The enactment of the Finance Bill next week will no doubt be an extremely messy affair in a month where Irish politics hit new lows. With possibly the biggest political upheaval since the foundation of the state on the cards the last act of the current government is to push through the Finance Bill, enacting last Decembers Budget. One of the risks of rushing such important and detailed legislation through the Dail and Seanad is that mistakes and loop holes may not be spotted. Nonetheless we take a brief look at some of the more important provisions from a business and personal point of view.
From a personal finance point of view the most significant changes that the Bill heralds are the imposition of a Universal Social Charge which will replace both income and health levies, the removal of PRSI ceilings and relief on pension contributions, and the reduction of tax credits in conjunction with the reduction of the tax bands by 10% in 2011. In addition to this the Finance Bill confirms a tax free cap of €200,000 on ex gratia termination payments made on or after the 1st of January 2011.
The Universal Social Charge rates have been reviewed since the Budget and now look set to be amended to implement a lower rate to 4% on those who are in the 7% bracket but who hold a medical card. Self-employed people who earn more than €100,000 will now pay a 3% surcharge on earnings over that amount.
The new Bill also provides for a 2% increase in the Deposit Interest Retention Tax (DIRT) from 25% to 27%.
In relation to the environment one of the provisions attempts to encourage energy efficiency and employment by incentivising individuals, who are not Landlords of their property, to make their homes more energy efficient. Relief will be granted in the form of an income tax credit at the standard rate of 20% for expenditure up to €10,000 in the case of single persons and €20,000 for married couples. A fund of 30 million euro will be made available for this programme in any tax year.
The Civil Partnership and Certain Rights of Cohabitants Act 2010 became law in July of last year. This act gives certain rights to cohabiting couples after three years if they have a child or 5 years if they do not. The act allows the courts to make Property Adjustment Orders along with various other Orders in the case of a dispute between qualified cohabitants but the technical aspects of the Act require substantiation in the Finance Act. Accordingly, the Finance Bill was supposed to deal with these issues but it now seems that the accelerated time frame has left no room for debate on these matters. It would now seem that the issues will be dealt within a second Finance Bill later on this year.
Small and Medium Businesses
The good news is that the exemption for start-up companies from corporation tax and capital gains tax relief is being extended to companies which commence trade in 2011. Start-up companies also enjoy PRSI relief with PRSI subject to a cap of €5,000 per employee and an overall limit of €40,000 for the employer.
The Business Expansion Schemes (BES) and Seed Capital Schemes (SCS) are now to be replaced by a new Employment and Investment Incentive. The minimum holding of an investment is to be reduced from 5 years to 3 years. It should be noted that the maximum rate of tax relief has now been reduced from 41% to 30% for subscriptions for eligible shares and this is in line with the reduced holding period. Whereby the company has increased its expenditure on R&D or increased the number of employees since the investment began then a further 11% relief may be available at the end of the holding period.
Employers should also be aware that there are changes to the Relevant Contracts Tax (RCT) system. The new system will have three rates, 0%, 20% and 35%. The rate that will apply will depend on the subcontractors’ compliance record. Those holding a C2 card will pay 0% while those registered with Revenue will pay 20%. The 35% rate will apply to all other subcontractors.
There are also changes in taxation in the areas of interest deductibility, patents royalties and research and development tax credits that are too detailed to go into depth on but if you feel your business may be involved in these areas you should consult your accountant.
These points are just a few of the issues that stand out. With intense scrutiny on the now minority Government and the pressure to pass this Bill, it is entirely possible that some of the major charges, such as the Universal Social Charge, may see amendments in the coming days.