Budget 2021: What the announcements mean for your business

With Ireland’s economy facing significant challenges due to the ongoing coronavirus (COVID-19) pandemic, and the final preparations for Brexit and a potential no trade deal scenario, Budget 2021 was set to be a big one.

The measures announced by the newly formed coalition government build on supports put in place under the July Stimulus and include a new scheme to support the sectors that have been worst hit by restrictions imposed during the pandemic.

These unprecedented times called for ambitious measures, and the €17.75bn Budget was historic in its scope and scale.

This article focuses on the measures introduced to support owners of small and medium-sized businesses and covers the following:

Covid Restrictions Support Scheme

VAT rate reduction for the hospitality sector

Employment Wages Subsidy Scheme updates

Further commercial rates waiver

Tax relief for remote workers

Self-employed and the Pandemic Unemployment Payment

Carbon tax increases and the impact on transport costs

Additional measures

Covid Restrictions Support Scheme

The Covid Restrictions Support Scheme (CRSS) is a new support for companies forced to close or trade at significantly reduced levels due to the restrictions imposed because of the pandemic.

The scheme comes into operation when restrictions are at Level 3 or higher and targets businesses in the accommodation, retail, arts, recreation and entertainment sectors, and non-essential retail, hair and beauty services.

Businesses will receive a weekly payment of up to €5,000 assessed on their 2019 average weekly turnover.

Under amendments announced on 19 October 2020, if your business can continue to trade, you may qualify for the CRSS if your turnover is less than 25% of the turnover for the corresponding period in 2019.

The scheme, under the Plan for Living with Covid, came into force on 13 October 2020 and runs until 31 March 2021, with the claims process for payments beginning in mid-November 2020.

If your business qualifies, you can apply to Revenue for a payment in the form of an advanced credit for tax-deductible trading expenses.

Payments are self-assessed and will continue while the restrictions are in place.

In the event of extended or subsequent restrictions, you can submit another claim.

VAT rate reduction for the hospitality sector

A reduced rate of VAT of 9% instead of 13.5% for the hospitality and tourism sectors comes into force from 1 November 2020 and will continue until December 2021.

This measure is aimed at helping hotels, pubs, restaurants and other businesses in the tourism and hospitality sectors.

If your business operates in the sector, you’ll need to prepare your business for the VAT change now.

This may involve updating your accounting system (if you’re using accounting software, it’s likely this update will happen f9 automatically – check with your vendor), amending invoices, and contacting suppliers and customers.

The reduced 21% standard rate of VAT introduced in the July Stimulus was extended until 28 February 2021.

Employment Wage Subsidy Scheme updates

The Employment Wage Subsidy Scheme (EWSS) will continue until 31 March 2021.

Finance minister Paschal Donohoe said it was likely that there would be a need for a similar scheme for the remainder of 2021 and the details of a follow-on scheme would be worked out at a later date when the economic situation is clearer.

The scheme, which replaced the Temporary Wage Subsidy Scheme, supports employers whose businesses have been adversely affected by pandemic restrictions.

In an amendment to the Budget, on 19 October the government outlined a change to the EWSS rates to align with the rates of payment under the Pandemic Unemployment Payment scheme.

Previously, there were two flat-rate subsidies per qualifying employee.

The revised four-tier rates are based on employee’s previous earnings as follows:

• Earnings from €151.50 to €202.99 receive €203
• Earnings from €203 to €299.99 receive €250
• Earnings from €300 to €399.99 receive €300
• Earnings from €400 to €1,462 receive €350.

Earnings under €151.50 and over €1,462 do not qualify. The change is effective from the next payroll date after 19 October 2020.

Further commercial rates waiver

Local authorities agreed in May 2020 to defer rates for businesses most affected by the pandemic. The initial waiver applied to small and medium-sized enterprises in the worst-hit sectors:

• Retail
• Hospitality
• Childcare
• Leisure.

The waiver was extended in the July Stimulus and it has now been further expanded until the end of 2020.

Tax reliefs for remote workers

Remote working has become commonplace for many businesses across the private and public sectors since initial restrictions occurred in March 2020.

With uncertainty around what expenses were allowable for tax purposes, the government has sought to formalise the costs that remote workers can claim against their taxes.

Generally, a portion of electricity, heat, broadband and other vouched expenses that “wholly, exclusively and necessarily” for your work can be claimed.

If you have employees who are working remotely, you can pay them a daily allowance of up to €3.20 to cover expenses before a tax liability kicks in.

If you’re working remotely as a self-employed taxpayer, you can offset a portion of your heating, electric and broadband bills against your tax bill.

More information on claiming expenses can be found on the Citizens Information website.

You should be able to produce receipts for the expenses. Hold on to any relevant documentation for six years in case your business is selected for an audit.

Self-employed and the Pandemic Unemployment Payment

Budget 2021 introduced a provision for the self-employed to take up intermittent work without losing their Pandemic Unemployment Payment (PUP) through an earnings disregard system.

Sole traders such as freelancers and taxi drivers can earn up to €480 per month without losing their entitlement to the payment.

Additional supports for the self-employed include a €150 increase in the Earned Income Credit to bring it in line with the PAYE credit of €1,650.

Amendments to the PUP rates were announced on 19 October, restoring the top rate of €350.

The revised rates, which are effective from 16 October 2020 and applicable until 31 January 2021, are assessed on an average of 2018 and 2019 gross weekly income. The rates are as follows:

• Those with weekly earnings under €200 receive €203
• Those with weekly earnings from €200 to €299.99 receive €250
• Those with weekly earnings from €300 to €399.99 receive €300
• Those with weekly earnings of €400 or more receive €350.

Provisions were also put in place to allow self-employed taxpayers to warehouse their 2020 tax liability and any outstanding amount for 2019.

The deadline for filing tax returns through the Revenue Online Service (ROS) has been extended to 10 December 2020.

You can find more details on the Revenue website.

Carbon tax increase and the impact on transport costs

While the coronavirus pandemic and Brexit have dominated the headlines, the issue of climate change has not gone away.

As expected, a range of carbon taxes were introduced as the government follows a greener agenda. The measure that’s most likely to affect your business is a rise in carbon tax on motor fuel, which will increase your transport bills.

In the second of 10 annual increases, a carbon tax of €7.50 per tonne came into effect from midnight on 13 October 2020.

This represents around 2 cents per litre on petrol and 2.5 cents on diesel, or approximately €1.30/€1.50 for a 60-litre fill-up at the pumps.

Additional measures

While the Enhanced Illness Benefit Payment for those diagnosed with or self-isolating due to coronavirus is being extended, changes were brought to the standard Illness Benefit waiting period.

All new claimants from the end of February 2020 can receive a payment from day three of their illness rather than day six.

Conclusion on Budget 2021

Amid restrictions due to the coronavirus pandemic and the upcoming impact of Brexit, Budget 2021 aims to give owners of small and medium businesses some certainty and support for the coming year.

The range of tax measures and schemes that have been announced in the Budget (and subsequently) should relieve some of the financial burden allowing your business to plan for the future and keep moving forward.