Jane Devlin Senior Tax Advisor PwC Kilkenny
Uncertainty, something we are currently living with every day of our lives, at home, at work, at school and in business.
If you just stop for a second and think about the current status of the world with Covid-19, the upcoming US presidential election and Brexit, it points to a very unpredictable future. It is no surprise therefore, that Budget 2021 will be set against a backdrop of significant economic, political and societal uncertainty.
The impact of Covid-19 has been most severely felt among domestic Irish businesses, including those in Kilkenny which relies heavily on the tourist and retail sector for employment and income generation.
A glimmer of hope however, is that Budget 2021 is expected to contain targeted measures to support these sectors and reinforce the Employment Wage Subsidy Scheme (“EWSS”), Tax Debt Warehousing and Accelerated Tax Loss Relief measures in the July 2020 stimulus package.
This is good news for the people and businesses of Kilkenny city and county worst affected by recent events. However, there is more needed.
It has already been widely reported that there will be no changes to income tax rates or thresholds. So what can we expect and hope for from Budget 2021?
The impact of Covid-19 has led to many employees working from home. This is likely to continue for the foreseeable future.
From a regional perspective, it is thought that the flexibility and accessibility of working from home will result in many employees relocating to places like Kilkenny (a large number of employees already commute to Dublin from here on a daily basis) and this should help to boost the local economy.
However, working from home does involve increased costs, such as utilities and broadband. Current Revenue guidelines allow limited deductibility of such costs (up to 10% of utility costs for the days actually spent working from home) and only where formal arrangements are in place with employers.
Budget 2021 offers an opportunity to remove those requirements and allow a deduction for actual costs incurred instead. Other measures could include a tax deduction for upgrading or converting spaces in homes to offices. This could be akin to the Home Renovation Incentive scheme, which ended in 2018.
For employers, while the July Stimulus included a provision for the continuation of the reduced rate of employer PRSI for employers who qualify for the EWSS, that only applies to businesses that can show a 30% reduction in turnover/customer orders.
We would like to see the Budget include an extension of the PRSI reduced rate to other businesses that may not be able to meet the 30% test, but have been (and continue to be) adversely impacted by Covid-19.
In addition, in order to assist in incentivising and rewarding staff who have made big sacrifices through the Covid-19 period, an enhancement and increase to the Small Benefit Exemption would be a welcome step for both employers and employees. The Small Benefit Exemption allows employers to reward employees through the provision of tax free vouchers. A removal on the number of vouchers per employee and an increase in the value to €1,000 per employee would be welcome.
Previously planned measures will likely proceed including an increase in the Earned Credit for self-employed workers from €1,500 to €1,650, in line with the Employee Credit. An increase in the Home Care Credit to align with an increase in Childcare subsidies is also anticipated.
We expect that the reduced USC rate of 2% for certain medical card holders and those over 70 years (subject to income limits) will be extended post 2020.
At a minimum, Budget 2021 will likely see provisions to allow for the extension of the EWSS and the Pandemic Unemployment Payment (“PUP”) past March 2021, with possible rate increases.
Irish businesses face a defining moment. The fallout of Covid-19 and the uncertainty of Brexit will influence the shape of the land for Irish indigenous business for years to come.
Businesses in Ireland, including those in Kilkenny in the retail, hospitality and construction sectors, have undoubtedly been the worst hit as a result of Covid-19 and we have yet to see how Brexit will impact on the Agri-businesses in our locality. Therefore, these businesses will be hoping for some significant support packages to help steer them through this period of uncertainty.
We wait with bated breath for next Tuesday to see what the Government has in store to aid the people of Ireland and reduce the strain and anxiety most of us are feeling during this uncertain period.