Budget 2019 – the expert view

From tax, technology and talent to Brexit and your business – find out what Budget 2019 means for you

Budget overview

"Budget 2019 was introduced by the Minister for Finance against the backdrop of a remarkable Irish economic performance in recent years.

"Having endured a serious economic downturn as a result of the property market crash 10 years ago, Ireland is now enjoying robust economic growth, reaching full employment and ending government borrowing. It is a tribute to the sure-footedness of Irish policy makers, and to the discipline of Irish citizens, that this has been achieved. This Budget sees the distribution of some of the fruits of improving economic conditions, mostly in the form of increased government spending.

"The Government has again reaffirmed its commitment to Ireland’s 12.5pc corporation tax rate - Ireland’s commitment in this regard has been rock solid for many years. This year’s Budget confirms that the corporate “exit tax” which Ireland has committed to introduce under EU law will be levied at the 12.5pc rate. Ireland’s corporation tax regime remains attractive and remarkably stable.

"There will be some disappointment that this Budget follows a pattern of previous Budgets by failing to include any substantial measures to improve the competitiveness of Ireland’s tax regime for international mobile talent or domestic entrepreneurs. Both of these groups are relatively mobile and the evolution of the international tax landscape is likely to make it increasingly important to attract them to, and retain them in, Ireland. This would also act as a hedge against any downturn in foreign direct investment of which historically Ireland has been a significant beneficiary."

"It is to be hoped that future Budgets might include measures to improve existing capital gains tax regime for entrepreneurs, and the Special Assignees Relief Programme applicable to inbound workers, and to reduce Ireland’s relatively high marginal rates of income tax. This would complement our competitive corporation tax offering and encourage Irish businesses with Irish based owners."
Conor O'Brien, Head of Tax & Legal Services, KPMG in Ireland

Conor O'Brien, Head of Tax & Legal Services, KPMG in Ireland

Conor O'Brien, Head of Tax & Legal Services, KPMG in Ireland

Personal Taxation

A number of personal tax relief measures were introduced in this year’s Budget including:

• An increase of €750 in the standard rate income tax band

• A reduction in the 4.75% rate of USC to 4.5%

• An increase in the home carer tax credit by €300 to €1500

• An increase in the earned income tax credit by €200

• The Capital Acquisitions Tax thresholds to increase from €310k to €320k

The level of income at which people enter the higher rate of income tax of 40pc is to be increased again for 2019. The increase of €750 for both a single person and a single-income couple (married or in civil partnership) will result in a single person reaching the higher income tax rate at a level of €35,300 and single-income couples reaching it at income levels of €44,300. Each tax payer, in dual-income households, may also benefit from the increased standard rate band where the respective income of each tax payer is equal to or is greater than €35,300. The maximum annual benefit of this increase amounts to €150 (€300 for a dual-income household).

Continuing the trend of recent years, the reductions in the USC announced in the Budget were well signalled. In keeping with the Government’s stated approach, these reductions are targeted mainly at those categorised by the Government as being on low-to-middle incomes, being those with earnings between €13,000 and €70,044 per annum. The reductions are provided by way of increase in the band two ceiling and reduction in the band three rate.

Firstly, the ceiling at which the 2pc rate applies will be increased from €19,372 to €19,874. This increased ceiling should ensure that full-time workers on the increased national minimum wage of €9.80 per hour should not pay USC at rates higher than 2pc on their salary.

Secondly, the USC rate applying to income between €19,875 and €70,044 is to be reduced by 0.25pc to 4.50pc. This change results in the marginal aggregate rate of USC, income tax and PRSI reducing from 48.75pc to 48.50pc for those earning up to €70,044.

These changes should benefit all taxpayers (including those earning over €70,044), and the maximum benefit to any one individual is limited to €140 per annum. It is expected that these changes will take effect from January 1, 2019. The employee marginal rate of 52pc (comprising income tax, USC, and PRSI) will continue to apply for incomes above €70,044, and a marginal rate of 55pc will continue to apply to self-employment income above €100,000.

There is no change to USC for those earning less than €60,000 per annum who are either (i) full medical card holders, or (ii) over 70 years of age.

Employment taxes

"In 2017, the minister announced the introduction of the Key Employee Engagement Programme (KEEP), an employee share option incentive scheme targeted at the Small and Medium Enterprise (SME) sector. The incentive scheme allows qualifying companies to remunerate key employees in a manner which is tax-efficient and is linked to the future success of the company, provided certain qualifying requirements are met throughout the option-holding period.

"KEEP aims to support SMEs in attracting and retaining key talent by effectively deferring the taxation of gains on employee owned shares until the sale of the shares. The scheme came into effect in January 2018 and currently applies for qualifying options granted before December 31, 2023.

"In order to incentivise the take-up of the incentive and to support SMEs in attracting and retaining key talent, the minister announced a number of changes to the rules relating to the total market value of qualifying share options which may be granted by a qualifying company to an employee or director. Specifically, the ceiling on the maximum annual market value of share options that may be granted by an SME to any one employee or director under the KEEP scheme will be increased to 100pc of the annual emoluments of the employee or the director in the year in which the qualifying share option is granted. A 50pc ceiling previously applied.

"In addition, that the overall value of share options which may be awarded to each employee will increase from €250,000 to €300,000, while also changing the time period in which this limit applies from three consecutive years to a lifetime limit."

Some other changes include:

• From January 1, 2019, the hourly minimum wage will be increased to €9.80

• From January 1, 2019, the weekly income threshold for the higher rate of employer’s PRSI will increase from €376 to €386

• With effect from January 1, 2019, the ceiling of the second USC rate band will be increased

“It is unfortunate that the Minister didn’t take the opportunity to further enhance the tax environment for owners of SMEs in Ireland which the Minister acknowledges provide ‘most of our employment’. We had hoped that the opportunity to deliver on the commitment in the Programme for Government to enhance the capital gains tax relief for entrepreneurs would be taken.”
Tim Lynch, - Partner, KPMG in Ireland

Property and construction

“The Minister has very wisely not interfered in the stamp duty treatment of Private Rental Sector projects such as large scale apartment and student accommodation developments. Rumours over the last few weeks of increases here would certainly have led to slowdown in the delivery of these vital projects and would inevitably have increased end users costs of occupation. I have little doubt that projects will advance in 2019 now that this uncertainty is resolved.”
Jim Clery - Head of Real Estate at KPMG in Ireland

Jim Clery, Head of Real Estate at KPMG in Ireland

Jim Clery, Head of Real Estate at KPMG in Ireland

Tourism and Hospitality

"The minister confirmed that the VAT rate applicable to services in the tourism and hospitality sectors will increase from 9pc to 13.5pc with effect from January 1, 2019.

"The 9pc VAT rate will, however, continue to apply to sales of printed newspapers and the provision of sporting facilities. The minister also announced that the 9pc rate will be extended to e-books and digitally supplied newspapers with effect from January 1, 2019 (these items are currently subject to VAT at 23pc)."

"The 9pc VAT rate was originally introduced as a stimulus measure in July 2011 as part of a Government jobs initiative for the tourism and hospitality sectors. A Department of Finance study into the measure, released in July 2018, concluded that the benefits of the 9pc rate for the tourism and hospitality sectors no longer outweighed the cost of VAT receipts foregone."
Terry O’Neill, Partner, KPMG in Ireland

"Consequently, from January 1, 2019, the 13.5pc VAT rate will apply to restaurant and catering services, hotel and similar accommodation, and admissions to cinemas, museums and other attractions. The changes will also impact on certain other supplies including supplies of live horses (other than for food or agricultural production) as well as hairdressing. Suppliers of these goods and services will need to consider the impact of the higher VAT rate on their pricing, and will need to update their systems and procedures to apply the correct VAT rate from January 1, 2019, onwards.

"In addition, as the VAT charged on hotels, restaurants and other entertainment is generally not deductible, business purchasers of these services will also suffer an increased cost. The reduction in the VAT rate from 23pc to 9pc for e-books and digitally supplied newspapers follows agreement reached in the EU Council earlier this month to allow reduced rates of VAT to apply to digital publications. Prior to this, EU VAT rules required all EU member states, including Ireland, to apply the standard rate of VAT (currently 23pc)."

Indirect Taxes

"The excise duty on a packet of 20 cigarettes will increase by 50c (including VAT) with a pro-rata increase on other tobacco products, and an increase in the minimum excise duty on all tobacco products.

"There are no increases in excise on alcohol, diesel or petrol, and motor tax rates also remain unchanged.

"The minister announced an increase in the rate of betting duty from 1pc to 2pc for bets placed by customers in the State. In addition, betting duty levied on commission earned by betting intermediaries and exchanges will increase from 15pc to 25pc. Both measures are to take effect from January 1, 2019.

While there was no increase in the excise rate on diesel, the minister announced the introduction of a 1pc Vehicle Registration Tax (VRT) surcharge on diesel engine passenger vehicles registered in the State from January 1, 2019. The VRT reliefs available for the purchase of conventional hybrid electric vehicles and plug-in hybrid electric vehicles are being extended to December 31, 2019. The relief for hybrid vehicles had been due to expire at the end of 2018."

"Reliefs in place for electric (non-hybrid) vehicles are scheduled to continue until the end of 2021. The reliefs are up to a maximum of €5,000 for electric vehicles with lower amounts for hybrid vehicles. There was no increase in the rate of Carbon Tax in the Budget. There had been speculation that the minister would raise carbon tax following the announcement during last year’s Budget that a review of carbon tax would be undertaken. While there was no increase, the minister announced his intention to set out a long-term trajectory for carbon tax increases out to 2030."
Glenn Reynolds, Partner, KPMG in Ireland

Glenn Reynolds, Partner, KPMG in Ireland

Glenn Reynolds, Partner, KPMG in Ireland

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