Thursday 29 September 2016

Budget 2016 - Farming: Now is the time for the fine details after a flood of leaks

Jim McLean

Published 13/10/2015 | 02:30

Agriculture Minister Simon Coveney
Agriculture Minister Simon Coveney

With economic growth projected to be 6pc for 2015 it is anticipated that the Government will have at least €1.5bn to spend on a mixture of capital spending and tax cuts.

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It would appear that there will be some cuts to tax and Universal Social Charge rates for most taxpayers, but the agri sector should also benefit from any cuts in the same way as other sectors of the economy.

With an annual turnover of nearly €30bn and nearly 13pc of merchandise exports and employing nearly 170,000 in mostly in rural communities, the decision makers know the vital importance of the agri sector.

Fundamental to this is the farming enterprise.

One of the main recommendations of the agri-sector review carried out last year was the introduction of measures to facilitate the passing on of farming enterprises to the next generation.

Some of the changes proved problematic, particularly in relation to the changes to agricultural relief and it is expected that some amendments will be announced in today's Budget.

However, many of the tax changes to be introduced by Mr Noonan in his Budget presentation today have been well signalled.

The specific nature of some of the speculation suggests that it is based on reliable information. They include:

1.5-2pc reduction in the USC It is likely that this will be aimed at middle income earners. However, if there is no compensatory increase in the 8pc rate, then higher earners should also benefit.

A possible increase in the 20pc income tax rate band It is generally accepted that the top rate of tax kicks in too early. For example, it starts at €33,800 in Ireland, compared to nearly €45,000 in Britain. The challenge for the Department of Finance is that every €1,000 increase in the rate band costs about €150m in tax.

A special tax credit for self-employed people

This is designed to equalise the personal tax credits of the self-employed and PAYE taxpayers, and is long overdue. The original argument for the difference was that a self-employed person paid tax based on profits earned in the previous year and then might not pay the tax liability until long after the end of the current year. This is no longer the case.

Income averaging for forestry income Budget 2016 - Farming: Now is the time for the fine details after a flood of leaks

This would help to deal with the problem that the bulk of the income tends to arise in the year after the trees have matured, which does not arise when income is spread over a period of time as is the case with other business ventures.

The abolition of the additional 3pc USC

This applies to self-employed people on earnings over €100,000 - it remains to be seen whether the Finance Minister is willing to abolish something that is clearly unfair.

Enhanced knowledge development reliefs

The proposals by the OECD designed to tackle global tax avoidance are likely to result in greater compliance costs on international companies.

Proposals for Irish legislation are expected to be introduced in this current Budget cycle and may be included in the Finance Bill to be issued shortly after the Budget.

The new reporting obligations will apply for accounting periods ending in 2016 with the report due in 2017.

Something that may provide some relief for companies in this sector is the introduction of the Knowledge Development Box announced in last year's Budget by Mr Noonan.

This is designed to provide tax relief to companies that carry out research and development that leads to intellectual property (IP).

The intention is to reduce the tax arising from such IP to perhaps 5pc.

Jim McCleane is a Tax Director with PwC Agri-Food Practice

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