Food for thought

Budget 2020, Finance Act 2019 and the Agri-Food industry

Minister Donohoe presented his Budget 2020 to the Dail on 8th October 2019. It was a budget without precedent and one of the most challenging budgets for any government since Ireland’s most recent downturn in 2008. Minister Donohoe mentioned Brexit 41 times during his presentation to the Dail and the watching eyes of Ireland highlighting the significance which it has played in framing the budget for 2020. The uncertainty which it has created can be seen in a budget which has been prepared to ‘manage the risk of our nation’. The continued possibility of a No Deal Brexit means the government has allocated loans and grants which will be made available to the sectors most exposed including the Agriculture sector. The 2019 Finance Bill was published on 17th October 2019 which outlines the necessary legislative changes required to meet the objectives of the budget.

We have summarised below some of the major Agri-Food industry amendments and funding from Mr Donohoe’s 2020 Budget, along with where are we now from a Brexit perspective.

Budget 2020:

1. Tax Credits and thresholds

Earned Tax Credit: Increased to €1,500 from €1,350

Capital Acquisitions Group A Threshold: Increased to €335,000 from €320,000

2. Research and Development (R&D) tax credit

As noted in the most recent Food for Thought publication a more holistic and innovate approach to sustainable food can be achieved through greater collaboration with farming, R&D and food processing. Farmers will be required to be even more innovative in their approach. In light of this Minister Donohoe has made favourable amendments to the R&D tax credit for SME’s which highlights the Government’s commitment to support indigenous innovation.

Pre-Budget 2020, expenditure on qualifying activities in Ireland or within the European Economic Area was available as a 25% tax credit against a company’s corporation tax liability. Following the Budget, the R&D tax credit is to be increased to 30% for small and micro companies (i.e. less than 50 staff, turnover or balance sheet total less than or equal to €10m). This credit will also be available for pre-trading expenditure against VAT and payroll taxes which is a welcome change for business operating at initial development stage.

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Minister Donohoe has also increased the limit on spend to third level institutions available for inclusion as a tax credit. Previously this limit was restricted to 5% of the overall R&D. This limit has now been increased to 15% following Budget 2020. The limit will be the lower of 15% of the spend and €100,000, again supporting collaboration between industry and third level institutions.  

3. Farm restructuring

Farm restructuring relief, due to expire December 2019, is being extended to the end of 2022. A farmer will not be chargeable to Capital Gains Tax (CGT) where they dispose of land between 1 January 2013 and 31 December 2022 where the purpose of the sale is to restructure their farm to increase its efficiency. This occurs where a farmer disposes of land and acquires new land to bring their parcel of lands closer together. Teagasc must issue a ‘farm restructuring certificate’ to confirm the eligibility for this relief.

The extension of this relief further facilitates consolidation of Irish farm holdings without tax being a barrier, allowing farms to grow and scale effectively.  

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4. Stamp duty

Stamp duty on non-residential property i.e. agricultural land will be increased from 6% to 7.5%, effective 9 October 2019. The 6% rate will continue to apply to instruments executed before 1 January 2020, where a binding contract existed prior to 8 October 2019.  Minister for Agriculture, Food and the Marine, Michael Creed, confirmed after the Budget was presented that he understood the Young Trained Farmer Relief and Consanguinity Relief will continue to apply. Young Trained Farmer Relief is an exemption from stamp duty where a farmer under the age of 35 meets the qualifying conditions. Consanguinity Relief reduces the stamp duty rate i.e. 7.5% to 1% where the transfers of farmland are between certain blood relatives. The Finance Bill has not included any amendments to these reliefs.

5. Additional funding and Brexit measures

The continued uncertainty of the UK’s exit from the European Union means the 2020 Budget has been framed in a manner to ensure Ireland’s economy remains resilient following Brexit. Minister Donohue has increased the funding to the agriculture sector for the coming year while also ensuring additional funding will be available in the event of a No Deal Brexit. Minister Donohoe described agriculture and rural development as the cornerstone of our economy. He understands the emphasis on the UK market for Ireland’s Agri-Food produce and with that in mind has announced the following:

  • An additional €110 million will be made available for various sectors through the Department of Agriculture in the event of a No Deal Brexit. This will be borrowed money by the Government and will only be made available in the event of a No Deal.
  • An additional €51 million is being available to the Department of Agriculture, Food and Marine highlighting the government’s commitment to the industry.
  • An additional €3 million is being allocated to pilot new agri-environmental schemes in 2020. These schemes will help to reduce emissions from the sector, while improving bio-diversity and water quality, and supporting farm incomes. Thus funding is much needed as the sector places renewed focus on its sustainability goals.

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Brexit

In many recent publications and updates we have discussed the potential tariffs, impacts and how businesses should prepare for Brexit. This was based the UK leaving the EU by the previously extended deadline to 31 October 2019. Almost six months later and the only certainty is that the deadline has been extended to 31 January 2020. A recent Central Bank publication warned of the potential negative impacts which Brexit could have on the Agri-Food sector and how it remains the sector most exposed to the consequences of Brexit. The imposition of tariffs could make Agri-food trade uneconomic for Irish exporters. However, the UK remains only 60% self-sufficient in the production of food. The remaining 40% is met through imports. This deficiency remains a strong bargaining tool for Ireland.

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At the Navigating Global Trade Conference organised by the Irish Farmers Journal and Grant Thornton, newly appointed EU Trade Commissioner, Phil Hogan, warned of the dangers of granting an extended period for negotiation for the UK and how strict timelines needed to be adhered to so as to remove the uncertainty that Brexit is causing for the Agri-Food sector. He also emphasised the EU’s commitment to Ireland as a member state and that there will be EU supports available in the event of a hard Brexit. He has continued to reiterate this point in the intervening period. Commissioner Hogan has warned that the greatest consequences of a hard Brexit will be felt by the UK.

One potential opportunity for the UK is through gene editing. This has been discussed in the Irish Farmers Journals most recent podcast. EU members are currently prohibited from gene editing. Gene editing involves making allowances for changes to a plant or animal to reach a desired product which would otherwise not be achievable through natural methods. As a member of the EU, Britain is currently restricted from the use of gene editing. Britain’s Department of Environment, Food and Rural Affairs has stated that this is an opportunity which would be considered in the future.

From an Irish perspective preparation of a potential No Deal Brexit remains key. The EU remains committed to its member states and ensuring they continue to have a market for their goods and achieving a fair price. However, Irish businesses still need to be prepared for Britain crashing out of the EU on 31 January with no deal in place. There are five steps which businesses can take to ensure they are prepared for such a situation.

  1. Application for an Economic Operator Registration and Identification (EORI) number. This number will be a requirement for imports and exports after Brexit.
  2. Apply to HMRC to use transitional simplified procedures when importing into the UK. This will allow businesses to defer payment of customs duty and submissions of import declarations.
  3. Consider customs processes and how you will submit customs declarations.
  4. Determine your commodity code and the tariffs payable on your imports and exports.
  5. Consider whether customs reliefs or special procedures are available to help your business when Brexit eventually happens.

For further information, contact:

Conor Phelan - Conor.Phelan@ie.gt.com