Budget 2017 was announced on 11 October by the Minister for Finance, Mr. Michael Noonan TD. We outline some of the notable employment-related aspects.
1. Reduction in Universal Social Charge ("USC") rates
The three lowest USC rates were all reduced by 0.5 per cent and will now apply as follows:
- 0.5 per cent on income from €0 to €12,012;
- 2.5 per cent on income from €12,013 to €18,772; and
- 5 per cent on income from €18,773 to €70,044.
The ceiling for the proposed 2.5 per cent rate will be increased from €18,668 to €18,772 to ensure that those on the minimum wage are not subject to the higher rate. It is expected that these changes will be effective from January 2017.
2. Increase in social welfare payments
There will be an increase of €5 on all weekly social welfare payments. The most relevant of these payments for employees and employers are:
- Carer's Benefit
- Illness Benefit
- Maternity Benefit
This proposed increase will have a positive impact on employees who avail of any of the above benefits and on those employers that "top up" employees' pay whilst on certain leaves.
The State Pension is also set to increase by €5.
These proposed increases are likely to be effective from March 2017, and are subject to the passing of the Social Welfare Bill.
3. Special Assignee Relief Programme (SARP) – to continue until 2020
SARP is being extended for a further three years until the end of 2020. The regime has been enhanced in recent years and this extension is welcome. SARP provides relief from income tax, but not the USC or Pay Related Social Insurance ("PRSI"), to certain employees who are assigned by their employer to work in Ireland for the employer or any associated company.
The employee must have worked for the employer for a minimum of 6 months prior to the assignment. Where certain conditions are satisfied, an employee may claim to have a portion of his or her earnings from the employment disregarded for income tax purposes.
Since 2015 the portion is 30% of an employee's income over €75,000. The relief can be claimed for a maximum period of five consecutive years commencing with the year of first entitlement.
4. Foreign Earnings Deduction (FED) – extended to 2020
FED is being extended until the end of 2020 and qualifying countries are being extended to include Columbia and Pakistan. The minimum number of days for travel is being reduced to 30 per annum, previously 40.
FED is a relief from income tax, but not USC or PRSI, for individuals who temporarily carry out duties of their office or employment in certain foreign countries. The maximum deduction in any tax year is capped at €35,000 and therefore the maximum annual tax saving is €14,000 (€35,000 × 40% ie income tax rate).
5. Employee share schemes
Following the recent public consultation on the issue of share-based remuneration, the Minister today announced his intention to develop a new, SME-focused, share-based incentive scheme which would be introduced in Budget 2018, subject to it having received approval from the European Commission under state aid rules.
6. PAYE modernisation – launch of Revenue consultation process
The Minister in his Budget Statement also announced the launch of a Revenue consultation process regarding the modernisation of the Pay As You Earn (PAYE) system.
The consultation process, which will run until 12 December 2016, will relate to the proposed modernisation of the collection of income tax through the PAYE system. It is planned that the proposed modernisation will be operational from 1 January 2019. It intended to allow for significant streamlining of employer business processes and reduce the administrative burden by integrating PAYE reporting obligations into the normal payroll process.
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