Govt Jobs Initiative – The tax measures

May 10, 2011

Finance Minister Michael Noonan has today unveiled the Government’s much-heralded ‘Jobs Budget’, including the following tax measures:

Pension Levy

A levy of 0.6% is to be applied on the capital value of pension assets held within the State.

PRSI

Employers PRSI on lower-paid employees is to be halved. This will apply until the end of 2013 for employees earning less than €356 per week (not the figure of €365 per week as announced by the Minister in the Dáil today).

Employers PRSI will no longer apply to share-based remuneration.

Michael Noonan Government Jobs Initiative

9% VAT

A cut in the lower rate of VAT to 9% on so-called ‘tourism-related’ goods and services. This will apply from 1 July 2011 until the end of 2013.  The VAT cut will apply to

  • restaurant and catering services
  • hotel and holiday accommodation,
  • theatre, cinema, museum, fairground and other entertainment tickets
  • hairdressing
  • newspapers and magazines.

Air Travel Tax

The Air Travel Tax of €3 per passenger is to be abolished, but not with immediate effect. Its abolition is to be conditional on the major Irish airlines opening new tourist routes into Ireland.

R&D Tax Credit

The Minister intends to introduce a technical change to the Research & Development tax credit legislation, in order to allow companies more flexibility in how they account for the credit. This is intended to make the credit more attractive for qualifying companies.

Corporation Tax

Unsurprisingly, the Minister confirmed that ‘our 12.5% rate of corporation tax is here to stay’

The Department of Finance have just published full details of the Jobs Initiative on their website.


Revenue Unveil Measures to Tax Pension Lump Sums

April 26, 2011

Revenue have today unveiled new arrangements for taxing retirement pension lump-sums in excess of €200,000.

The 2011 Finance Act included a provision, Section 19 (4)(b), to ensure that an individual’s maximum lifetime retirement  tax-free lump sum is limited to €200,000. This applies from 1 January 2011 onwards.

In calculating the tax-free amount, any earlier lump sum received since 7 December 2005 is also taken into account.

Taxation of Retirement Lump Sums

The remainder of the lump sum(s) is now taxable. This is to be taxed in two stages:

  • The portion between €200,000 and €575,000 is taxed at the standard rate (20%) under Schedule D Case IV.  The taxpayer may not utilise any reliefs, allowances or deductions against this portion.
  • Any additional amount over €575,000 is taxed at the individual’s marginal tax rate. This element is counted as ‘profits or gains arising from an office or employment’ and will generally be subject to PAYE at source.

Revenue have today issued a new Form 790AA, which is to be used by pension administrators to notify Revenue of ‘Case IV’ tax deducted in accordance with the above procedures.

The Revenue eBrief on this matter is here.


Revenue abandon Lenihan’s Professionals’ Tax Plan

March 25, 2011

Revenue have today abandoned Brian Lenihan’s plans to tax employees on professional subscriptions and membership fees.

In an eBrief unveiled this evening,  Revenue confirm that most professional subscriptions will continue to be exempt from tax under Benefit in Kind rules.

This reverses the former Finance Minister’s announcement in last December’s Budget, that the existing Benefit in Kind exemption on these fees would be scrapped from January 2011. This would have meant that where an employer paid a professional membership or subscription fee on behalf of an employee, the employee would have faced a tax, PRSI and USC charge on the amount paid.

Today, Revenue confirm that the exemption will still apply

  • Where the employee is required by law to be a member of a professional body, in order to carry out their work. This includes architects who (under the Building Control Act 2007) must be registered with the Royal Institute of the Architects of Ireland; and Health care professionals who are obliged by the  Health and Social Care professionals Act 2005, to be registered with the Health and Social Care Professionals Council.
  • Where the employer requires the employee to hold a practising certificate or licence, eg accountants  working in professional practices.
  • In certain other situations, where the employee is a member of a professional body which is relevant to their occupation.  This will cover accountants, engineers and others working in professional capacities in industry.

Revenue stress that the BIK exemption applies only where the professional subscription is relevant to the employee’s work. They cite practical examples to show that the exemption will not apply to a qualified architect who works as a HR manager, or a trained solicitor working as a media presenter.

The Revenue eBrief on this subject outlines 11 practical examples which illustrate how these rules will work in practice. Revenue also stress that Benefit in Kind PAYE, PRSI and USC must be charged on all cases not covered by the exemption.

I think this is a very positive move on Revenue’s part. The original plans to scrap this BIK relief were badly thought out, and a very poor appreciation of the much-vaunted ‘knowledge economy’.  It is nice to see Revenue taking action to restore this relief in most cases.

That said, I wonder would  such a u-turn have been politically possible if Mr. Lenihan was still Minister for Finance. Maybe it is time for his successor Michael Noonan to work alongside  Revenue in reversing some of the anti-business and anti-employment measures introduced in recent Budgets – several of which have proved in the meantime to be counter -productive.



Employers’ PRSI Incentive – Boost or Dole Trap?

February 15, 2011

The Employers’ PRSI Incentive Scheme  – Is it merely a dole trap for graduates?

Newly-recruited employees can enjoy an exemption from employers PRSI for 12 months, under the Employers’ PRSI Incentive Scheme. This scheme was introduced in Budget 2010 and extended in Finance Act 2011 to continue until the end of 2011.

The incentive is open to employers who create new and additional jobs in 2010 and 2011. If you created a new job in 2010, before the scheme was launched in June 2010, you may still qualify for an exemption of employer’s PRSI for this job.

The 12 months exemption applies from the date you are approved for the scheme.

Rules

Both the job you create and the person you employ must meet certain criteria. While you are waiting to be approved for the scheme, you should operate the standard employee and employer PRSI.

The person you employ must be on the FÁS Work Placement Programme for at least 3 months or be getting one of the following social welfare payments for a continuous period of at least 6 months:

The job must:

  • Be created in 2010 or 2011
  • Be a new and additional post/job – employers will not be allowed to substitute existing employees to avail of the scheme
  • Be for at least 30 hours per week
  • Last for at least 6 months. If the employment ends within 6 months of getting the exemption, you may be liable to pay the employer’s PRSI contributions for that employee.

Exemption limits

You can only get an exemption from employer’s PRSI for up to 5 employees. A higher limit of 5% of their existing workforce applies to large employers.

How to Apply

If you have a new employee and are eligible for the scheme, fill in Form PRSI 20 and send it with a current tax clearance certificate to

Department of Social Protection
Floor 2
Shannon Lodge
Carrick-on-Shannon
Co. Leitrim

Is it enough?

One of the biggest economic problems in Ireland right now is that so many employers are scared stiff of the downturn getting worse. As a result, they are not hiring staff unless absolutely necessary.  Employers PRSI is often (quite correctly) cited as a disincentive to employment.   This incentive aims to address this problem , but in truth it is far too restrictive to do so in any meaningful way.

A Dole Trap?

The fact that it is restricted to workers on social welfare and/or the Fas Work Placement Programme  is a case in point. This would imply that a new graduate must stand in the dole queue or sit on a Fas course for 3/6 months after they graduate before they can take up employment under the scheme.  Are we in danger of creating a ‘dole trap’ for our best and brightest?