6 Ways Budget 2019 Will Affect SMEs
9 October 2018 saw the unveiling of the third Budget of the 32nd Dáil. Delivering his second Budget, Minister Donohoe said the Budget “will further develop the underlying strength and resilience of our economy.”
Thomas Sheerin, Tax Director at KPMG in Ireland, outlines some of the elements affecting SMEs.
1. Income Tax, Earned Income Tax Credit for Self-employed and USC Changes
- The point at which an individual attracts the higher 40% income tax rate has increased by €750. Therefore, for a single person the first €35,300 of income will be taxable at the 20% rate. The first €44,300 will be taxable at the 20% rate in the case of a married person (one earner).
- The Minister announced an increase of €200 in the Earned Income Tax Credit to €1,350 for 2019. This credit is available to self-employed individuals who cannot benefit from the PAYE tax credit of €1,650 that is available to employees.
- The hourly minimum wage rate is to increase by 25c to €9.80 an hour from 1 January 2019. The weekly income threshold for the higher rate of employer’s PRSI is also to increase from 1 January 2019 to €386.
- The entry point for the USC remains at €13,000. However, the ceiling for the 2% rate has increased from €19,372 to €19,874. This change ensures that full-time workers on the minimum wage do not pay the upper USC rates. The 4.75% USC rate is also to reduce to 4.5% thereby reducing the top marginal rate of tax on income up to €70,044 to 48.5%.
- The rate of employers PRSI will increase by 0.1% in 2019 and 2020 to 10.95% and 11.05% respectively.
2. Share-based remuneration/incentive schemes
- Last year’s Budget introduced a new incentive called Key Employee Engagement Programme (KEEP). KEEP aims to facilitate the use of share-based remuneration by unquoted SME companies to attract and retain key employees. Gains arising to employees on the exercise of KEEP share options will be liable to Capital Gains Tax on the disposal of the shares. This incentive is available for qualifying share options granted between 1 January 2018 and 31 December 2023.
- The Minister intends to introduce refinements to KEEP to increase the ceiling on the maximum annual market value of share options that may be awarded from 50% to 100% of the employee’s salary. In addition, the overall value of options that may be awarded per employee has increased from €250,000 to €300,000. However, the existing three year limit on the overall value of options that may be awarded to an employee has been replaced with a lifetime limit of €300,000.
- Following a review of the Employment and Investment Incentive, a priority package of measures are to be included in the Finance Bill to increase its efficiency and effectiveness. This Incentive provides income tax relief for the shareholder in respect of their investment in new shares in certain trading companies.
- Disappointingly, no changes were announced in relation to the entrepreneur relief from capital gains tax. This relief affords a reduced 10% rate to the first €1m of chargeable gains in certain circumstances. A commitment to enhance this relief was originally included in the Programme for Government. It is unfortunate that the Minister did not take the opportunity on this occasion to enhance the relief.
3. Retailers and Tourism
- Following the completion of an economic review during the year, the 9% VAT rate for tourism and related activities will be increased to 13.5% from 1 January 2019.
- The old reliable excise duty on tobacco is to increase by 50 cents on a pack of 20 cigarettes with a pro-rata increase on other tobacco products. Betting duty which applies to bets entered into by bookmakers with persons in Ireland will be increased from 1% to 2%.
4. Construction and Property
- Last year’s Budget saw an increase to 85% for the deduction of interest incurred by landlords on qualifying loans when computing the rental income subject to income tax. The deductible amount was to increase by 5% each year until a 100% deduction for interest is restored. However, the Minister announced that a 100% deduction for such interest will be available from 1 January 2019.
- The Minister restated his commitment that any future changes to the Local Property Tax will be moderate and affordable taking into account recent changes in property values. A report on the review of the LPT is to be published shortly.
5. Food and Farming
- The Minister announced the launch of a Future Growth Loan Scheme for SMEs and the agriculture and food sector. New legislation is to be published shortly to implement this scheme which will provide up to €300 million.
- Extensions to the existing income averaging, stock relief from income tax and stamp duty relief for young trained farmers were announced by the Minister.
- The 0% BIK rate for electric vehicles is being extended for a period of three years. This rate applies to electric vehicles with an Original Market Value not exceeding €50,000.
- A 1% Vehicle Registration Tax surcharge is to be introduced for diesel engine passenger vehicles registered in the State from 1 January 2019. The VRT relief available for conventional hybrids and plug-in electric hybrids is being extended until the end of 2019.
- Accelerated capital allowances are to be introduced for capital expenditure incurred on the acquisition of gas-propelled vehicles and refuelling equipment. The use of natural gas and biogas as a substitute for diesel is seen as a more environmentally friendly fuel for large vehicles such as HGVs and buses.
For further coverage on Budget 2019, please visit www.kpmg.ie/budget2019