Coronacrisis
Large parts of the economy are in intensive care due to government social distancing rules. New stimulus measures are centred on life support through to 2021
Reducing the subsidy element will push up outgoings for employers to maintain staff pay at pre-pandemic levels. However, for qualifying firms it remains attractive, and the government expects the scheme to support c.350,000 jobs through the autumn.
Pandemic Unemployment Payment
The Pandemic Unemployment Payment (PUP) of €350 a week, introduced in March, has kept the wolf from the door for self-employed individuals whose trade relies on a functioning social economy. It was due to end in August and has been extended to 1 April 2021, though the rate will be tapered in the coming months.
The first cut comes from September 17, when the rate reduces to €300 for people who previously earned over €300 per week, and to €250 for people who previously earned between €200 and €300 per week.
From 1 February 2021, there will be further cuts, with the €300 rate reducing to €250, and the €250 rate reducing to €203.
The PUP benefits a lot more people than the selfemployed. In mid-July c.300,000 people were receiving the payment, one quarter of them on the new minimum €203 weekly rate that applies to workers with previous earning of under €200 a week. Spending on PUP from mid March to end May was c.€1.7 billion, and extending it in revised form out to next March will cost the state c.€900m, according to government estimates. The autumn reduction from the top rate €350 PUP payment to €300 will be keenly felt by individuals whose business is still whacked by two-metre social distancing strictures.
Commercial Rates Waiver
This measure is one of the main surprises in the Stimulus Plan. Ministers had previously signalled that a threemonth local authority rates waiver was on the cards for firms directly impacted by the lockdown, such as shops, bars, restaurants etc. In the Stimulus Plan the government announced that, with not-yet-clarified limited exceptions, all businesses will be granted a waiver of commercial rates for the April to September 2020 period.
While the waiver is not a cash grant, the estimated saving for business rate payers is sizeable at €600m. This support is of no use to the man-with-a van, but for civil servants it has the merit of being simple to implement and monitor.
Restart Grant
The Restart Grant allows for a cash payment from local authorities to rate payers equivalent to the rates bill of the business in 2019, subject to the minimum and maximum payments of €2,000 and €10,000. There have been c.43,000 applications for the grant and €128m has been paid out to date.
The Restart Grant is limited to companies with turnover under €5m. The Stimulus Plan announced that the grant is being extended to a broader base of SMEs, without explaining what this entails. One clue is that the payment level is being increased to €25,000. Further payments may be available to firms that have already received a grant, the government stated, again without clarification. Some businesses not previously included in the scheme such as B&Bs will now be eligible.
VAT
The other big surprise in the Stimulus Plan is the sixmonth reduction in the standard rate of VAT from 23% to 21%, effective from the beginning of September 2020. Tourism and hospitality lobby groups had been pleading for action on their 13.5% VAT rate, demanding cuts to 5.0% or zero. They have been ignored, not least because Department of Finance mandarins fret about their last tussle with the sector a couple of years ago when the rate was raised from 9.0%. Instead there is the two point cut to the top rate, which reduces the cost to the consumer of, among other things, alcohol, jewellery, fuel, office equipment, furniture, bottled water, TV sets, washing machines, fridges and pet food. Government revenues will take a €440m hit from this measure, according to estimates. Go figure.
Adrian Cummins, CEO of the Restaurants Association of Ireland, commented: “By not decreasing the tourism and hospitality VAT rate in line with our EU counterparts and closest neighbour, the July Jobs Stimulus has put a nail in the coffin for border restaurants and accommodation providers competing with the new 5% hospitality VAT rate pertaining in Northern Ireland.”
Stay and Spend Incentive
The mechanics of the main novelty in the Stimulus Plan are still being worked out, and this one may persuade oldies to exit their cocoon. The promise is that any taxpayer spending over €625 on accommodation, food and non-alcoholic drinks between October 2020 and April 2021 will be able to claim back €125 through a tax credit.
The intention is to provide a fillip to hospitality enterprises in the off-season, and may tempt more hotels than usual to open up over Christmas. However, the reaction from hoteliers was muted. “We have serious doubts about how effective the incentive will be in stimulating consumer demand. It seems overly cumbersome and convoluted,” declared Elaina Fitzgerald Kane, president of the irish Hotels Federation.
Taxation Concessions
When it comes to taxation, the devil is very much in the detail, and there was very little of that in Stimulus Plan documents. It was announced that to provide immediate cashflow support to previously profitable companies, the early carry-back of trading losses will be allowed, leading to an immediate refund of some or all of corporation tax previously paid. Hopefully detail will also be forthcoming
soon on a new income tax relief for self-employed individuals who were profitable in 2019 and incur losses in 2020 as a result of the Covid pandemic.
The government also confirmed that it will legislate for the warehousing of tax liabilities. This will allow for businesses affected by Covid to delay payment of their PAYE and VAT debts in part of in full for a set period, with no interest or penalties, though the debt will have to be paid back some day. It was clarified that the interest rate applying to repayments of all tax debt, agreed prior to 30 September 2020, will be reduced to 3%.
Loan Schemes
The new coalition government prioritised legislating for the Covid-19 Credit Guarantee Scheme, which will shortly become law. The effect of the legislation is a state guarantee to the lender for 80% of the value of loans and other credit products. The scheme covers credit from €10,000 to €1m, up to a maximum term of six years, and the hope is that with the guarantee backstop banks will loosen their purse strings.
If loans go wrong, credit providers are still on the hook for 20% of the credit advanced. The CGS is intended to cover total credit advances to a maximum of €2bn, though things can change. So borrowers shouldn’t dally too long before taking the plunge.
The Stimulus Plan also signalled that additional resources will be allocated to Microfinance Ireland, the micro business and sole trader lender, and that 0% interest on the first year will apply to CGS/SBCI and MFI loans. In addition, the Future Growth Loan Scheme, operated by SBCI, is being expanded from a pot of €200m to €500m, with capital being sourced from the European Investment Bank Group.
Other Measures
Green Enterprise Fund €10m will be provided to support businesses engaging in green research, development and innovation, capital investment, and capacity building, most likely through Enterprise Ireland.
Online Retail Scheme Further capital resources have been pledged for grant-aids to high street retailers to develop their online presence. More funding has also been promised for the popular Online Trading Voucher Scheme, after many LEOs stopped processing applications.
Brexit Fund The government says there will be €20m available to SMEs involved in trading with the UK to put in place the staff, software and IT systems to be ready for new customs arrangements from January 2021. Details have yet to be announced.
Cycle to Work One to keep the Greens happy. The allowable expenditure under the Cycle to Work scheme will be increased from €1,000 to €1,500 in respect of electric bikes and to €1,250 in respect of other bikes.