With the final coronavirus (COVID-19) pandemic restrictions due to be lifted on 22 October 2022, Ireland’s economic recovery was the central focus of Budget 2022 announced on 12 October by Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath.
The €4.7bn Budget, comprising expenditure of €4.2bn and taxation measures of €500m, was wide-ranging in its scope, aiming to tackle a number of issues, including the rise in energy and other living costs, as well as supporting return to normality for businesses affected by the pandemic.
This article focuses on the Budget measures introduced to support owners of small and medium-sized businesses and covers the following:
Changes to tax rates and bands
Budget 2022 introduced a range of taxation measures aimed at keeping disposable income levels in line with inflation and rising living costs.
These income taxation changes will come into effect on 1 January 2022, so you have a little time to prepare. To avoid delays in processing payroll, it is advisable to ensure your system is ready for the changes.
Depending on what payroll software you use, these updates may happen automatically.
Income tax credits
The income tax credit for PAYE workers and Earned Income for self-employed will increase by €50.
Increase in standard tax rate band
The two income taxation rates remain at 20% and 40%. However, the standard rate band (20%) will increase by €1,500, from €35,300 to €36,800. This works out at an additional €300 in take-home pay over the year.
The threshold for the weekly amount that incurs the higher rate of employers’ Pay Related Social Insurance (PRSI) will increase from €398 to €410.
This is to ensure that the pay of a full-time worker on the new minimum wage (see below) will stay within the lower rate.
Universal Social Charge
The ceiling of the second rate of 2% will increase from €20,687 to €21,295. This change will benefit full-time workers on the new minimum wage, keeping them outside the higher rates of USC.
Increase in the Minimum Wage
The National Minimum Wage will be increased by 30c, bringing the hourly rate up to €10.50. This increase comes into effect on 1 January 2022.
If you have employees on the minimum hourly rate, you’ll need to make adjustments to payroll well in advance.
Changes to parent’s leave and benefit
Parent’s leave will be increased from five weeks to seven weeks from 1 July 2022.
Parents of children born or adopted on or after 1 November 2019 can avail of the leave until their child’s second birthday.
Parents taking parent’s leave can apply for Parent’s Benefit, which is based on your PRSI contributions and is open to employees and self-employed.
To find out more about how to apply and eligibility, visit the Citizens Information website.
Updates to coronavirus employment supports
Employment Wage Subsidy Scheme update
The Employment Wage Subsidy Scheme (EWSS) has been extended to 30 April 2022.
The scheme set up to support businesses with a 30% reduction in turnover or orders due to pandemic restrictions is being phased out, with the scheme closing to new entrants from 1 January 2022.
The four rates will be reduced to two rates of €151.50 and €203 from 1 December 2021 until 28 February 2022.
A flat-rate payment of €100 will apply for March and April 2022. In addition, the reduced Employers’ PRSI will end on 28 February 2022.
Pandemic Unemployment Payment extended
This payment for employees and self-employed and freelance contractors is being phased out and will end on 28 February 2022.
The second of three €50 reductions to the maximum weekly amount of €350 is due in November 2021.
The payment closed to new applicants from 8 July 2021. Self-employed recipients can earn up to €960 (gross income less expenses) over eight weeks while remaining eligible for the scheme.
Further employment supports
Additional funding supports to encourage employers to take on apprentices were introduced in the Budget.
A new Employer Apprenticeship Grant will be introduced in January 2022 as well as 7,000 off-the-job training places for craft apprentices affected by coronavirus restrictions.
This follows on from the Apprenticeship Incentivisation Scheme introduced in 2020.
The €3,000 payment to employers who take on an apprentice was extended to 31 December 2021.
Remote working relief
As some employees head back to the workplace, many are still working from home.
In the previous Budget, the government introduced some measures to formalise what expenses were allowable for remote workers to claim against their tax bill.
Budget 2022 has expanded upon those measures with 30% of “vouched expenses” of electricity, heating and broadband allowable.
The amount must be calculated on a pro-rata basis so include only the days worked from home and exclude weekends, public holidays and annual leave.
Employees must submit their claim via the MyAccount portal on Revenue’s website to claim the tax deduction. Photos of receipts can be uploaded in the receipt tracker tab.
Note: The relief is only available to employees who are not receiving a tax-free daily allowance of up to €3.20. So if you are already paying remote-working employees expenses, they can’t claim this relief.
For more information on the remote working relief, go to the Citizens Information website.
Reduced VAT rate for hospitality extended
A reduced rate of VAT for the hospitality and tourism sectors introduced in 2020 is being extended.
The 9% rate – instead of 13.5% – was in place until 31 December 2021 and is being further extended until the end of August 2022.
The measure is aimed at restaurants, pubs and hotels and other businesses, affected by pandemic restrictions.
If your business is eligible for this reduced rate, you may need to update the end date on your accounting software to reflect the Budget changes (check with your software vendor; if you’re using cloud software, it may update automatically).
Commercial rates waiver extension
As part of coronavirus measures introduced in 2020, small and medium-sized businesses operating in sectors worst hit during the pandemic, including retail, childcare, leisure and hospitality, were granted a waiver on their commercial rates.
In Budget 2022, €60m has been allocated to extend the waiver for the year’s final quarter.
However, the waiver applies only to businesses operating in arts, hospitality and some tourism-related areas.
Contact your local authority for more details.
Carbon emissions measures
As expected, measures to reduce carbon emissions featured in this Budget.
If you have company vehicles or pay mileage to your employees, the following three changes might affect your business.
Carbon tax increase
The one that’s most likely to affect your business is a rise in carbon tax on motor fuel, which will increase your transport bills.
The €7.50 increase per tonne of carbon dioxide brings the cost to €41 per tonne.
This increase took effect at the petrol pumps from midnight on 12 October 2021, adding around 2 cents per litre on petrol and 2.5 cents on diesel, or approximately €1.28/€1.48 for a 60-litre fill-up.
Increases in the price of other fuels such as heating oil will apply from 1 May 2022.
VRT rates increase
Vehicle registration tax rates increases of 1%, 2% and 4% based on emissions bands or categories will come into effect from 1 January 2022.
Electric vehicle relief
The provision for relief of up to €5,000 on vehicle registration tax payable on electric vehicles has been extended until 2023.
Additional business supports
In addition to the above measures, Budget 2022 introduced new schemes and reliefs and additional funding to expand and enhance existing schemes aimed at boosting businesses in the post-pandemic period.
- A pilot scheme for artists to provide a basic income will be introduced in January 2022.
- An Innovation Equity Fund to invest in early stage startups with the potential to scale has been allocated €90m.
- A Digital Transition Fund will receive €10m to encourage businesses to develop and adopt data analytics and artificial intelligence (AI).
- A new Enterprise Transition Green Fund will be set up for climate-focused companies.
- A new tax credit for the gaming sector is available at 32% on eligible expenditure of up to €25m.
- Small producers of cider and other fermented drinks can avail of a 50% relief on excise duties.
- The Covid Credit Guarantee Scheme, which provides low-cost loans for businesses affected by the pandemic, will receive an additional €15m.
- Business continuity supports for the tourism industry will be extended with an additional €50m allocated to eligible businesses in the sector.
- Supports for the live entertainment industry have been allocated €25m.
- A corporation tax relief for eligible startup companies under Section 486C will be extended to 31 December 2026.
- The Employment and Investment Incentive scheme gives tax relief to investors in qualifying SMEs. The scheme has been extended for three years and expanded to include a wider range of investors.
- The Disruptive Technologies Innovation Fund will receive €17m for capital funding in disruptive technologies and applications.
Note: Ireland recently joined the OECD International Tax agreement commitment to set the corporation tax rate at 15%. However, the government has assured small and medium-sized companies will keep their current rate of 12.5%, and the higher tax rate will apply to companies with excess of €750m in revenue.
Final thoughts on Budget 2022
As Ireland’s economy returns to pre-pandemic levels, businesses around the country face ongoing supply issues relating to Brexit and rises in the cost of living, most significantly energy and fuel costs.
Budget 2022 aims to relieve some of the financial pressure for owners of small and medium businesses, allowing your business to recover and return to full capacity while managing current challenges and planning for 2022.
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