The key employment and individual tax measures introduced in Finance Bill 2021 are as follows:
- Finance Bill 2021 includes legislation to enact Budget day announcements including changes to income tax and USC bands, the Personal, PAYE and Earned Income Credits.
- As announced on Budget Day, the Help to Buy Scheme in its current enhanced format has been extended to the end of 2022. A new zoned land tax has also been introduced which it is hoped will generate increased housing supply over the coming years.
- In a measure that was not announced on Budget Day, the Bill has put the Revenue concession in relation to the BIK exemption for employer-provided Covid-19 tests and flu vaccines on a statutory footing.
- The Bill puts the availability of a 30% deduction from income tax for heat, electricity and broadband costs for employees working from home on a legislative footing.
- Finance Bill 2021 includes the changes announced on Budget day in relation to the extension of the Employment Wage Subsidy Scheme to 30 April 2022 and the changes to the subsidies that will apply from December 2021 onwards.
- The tax debt warehousing scheme has been expanded to allow self-assessed income taxpayers with employment income, who have a material interest in their employer company, to warehouse income tax liabilities relating to their Schedule E income from that employer company.
Analysis of the key measures
Personal tax thresholds, exemptions and credits
Finance Bill 2021 is focused on easing the cost of living and is released against a backdrop of increased inflation and a winter of rising energy prices.
The Bill includes the increase of €1,500 to the Standard Rate Cut Off Point announced in Budget 2022, and also the change to the 2nd USC rate band to reflect the increase to the minimum wage. The Personal, PAYE, and Earned Income Credit for the self-employed all increased to €1,700. For higher rate taxpayers, this will result in an annual reduction in income tax and USC of €412 in 2022.
The Help to Buy scheme in its current enhanced format has also been extended to the end of 2022. Under the enhanced relief individuals can claim the lower of 10% of purchase price or €30,000.
The recent Pensions Commission report and the Tax Strategy Papers 2021 both recommended PRSI increases to help fund the deficit in Ireland’s Social Insurance Fund (SIF). We keenly await the report from the Cabinet Committee on Economic Recovery and Investment which is due to bring a recommended response and implementation plan to Government by the end of March 2022.
Remote working
Employees will welcome the increase in the deduction from income tax from 10% to 30% available in relation to light and heat costs which can be claimed for days working from home, and the fact that these tax deductions will now be set out in legislation. This will result in an extra €48 for a higher rate taxpayer who works from home for c.100 days per year and has a heat and electricity costs of €2,250 per annum.
Unfortunately, there is no change in the process for claiming the deduction which is quite burdensome. There is also no provision to allow workers to claim a tax deduction for expenditure on equipment used for remote work purposes.
A wider review of the tax treatment of travel and subsistence reimbursements to employees and how these should apply to hybrid working arrangements would be welcome.
COVID-19 measures
Finance Bill 2021 confirms the extension of the Employment Wage Subsidy Scheme to 30 April 2022.
- There is no change to the eligibility criteria for the scheme which continues to be a 30% reduction in turnover or customer orders in the period from 1 January to 31 December 2021 compared to 1 January to 31 December 2019.
- There is no change to the subsidy rates for October and November 2021.
- For December 2021 to February 2022, a two-rate structure of €151.50 and €203 will apply
- A flat rate subsidy will apply in March and April 2022 and the reduced employer PRSI rate will no longer be available in this period.
- The scheme will close to new entrants from 1 January 2022.
The Bill also includes a provision to permit self-assessed individuals who have a “material interest” in their employer company to participate in the Tax Debt Warehousing Scheme in respect of income tax liabilities relating to their Schedule E income from that employer. This is an important amendment as otherwise these individuals, who have paid PAYE on their employment income, could have a income tax liability solely arising from the fact that their employer has availed of the Tax Debt Warehousing Scheme.
Other measures
Finance Bill 2021 introduces an exemption from a BIK charged in respect of employer provided Covid-19 tests where the test is necessary for the performance of the duties of employment. It also introduces an exemption for employer provided flu vaccines, where the vaccines are made available to all employees. While this BIK exemption was previously available by way of Revenue concession, we welcome the introduction of the exemption into legislation.
We are here to help you
Finance Bill 2021 comes at a time when the business community is focused on restoring workforces, attracting and retaining talent and upskilling for the future. We are ready to help you as you plan for the long term.
