It’s safe to say that most people will be glad to see the back of 2020.
The new tax year brings hope as vaccines are rolled out in the fight against coronavirus (COVID-19) and, among other things, businesses will hopefully be able to get back to the business of doing business.
Now we’re in 2021, this article outlines the main tax changes that you need to be aware of from Budget 2021 and other potential changes that could come on stream during the year.
Changes to income tax for new tax year
The self-employed earned income tax credit has increased by €150 to €1,650 and is now in line with PAYE workers’ tax credits.
The hourly minimum wage rate has increased from €10.10 to €10.20. And to ensure that as a result employers don’t have to pay a higher level of pay related social insurance (PRSI), the employer’s PRSI threshold has increased from €395 to €398 per week.
The ceiling of the second universal social charge (USC) rate band has increased from a gross income of €20,484 to €20,687. This is to ensure that a full-time worker on the minimum wage remains outside the top rates of USC.
The dependent relative tax credit has increased from €70 to €245 to support workers with caring responsibilities.
In 2020, the government put in place numerous schemes to help businesses and employees weather the storm of coronavirus.
And while they were extremely welcome, there are added reporting obligations and possible tax liabilities.
In terms of income supports, if your employees received the Temporary Wage Subsidy Scheme (TWSS), there could potentially be a tax liability, as income tax was not deducted at source.
This was because the scheme was put in place so quickly that it took a while for certain blips to be ironed out.
Revenue later advised employers to put employees on a Week 1 basis of tax (also known as non-cumulative), which would increase employees’ tax from that date and thus lower the tax liability at the end of the year.
It’s expected that Revenue will issue a Preliminary End of Year Statement for 2020 for employees in January. This will assist in determining the amount of income tax and USC due.
If there is a tax liability, Revenue will reduce your employees’ tax credits in 2021 and 2022 to clear the underpayment and affected employees will pay a little bit more tax each week.
The Emergency Wage Subsidy Scheme (EWSS), which replaced the TWSS, is treated differently in terms of tax.
The EWSS came into force on 1 September 2020 and is taxable at source through payroll and subject to PAYE, USC and PRSI. There is also a reduced rate of employers’ PRSI of 0.5%.
In terms of employers and qualifying conditions for the EWSS, the employer must be able to demonstrate that as a result of the disruption caused by coronavirus, their business will experience a 30% decline in turnover or customer orders in the period from 1 July 2020 to 31 December 2020, relative to the same six-month period in 2019.
Also, at the end of December 2020, Revenue announced a further requirement.
Businesses must now also provide a six-month sales projection from January 2021 to the end of June 2021 to continue receiving the EWSS payment in 2021.
For the TWSS, the employer had to demonstrate a minimum 25% decline in turnover. Employers must also have a tax clearance certificate for both payments.
COVID Restriction Support Scheme (CRSS)
Other additional supports include the COVID Restriction Support Scheme (CRSS).
This provides a weekly cash payment to be made to impacted businesses, which are either forced to temporarily close their business, or the business is operating at significantly reduced levels because of coronavirus restrictions.
If your business is eligible, you can make a claim to Revenue for a payment that’s equal to 10% of the average weekly turnover of your business in 2019 up to €20,000, and 5% on turnover over €20,000.
Be aware that the CRSS payment is subject to a maximum of €5,000 for each week that your business is impacted by the restrictions. If your company has multiple premises, you can make a separate claim for each one.
Again, employers need to have a tax clearance certificate and have complied with VAT obligations.
Debt Warehousing Scheme
The Debt Warehousing Scheme allows companies to defer payment of certain liabilities to Revenue.
These payments incurred by businesses during the period of restricted trading caused by coronavirus can be parked on an interest-free basis for 12 months, following the resumption of trading.
These liabilities include VAT, PAYE (employer) debts, overpayments arising from TWSS, self-assessed 2019 income tax and 2020 preliminary tax liabilities.
It may also be possible to warehouse the balance of income tax due for 2020 and 2021 preliminary tax.
At the end of the 12-month interest-free period, the warehoused debt may be paid in full without incurring an interest charge or paid through a phased payment arrangement at a significantly reduced interest rate of 3% per annum.
This compares to the standard rate of 10% per annum that would otherwise apply to such debts.
To qualify, businesses need to file all relevant tax returns for the restricted trading periods, so the exact liability can be quantified and included in the scheme.
In terms of whether these coronavirus supports will continue beyond March 2021, the government has said it will decide at an appropriate time.
Loosening of eligibility for Capital Gains Tax (CGT) Entrepreneur Relief
If you, as an entrepreneur, decide to sell your business, it will be easier to qualify for Capital Gains Tax (CGT) Entrepreneur Relief.
If you have held at least 5% of shares for a continuous period of any three years, you’ll qualify for CGT relief.
Previously, you had to hold at least 5% of shares for three years in a row in the five years prior to selling the business. This came into effect in the new tax year from 1 January 2021.
This could represent a significant saving, as the rate of CGT for entrepreneurs is only 10%, compared with a rate of 33% for normal CGT.
As a result of coronavirus, employers and employees across the country had to adapt very quickly (and in many cases for the first time) to working remotely.
Currently there is little government support in terms of remote working, with minimal claimable expenses.
A new strategy is expected to be published very soon that will include proposals for a country-wide network of digital hubs, as well as new tax and expense arrangements.
Gender pay gap reporting
A Bill was published in 2019 in relation to mandatory gender pay gap reporting.
It proposes that initially, companies with 250 or more employees would be required to make disclosures on their gender pay gaps and that at a later stage, it would apply to companies with 50 employees or more.
The proposed legislation would also require companies to publish their reasons for the gender pay gap and the measures being taken to reduce or eliminate the gap.
There was an expectation that the Bill would come into law in 2020, but then the government changed focus towards the coronavirus pandemic and Brexit.
However, the government says it’s committed to introducing the relevant legislation in the near future.
What could be called the elephant in the room is Brexit, but no business can avoid thinking about it (and planning for it).
The government allocated €100m in the budget to help businesses adapt to Brexit, including €11m for Local Enterprise Offices to work with local businesses.
Despite the fact that the UK and European Union (EU) agreed on a trade deal before the end of the transition period on 31 December 2020, there are going to be major changes including in trade, customs processes and transport connectivity.
But the implications go way beyond this.
While 2020 resulted in a year of uncertainty due to the coronavirus pandemic, it’s hoped that 2021 will have a brighter outlook, albeit once the pandemic is under control.
Despite any uncertainty, there are always new opportunities to be had. As we head into this new tax year, we wish your business a successful 2021.
Editor’s note: This article was first published in December 2020 and has been updated for relevance.