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5 Ways Budget 2016 Will Affect SMEs
13th October 2015 saw the unveiling of the final Budget of the 31st Dáil. Among its aims, the Budget intends to “create the conditions in which new ideas, innovation and entrepreneurship will be encouraged, leading to increased long-term growth and wellbeing”.
Tim Lynch, Tax Director at KPMG in Ireland, outlines some of the elements affecting SMEs.
1. Minimum Wage and Employer PRSI
The higher cost to employers arising from the increase in the hourly minimum wage from €8.65 to €9.15 will take effect from 1st January 2016. However, Employers’ PRSI will fall in certain cases as a result of the increase to the entry point at which the top rate of 10.75% applies. Full details of this and other PRSI changes will be set out in the Social Welfare Bill.
2. Earned Income Tax Credit for Self-employed and USC Changes
- The Minister highlighted the disparity between the take-home pay of employees and self-employed individuals. In an effort to narrow this divide, an Earned Income Tax Credit of €550 will be introduced for small business owners who cannot benefit from the PAYE tax credit of €1,650 available to employees. This is intended to be the first step towards “complete tax equalisation for the self-employed” with employees.
- Changes in USC rates and thresholds will result in a lower tax burden for all income earners to varying degrees. This is the costliest taxation measure included in Budget 2016.
3. Retailers and Tourism
- In an effort to support the retail industry, the Minister introduced a number of elements to incentivise electronic payments. These include increasing the transaction limit on contactless payment cards, reducing costs to the retailer associated with electronic payments, and decreasing stamp duty on debit and ATM cards.
- The reduced 9% VAT rate for tourism and related activities will continue to apply. However, the Minister sounded a note of caution in respect of its retention, questioning the need for the lower rate in the context of the Dublin hotel sector.
4. SMEs in the Construction Sector
- The Minister stated that NAMA is aiming to deliver a target of 20,000 residential units before the end of 2020, 75% of which will be starter homes. As a result of this and the efforts of others, we should expect to see an increase in activity levels in this sector, particularly in the greater Dublin area, where it is intended that 90% of NAMA’s activity will take place.
- As previously announced, the Home Renovation Incentive will be extended to 31st December 2016.
- It is proposed that the revaluation date for Local Property Tax (LPT) will be postponed from 2016 to 2019. This postponement means home owners will not be faced with significant increases in their LPT liabilities in 2017 as a result of rising property values.
5. Transportation Costs – Commercial Motor Vehicles
Significant changes in commercial motor tax were announced by replacing the 20 existing rates with just five rates of commercial motor tax, with effect from 1st January 2016. The new rates will range from €92 to a maximum of €900 for larger vehicles (a substantial decrease from the previous maximum rate of €5,195).
For further coverage of Budget 2016, visit www.kpmg.ie/budget2016
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