The Government announced on the 23 July 2020 the “July Jobs Stimulus 2020”, which is the next phase of their economic plan to deal with the ongoing threat of COVID-19 and contains a spending package of circa €7.4 billion to reboot the economy and set businesses on the path to recovery following the COVID-19 pandemic shutdowns earlier in the year.
Certain tax measures to the value of €1.4 billion feature in the July stimulus package which will be of interest to businesses and their employees.
1. VAT Reduction
The standard VAT rate will be reduced from 23% to 21%, with effect from the beginning of September 2020, for a 6 month period. The aim of this temporary initiative is to encourage consumer spending during the months in the lead up to Christmas when spending in retail and hospitality sectors is expected to be low due to the ongoing pandemic. Numerous factors must be considered by affected business before the change comes into operation such as system implementation, pricing and timing especially for partially exempt businesses.
2. Changes to the Temporary Wage Subsidy Scheme (“TWSS”)
The TWSS will be replaced by a new Employment Wage Support Scheme (“EWSS”) from 1 September 2020 (but will run from 31 July 2020 to 31 August in parallel with the existing TWSS), which will continue until 31 March 2021.
Under EWSS, the primary criteria for qualification is that the employer must demonstrate that their turnover has fallen by 30% in the period from July to December 2020 when compared to the same period in 2019. If the employer can demonstrate this, the employer may be eligible for a flat-rate subsidy of up to €203 per employee per week. For further information please see our detailed briefing.
3. Extension of Corporation/Income Tax Loss Relief
To provide immediate cash-flow support to previously profitable companies and the self-employed, the government has announced extended loss relief measures.
The government has announced the accelerated repayment of corporation tax to provide cash-flow support to previously profitable companies that are experiencing losses as a result of the current pandemic. In order to qualify for accelerated loss relief, the company must be tax compliant and must have incurred or expect to incur a trading loss in an accounting period which includes some or all of the period from 1 March 2020 to 31 December 2020.The maximum amount of the estimated loss which qualifies for early carry-back is 50%. The balance of the loss will qualify for carry-back under the normal rules in due course.
Self-employed individuals, either trading as a sole trader or as part of a partnership, who have been adversely impacted by the Covid-19 restrictions can avail of new temporary income tax measures that aim to improve cash flow for the individuals.
Losses incurred during the tax year which under normal circumstances are available to be carried forward against future gains, can be offset against income tax payable from 2019. The amount available for offset is capped at €25,000 and any remaining loss suffered will be carried forward under normal procedure. Income tax relief is also available in the same manner for unused capital allowances in the tax year.
Interim claims are available to provide immediate relief for individuals. The interim claim is based on an estimate of the actual amount of relief that will be available at the end of the year. The individual must be fully tax compliant and adhere to certain time limits when making an interim claim.
Relief is also provided for farmers with the option now available for them to step out of income averaging for the tax year 2020, notwithstanding that the farmer may also have stepped out of income averaging in one of the four preceding tax years.
4. Warehousing of Tax Liabilities
On 2 May 2020, Irish Revenue announced that PAYE and VAT tax debts for a set period could be “warehoused” or paid by a later date with no interest or penalties being levied by Irish Revenue if certain conditions were met. This practice will now be put on a statutory footing, along with the conditionality details. This measure, which allows businesses to defer payments, will assist businesses impacted by the emergency to manage their cash flow in the short-term. For further information please see our detailed briefing.
5. Reduction of Interest Rate on Settlement of all Tax Liabilities
The usual interest rates of 8% to 10% on overdue tax liabilities will be reduced to 3% in relation to agreed repayments of all tax debt provided the taxpayer contacts Irish Revenue to reach an agreement before 30 September 2020. In light of this temporary reduction, any taxpayer with outstanding tax debt should immediately review their position.
6. Individual reliefs: Help-to-Buy, Stay and Spend and Cycle to Work Schemes
The cap on the Help-to-Buy Scheme has increased to the lesser of €30,000 (an increase of €10,000) or 10% (up from 5%) of the purchase price of the new home or self-build property.
The Stay and Spend Incentive will allow taxpayers to avail of a 20% tax credit when spending more than €25 in restaurants, cafés, hotels and B&Bs, up to a maximum spend of €625, between 1 October 2020 and 30 April 2021. This means taxpayers will be able to claim back up to €125 per tax, or up to €250 for a jointly assessed married couple.
The allowable expenditure under the Cycle to Work Scheme has increased from €1,000 to €1,500 (for “ebikes”) or €1,250 (other bicycles). The scheme allowed the purchase of a new bicycle every 5 years, and this is now reduced to 4 years.
While more detail is expected on how some of the above measures will be implemented in practice, the proposals to date under the stimulus package clearly reflect the new economic reality in the wake of Covid-19. The government also intends to publish a National Economic Plan alongside its Budget in October which will include further long-term measures to support the economic recovery.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.