A week after the announcement of Budget 2021, we hear from Daniel O’Beirne of PwC about the impact of Covid-19 on tax.
This year’s Budget announcement was highly anticipated as workers and businesses across Ireland adjust to the economic impacts of Covid-19. During the proceedings on 13 October, Minister for Finance Paschal Donohoe, TD, revealed details of a €3.4bn recovery fund to stimulate domestic demand and employment.
Career prospects for young people have been disproportionately affected, Donohoe said, and the recovery fund will aim to address this and wider unemployment by targeting infrastructure, upskilling and retraining, and supporting investment and jobs.
But one of the biggest concerns for businesses and employees around the country has been the impacts of the pandemic on taxes. To learn more about the current situation, we spoke to tax manager at PwC’s entrepreneurial and private business practice, Daniel O’Beirne.
Covid-19 impacts on tax
According to O’Beirne, Ireland has had high numbers of employees working from home during Covid-19 restrictions. “While this has helped certain jobs remain viable, it has also resulted in employees facing additional costs such as utilities, broadband and home-office set-up costs,” he said. “Employees were understandably hopeful that some additional tax reliefs would be announced in Budget 2021.
“Unfortunately for employees working from home, no new supports for e-working were announced. The minister did, however, refer to an inter-departmental group that has been set up to develop a remote working strategy. The minister also reiterated that employers can pay employees €3.20 per day without a benefit-in-kind charge.
“Alternatively, employees can claim a tax deduction for utility expenses such as light and heat, and broadband costs, with further details to be released in Revenue guidance. Tax deductions can also be claimed for other expenses provided they are properly vouched and are ‘wholly, exclusively and necessarily’ related to the performance of their duties.
“For employers, no specific tax breaks were announced for the cost of suddenly transitioning to a remote working setting as a result of Covid-19.”
Employee tax implications
While there were no meaningful changes announced for the rates or bands of income tax, USC or PRSI in the Budget, some small amendments will be made to make sure that employees working full-time for minimum wage are not negatively impacted. These amendments will be made to USC bands and employers’ PRSI thresholds.
“While this means that the majority of people will broadly be no better or worse off, their ‘real’ income might be lower after inflation is factored in,” O’Beirne said.
According to William Fry, the Earned Income Tax Credit will be equalised with the PAYE credit, increasing from €1,500 to €1,650. This will also be applied for the 2020 tax year. The Dependent Relative Tax Credit will also increase from €70 to €245.
Additionally, annual salaries below €13,000 will be kept exempt from USC and the reduced rate for people with medical cards will be extended for another year.
Until now, entrepreneurs in receipt of capital gains tax relief had to own a minimum of 5pc shareholding for a continuous period of three years in the five years immediately before the disposal of chargeable business assets. It was announced in Budget 2021 that individuals who have owned 5pc shareholding for a continuous period of any three years will now qualify for the relief.
The second USC rate band’s ceiling will increase from €20,484 to €20,687 to ensure that full-time workers on minimum wage will remain outside the top rates of USC. As a result, USC rates and bands from 1 January 2021 will be:
- 0.5pc for €0 to €12,012
- 2pc for €12,012 to €20,687
- 4.5pc for €20,687 to €70,044
- 8pc for €70,044 or more
- 3pc surcharge for self-employed incomes higher than €100,000
Claiming tax relief during Covid-19
O’Beirne advised workers who have been forced to work from home as a result of the pandemic to speak to their employer about their tax-break options. If the working-from-home cover of €3.20 per day is feasible, employers can process this through payroll.
Where the cover isn’t possible, he said, workers can instead claim tax deductions for a portion of their utility – heating and lighting – costs and “properly vouched expenses”. To do this, you’ll need to register for the Revenue Online Service and file an income tax return online.
“A big feature of this year’s Budget was the thousands of people who are currently on the Employment Wage Subsidy Scheme (EWSS). The Government reacted very quickly at the start of the pandemic to try to protect jobs and support wages, and Budget 2021 continued this momentum,” O’Beirne added.
“It was good to see the Government confirm there would be no ‘cliff edge’ to the EWSS on 31 March 2021, and that a similar support would be made available until the end of 2021. This will be an important measure to support employment over the next 12 months.”