July Stimulus Tax Measures

The government’s “July Jobs Stimulus” is a €7.4 billion package of measures aimed at supporting the Irish economy in response to the impacts of COVID-19. The package contains a suite of tax measures to the value of €1.4 billion, the balance going to expenditure, grants and credit supports. The Financial Provisions (Covid-19) (No.2) Bill 2020 (“the Bill”) provides the proposed legislation for the tax measures.

Managing tax debt

As we expected, the Bill contains the legislation providing for the Debt Warehouse arrangements announced in May 2020 and currently in operation by Revenue on an administrative basis. The provisions permit the “ware-housing” of VAT and PAYE (Employer) taxes deferred for the period the business was and is unable to trade, or was and is trading at a significantly reduced level, due to the COVID-19 related restrictions.  The period includes two months after the business re-commences trading. Essentially such taxes can be parked, with no interest accruing, until economic conditions improve. Terms and conditions must be satisfied.

A separate measure provides for a reduction in the interest rate applying to agreed late payments of all tax debt. Taxpayers that have declared but unpaid tax debts can avail of a reduced interest rate of 3% (down from 8% or 10%) provided they enter into a payment agreement with Revenue by 30 September 2020.

Employer support

A new Employment Wage Subsidy Scheme (EWSS) will replace the Temporary Wage Subsidy Scheme (TWSS) with new conditions and rules. It will be open to employers operating in all sectors of the Irish economy subject to meeting certain qualifying conditions.  

• The Temporary Wage Subsidy Scheme (TWSS) and the EWSS will run in parallel until 31 August 2020 to allow certain categories of workers previously excluded, for example seasonal workers and new hires, to benefit from the EWSS.  
• The EWSS is due to expire on 31 March 2021, the Bill provides for a later date than 31 March 2021 if specified by the Minister for Finance.

 To hear more on the latest updates to the TWSS and EWSS register for our webinar on Friday 7 August at 3pm.

Measures for individuals

The help-to-buy scheme is enhanced now until 31 December 2020. The amount of relief an individual can claim is to be increased to the lesser of €30,000 (up from 20.000) or 10% (up from 5%) of the purchased price of a new home / self- build property.  

The “Stay and Spend” incentive will give Irish “staycationers” a 20% income tax credit on spending of €25 or more on accommodation, food and non-alcoholic drinks up to a maximum of €625.  This means that individuals can claim back a maximum of €125 by way of a tax credit. This measure will apply from October 2020 until April 2021.

Accelerated loss relief for self-employed individuals is a new once-off relief which will allow sole traders and / or members of a partnership to boost their cash-flow by early utilisation of 2020 losses (and certain unused capital allowances) against 2019 profits, up to a maximum of €25,000.

The ‘Cycle to Work Scheme’ is enhanced in respect of regular bikes to €1,250 and “ebikes” to €1,500, with claims now possible every four years. 

Accelerated Loss Relief for Companies

A welcome interim rebate of corporation tax will mean that companies may make loss relief claims in respect of 50% of their estimated trading losses during the COVID crisis hit 2020 accounting period against their prior year profitable results. Such claims can be made during 2020, thereby accelerating the tax refunds arising from the current loss making periods by up to 12 months. Companies will need to work with their tax advisors to estimate their 2020 trading losses now and make these refund claims forthwith for maximum cash flow benefits. 

VAT rate reduction

The standard rate of VAT is to reduce to 21 % from 1 September 2020 until 28 February 2021. It is hoped that this temporary measure will improve cash-flow for businesses operating in the wider economy and stimulate consumer demand. Businesses should configure their systems to ensure the 21% rate is applied with effect from 1 September. Businesses which don’t have full VAT recovery may consider deferring significant expenditure.

Businesses operating in the tourism and hospitality sectors will be disappointed that the 13.5% VAT rate has not been reduced. In the UK, the VAT rate for these sectors has been lowered to 5%. Instead the government has opted for the stay and spend tax credit to encourage demand among consumers to support these businesses.

There are several administrative issues arising from this VAT rate change to consider.

Nothing for capital taxes

Despite rumours of a reduction in the capital gains tax rate from 33% to 20%, there are no changes to capital taxes. A reduction in stamp duty on non-residential property, now 7.5%, would have been a welcomed measure to promote commercial investment, which will inevitably see stilted activity in the immediate future. 

The next step in the government’s efforts to support the recovery of the Irish economy will be the National Economic Plan, due to be published with Budget 2021.