and hospitality industries. Due to the improved performance of the economy, the Government has decided that the 9% VAT rate is no longer required (subject to the exceptions noted above). The measure is projected to raise approximately 560m for the Exchequer each year. Digital Media The VAT rate applicable to electronic newspapers has been reduced from 23% to 9% thus ensuring parity between digital newspapers and print editions. Betting Duty The betting duty applied on bets placed in the State will increase from 1% to 2% for all bookmakers. In addition, the betting duty applied on commissions earned by betting intermediaries will increase from 15% to 25%. Vehicle Registration Tax ( VRT ) A 1% VRT surcharge will apply to diesel engine passenger vehicles registered in Ireland from 1 January The VRT relief available for hybrid vehicles has been extended until 31 December The relief enables hybrid vehicles to qualify for a remission/repayment of VRT up to a maximum of 2,500. 8

9 Capital Taxes Capital Acquisitions Tax ( CAT ) No significant changes were announced in Budget 2019 in relation to the CAT regime. The Group A CAT-free threshold, applicable to gifts and inheritances received by a child from a parent, is increased from 310,000 to 320,000 with effect from 10 October The increase is intended to address concerns in relation to the impact of rising property prices on inheritances of family homes from parents. However, an increase of only 10,000 to the Group A threshold is unlikely to have any significant impact. It is worth noting that the Government had previously committed to increasing the Group A threshold to 500,000 during its term. The Group A threshold was as high as 542,544 in early The Group B and C CAT-free thresholds remain unchanged at 32,500 and 16,250 respectively. The CAT rate remains at 33% and there have been no changes in relation to CAT reliefs such as Agricultural Relief and Business Property Relief. Capital Gains Tax ( CGT ) No changes were announced in relation to CGT. In a previous Budget, the Minister had indicated that Ireland s Entrepreneur Relief will be improved to compete with the UK where the first 10m of qualifying capital gains are taxed at 10%. However, in the absence of post-budget Day amendments, it appears that the current rules relating to Entrepreneur Relief, including the 1m threshold, will continue to apply. 9

10 Farmer Taxation Income Averaging Stock Relief The Income Averaging regime allows a farmer s taxable profits from farming activities to be averaged out over a 5- year period thus smoothing their tax liability over a 5-year cycle. Currently, if a farmer or their spouse carries on another trade or profession, or if the farmer or their spouse is a director and 25% shareholder of a trading company, they are not permitted to utilise the income averaging provisions. The rules are being amended to remove this restriction. More details are awaited in the upcoming Finance Bill. Stock Relief provides an additional tax credit to certain farmers who increase the value of their closing stock during an accounting year. There are three separate measures as follows: 1. 25% General Stock Relief for income tax purposes, 2. 50% Stock Relief for income tax purposes for Registered Farm Partnerships, and % Stock Relief for income tax purposes for certain Young Trained Farmers. Stock Relief was due to expire on 31 December However, the Minister announced that Stock Relief will be extended for three years to 31 December Young Trained Farmer Relief The Minister also announced that the stamp duty exemption for qualifying Young Trained Farmers will continue for a further three years until 31 December The relief was due to expire on 31 December

11 Miscellaneous Tax Appeals Commission ( TAC ) An independent review of the operations and resources of the TAC has been published today. The TAC and the new regime for the processing of tax appeals came into force in March The recommendations of the review include the provision of additional staffing resources (including one Appeal Commissioner and two Temporary Appeal Commissioners), extra funding for improved IT systems, the designation of one Commissioner as Chairperson of the TAC and a two-month timeframe to finalise determinations following an appeal hearing. Crowdfunding Under current legislation, a borrower is generally required to withhold tax at 20% from interest payments made otherwise than to recognised financial institutions, especially in cases where the lender is resident in Ireland. Due to the increasing popularity of crowdfunding, the Minister announced that the withholding tax obligations for peer-to-peer loans (including crowdfunding platforms) will be reviewed, with possible amendments to the withholding requirements for interest payments to such lenders in the future. The recommendations are intended to assist the TAC to process the large number of cases being referred to the TAC and alleviate the large backlog of unresolved cases. 11

12 PAYE Modernisation The Revenue Commissioners are implementing a fundamental redesign of the PAYE system, known as PAYE Modernisation. Revenue s aim is to assist employees to manage their tax affairs promptly, to reduce contact between Revenue and employers and to reduce administration costs for employers and Revenue while also improving compliance in the area. PAYE Modernisation introduces changes to how employers capture and report information on pay (including notional pay) and statutory deductions from 1 January 2019 and is a form of real-time reporting. Employers must provide Revenue with a list of employees by 31 October The employer must have a P2C for 2018 for each employee/director or a Revenue Payroll Notification (RPN) (which will replace the P2C) will not issue for Emergency tax must be applied if a RPN is not received by the first pay date in Reporting payroll in real time may be done using payroll packages or using ROS. However, the ROS method is for data entry only and will not calculate the tax, USC and PRSI due. Each payroll submission must include details of the amount of pay, pay date and deductions for each employee. Forms P35, P45 and P60 will no longer be required. Employers will instead be required to review a statutory employer return which will be issued by Revenue on a monthly basis and will be similar to a Form P35. Payment of the tax liabilities due will remain the same for employers i.e. quarterly and annual remitters will now have to file monthly returns but their quarterly/annual payment due dates will remain. If employers avail of payment via direct debit, employers must ensure that the cumulative monthly payments are sufficient to cover the annual liability. As a result of the changes, the following complications are likely to arise: Changes to pay frequency may be required to reduce the reporting frequency. The end of year tidy up will no longer be available. Repeated corrections will be more visible to Revenue and PAYE underpayments may give rise to interest charges (at 10% per annum). Employers may need to purchase payroll software or incur greater payroll processing fees. Applying real-time reporting to Benefits-in-Kind may be challenging, for example BIK on company cars is calculated on an annual basis. Guidance in relation to share based remuneration is awaited. 12

13 Appendix 1 Income Tax Credits & Tax Bands Tax Credits Employee Tax Credit 1,650 1,650 Earned Income Tax Credit 1,150 1,350 Personal Tax Credits Single 1,650 1,650 Widowed person Bereaved in year of assessment Married 3,300 3,300 3,300 3,300 One Parent Family Tax Credit 1,650 1,650 Home Carer Tax Credit 1,200 1,500 Dependent Relative Tax Credit Incapacitated Child Tax Credit ,300 3,300 Blind Persons Credit Single 1,650 1,650 Married (both blind) 3,300 3,300 Widowed Additional Credit Widowed Parent Tax Credit Year 1 3,600 3,600 Year 2 3,150 3,150 Year 3 2,700 2,700 Year 4 2,250 2,250 Year 5 1,800 1,800 Age Credit Single Married

14 Appendix 1 Income Tax Credits & Tax Bands Standard Rate Bands Single/Widowed 34,550 35,300 Married One Income 43,550 44,300 Married Two Incomes 69,100 70,600 One Parent/Widowed Parent 38,550 39,300 Age Exemption Limits Single 18,000 18,000 Married 36,000 36,000

15 Appendix 2 Changes to Net Income Single Person - Employee Annual Income Net Wage 2018 Net Wage 2019 Difference 20,000 18,604 18, ,000 28,860 29, ,000 49,199 49, ,000 85,199 85, Married Person One Income - Employee Annual Income Net Wage 2018 Net Wage 2019 Difference 20,000 19,304 19, ,000 30,600 30, ,000 52,649 52, ,000 88,649 88,

16 Appendix 2 Changes to Net Income Married Person Two Incomes Employees* Annual Income Net Wage 2018 Net Wage 2019 Difference 20,000 20,000 20,000-35,000 34,260 34,260-75,000 60,283 60, ,000 98,399 98, *Assumes both spouses earn same income Single Person Self-Employed Annual Income Net Income 2018 Net Income 2019 Difference 20,000 17,763 17, ,000 28,360 28, ,000 48,699 49, ,000 83,199 83,

17 Disclaimer This information is designed to remind/inform readers of important issues and deadlines, and to provide information of recent developments in the taxation sector in general. Please note that this leaflet is intended to be a brief outline of the issues involved and should not be regarded as a comprehensive guide. In all cases only a summary of the main points are included and you should contact us if you wish to discuss any of these matters in more detail. The emphasis is on clarity so some items may be over-simplified. While every effort has been made to ensure that the information contained therein is correct, Cahill Taxation Services do not accept any responsibility for loss or damage occasioned by any person acting, or refraining from acting, as a result of this information. Should you have any queries regarding any of the issues raised above, please do not hesitate to contact us at or at info@cahilltaxation.ie. Contact us: Suite 2 Aras Smith O Brien Bank Place, Ennis, Co. Clare, Ireland. V95 P48D n p E info@cahilltaxation.ie