Propping Up Business With Tax Cuts And Supports
The headline tax measure in Budget 2021 is the cut in the VAT rate for hospitality and tourism. John Kinsella reports on the other details in Finance Bill 2020
COVID RESTRICTIONS SUPPORT SCHEME
Budget 2021 made provision for the Covid Restrictions Support Scheme, which applies from 13 October 2020 until 31 March 2021 and will operate on a self-assessment basis. The scheme applies to sectors that are impacted by Level 3 or higher Covid restrictions, and in particular the accommodation, food, arts, recreation and entertainment sectors. In order to qualify for the scheme:
Customer access to the business premises must be directly prohibited or restricted.
The business’s turnover must be no more than 25% of an amount equal to the average weekly turnover of the business in 2019 (or average weekly turnover in 2020 in the case of a new business) multiplied by the number of weeks in the period for which a claim is made.
The scheme is available to affected self-employed individuals, companies and persons who carry on a trade in partnership. Qualifying taxpayers can make a claim for an amount equal to 10% of their average weekly turnover in 2019 up to €20,000, and 5% thereafter, subject to a maximum weekly payment of €5,000, for each week that their business is affected by restrictions. The scheme is operated by Revenue who disburse cash payments, described as an advance credit for trading expenses deductible for income and/or corporation tax purposes.
Accountants PwC commented: “Although the payment is not to be treated as taxable income, the mechanics of the CRSS are such that it is effectively taxable in most instances. For tax purposes any trade-related expenditure that would otherwise be allowable is reduced by the amount of the advance credit for trading expenses received. To illustrate, a business that has €8,000 in allowable expenses and receives a €5,000 CRSS payment will end up having net tax allowable expenses of €3,000. A similar business that had tax allowable expenses of only €4,000 would have its tax allowable expenses reduced to zero but should not be taxed on the excess of €1,000.”
llDEBT WAREHOUSING SCHEME
In his Budget 2021 statement, finance minister Paschal Donohoe confirmed that Temporary Wage Subsidy Scheme subsidy repayments due by employers for overpaid subsidies can be included in the tax debt warehousing scheme. The scheme allows businesses to ‘park’ PAYE (employer) and VAT tax debts arising from the Covid crisis. Currently, almost 70,000 businesses are availing of the scheme to the value of €2.1bn.
Access is automatic for SMEs and on request for larger businesses. It is a requirement that the business continue
Fianna Fail public spending minister Michael McGrath (left) delivered a €300m commercial rates surprise
to file all relevant tax returns for the restricted trading period. Tax debt warehousing has also been extended to self-employed individuals, covering the balance of any income tax payable for 2019 and the preliminary income tax liability for 2020. Both of these liabilities would normally be payable through ROS by December 10.
This will allow the self-employed to defer the payment of these liabilities for a period of one year with no interest applying, with a 3% rate applying thereafter. To avail of this measure, the taxpayer’s income for 2020 needs to be at least 25% lower than their income for 2019 as a result of Covid restrictions. The Finance Bill also caters for individuals who were not self-assessed in 2019.
WAGE SUBSIDIES
The Employment Wage Subsidy Scheme is currently set to continue until 31 March 2021. Finance minister Paschal Donohoe stated that a similar type of scheme will be needed “out to the end of 2021” to provide businesses with greater levels of certainty. With the introduction of Level 5 nationwide restrictions on October 22, EWSS wage subsidy rates were revised upwards to a weekly maximum of €350 from the previous €203 maximum. This applies for pay dates on or after 20 October 2020 until 31 January 2021, after which presumably the subsidy rate will revert to €203 per week.
The VAT rate applicable to certain goods and services decreased from 13.5% to 9% with effect from 1 November 2020 until 31 December 2021. The reduced VAT rate applies to supplies of certain food and beverages in the restaurant, take-away and catering sectors; admissions to cinemas, museums and exhibitions; hotel, guesthouse and other holiday or short-term accommodation; hairdressing services; and supplies of certain printed matter.
The 9% VAT rate will continue to apply to the sale of printed newspapers, digital supplies of e-books and epublications, and the provision of sporting facilities by profit-making bodies. Supplies of other goods and services which are subject to the 13.5% VAT rate are not affected by this change. The standard VAT rate reduced from 23% to 21% on September 1 and reverts to 23% after 28 February 2021.
UNIVERSAL SOCIAL CHARGE
USC bands have been adjusted slightly, with the ceiling at which the 2% rate applies increasing to €20,687 from €20,484. This is to cater for the increase in the minimum wage to €10.20 per hour from 1 January 2021. The reduced rate of USC for medical card holders who earn less than €60,000 per annum was due to finish at the end of 2020, but has once again been extended by a further year to the end of 2021.
The earned income credit was introduced from 2016 to address the difference in taxes payable by employees and self-employed individuals. The credit for 2021 will increase by €150 to €1,650, thereby finally equalising the credit with the PAYE tax credit available to employees.
RATES WAIVER
Michael McGrath, Minister for Public Expenditure and Reform, said he is providing €500m in additional expenditure measures to support businesses and communities. “I am announcing a further commercial rates waiver for the final quarter of this year at a cost of €300m. This will provide significant relief for businesses and brings to €900m the total amount of local authority rates waived in 2020,” he stated.
REMOTE WORKING
Finance Bill 2020 does not contain additional reliefs to support the significant number of people who are now working remotely. According to PwC, Revenue has updated the Tax and Duty Manual Part 05-02-13 in relation to eworking and tax. The key changes and clarifications include:
Where an expense is shared the cost can be apportioned based on the amount paid by each individual.
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