Nov 05, 2020 | Cathal McCabe
This year’s Budget was prepared against a backdrop of what the Minister of Finance called extraordinary circumstances. As a result, the budget focused exclusively on the coming year only.
Two assumptions underpin budget 2021:
- There will be no free trade deal between the EU and UK following Brexit and
- The impact of Covid 19 will continue into 2021 with no broadly available vaccine.
With the above assumptions in mind, the government has taken a prudent approach in drafting budget 2021.
It is estimated that GDP will fall by -2.5% and GNP by -6% in 2020. The unemployment rate is projected to reach 12.25% by the end of the year and the projected total loss of jobs in 2020 is 320,000, recovering to 155,000 in 2021.
The level of economic activity recorded in 2019 is not expected to recover until 2022. A fiscal deficit of €21.5bn is projected in 2020 falling marginally to €20.5bn in 2021.
In light of all the above, the majority of measures announced will have a minimal impact on individuals’ personal finances. Over half the budget allocation was aimed at Covid 19 measures and supports.
A summary of the main measures which may impact individuals directly is outlined below:
- No changes to Income Tax, rates, bands. A small change was made to the USC threshold for lower-paid workers to ensure they remain outside the higher rate threshold.
- An increase in the Earned Income Credit for the self-employed to bring it in line with the PAYE credit of €1,650.
- Extension of the tax warehousing for self-employed people who are due to pay their 2019 balance of tax and 2020 preliminary tax soon.
- No headline changes to CGT/CAT rates or thresholds.
- Extension of the Help to Buy scheme into 2021.
- Remote Working- tax relief extended to cover the cost of broadband.
- The state pension age will remain at 66 for now.
- No increase in the State Pension, but the living alone allowance is increased by €5 per week to €19 per week.
- The Christmas bonus will be paid in early December 2020 at 100% of the weekly amount.
Climate Change Measures
- Increase in Carbon Tax of €7.50 per tonne resulting in an increase in petrol and diesel.
- VRT changes to reflect a new emissions system and will result in higher VRT rates for higher emission vehicles.
Income Tax Rates & Band’s
|Single person standard rate band||€35,300||€35,300|
|Married couple, one income standard rate band||€44,300||€44,300|
|Married couple, two incomes standard rate band||€70,600, transferable between spouses to a maximum of €44,300||€70,600, transferable between spouses to a maximum of €44,300|
USC Rates & Bands
|First €12,012 0.5%||First €12,012 0.5%|
|Next €8,472 2.0%||Next €8,675 2.0%|
|Next €50,170 4.5%||Next €50,170 4.5%|
|Balance 8.0%||Balance 8.0%|
- The self-employed 3% USC surcharge on non-PAYE incomes over €100,000 continues to apply for 2021.
- The reduced 2% USC rate for medical cardholders with income under €60,000 continues to apply for 2021.
Income Tax Credits
|Earned income credit||€1,500||€1,650|
|Dependent relative tax credit||€70||€245|
- where the employer makes payments towards the expenses of working from home, up to €3.20 may be paid to employees without a Benefit-In-Kind arising;
- where the employer does not make a contribution, the worker may be able to claim tax relief on certain utility expenses such as a portion of heat and light and broadband. Details will be set out in Revenue guidance on the topic; and
- claims may also be made for any other vouched expenses incurred “wholly, exclusively and necessarily” in the performance of the duties of their employment.
Covid19 Business Targeted Measures
 COVID RESTRICTIONS SUPPORT SCHEME (CRSS)
This scheme will operate with a business closed due to the restrictions imposed by the Government’s Living with Covid plan and will operate when level 3 or higher is in place.
The sectors included under this scheme at present are accommodation, food and the arts, recreation and entertainment.
Under this scheme the Government will make a payment to affected businesses based on their 2019 average weekly turnover, to provide support at a difficult time. The scheme will apply to business premises where the Government restrictions directly prohibit or restrict access by customers. Qualifying businesses can apply to the Revenue Commissioners for a cash payment in respect of an advance credit for trading expenses for the period of the restrictions.
Payments will be calculated on the basis of 10 per cent of the first €1 million in turnover and 5 per cent thereafter, based on average VAT exclusive turnover for 2019. It will be subject to a maximum weekly payment of €5,000.
The scheme will operate on a self-assessment basis and qualification will require a business to demonstrate that their turnover has been severely impacted; that is it may not exceed 20 per cent of the turnover for the corresponding period in 2019.
A reduced VAT rate for the hospitality and tourism sector from 13 ½% to 9% with effect from 1st November 2020 until December 2021.
 Commercial Rates
Commercial Rates waiver will continue for the remainder of 2020.
 Tax Warehousing
Self-employed individuals can now elect to warehouse their balance of tax due for 2019 and preliminary tax due for 2020 for 12 months and pay 0% interest. 3% will apply thereafter.
 Employee Wage Subsidy Scheme
This scheme will continue beyond the initial end date of March 2021 for affected businesses.
Main Social Welfare Changes
- No changes to headline Social Welfare rates. The PUP rate was not restored to €350.
- Confirmation that the majority of PUP recipients will receive a Christmas bonus.
- Increase of €5 per week for Living Alone allowance and €3 per week for a fuel allowance.
Please note that this is a general summary and no action should be taken without taking detailed advice.
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