The unveiling of the first Budget

Thomas Sheerin, Tax Director at KPMG in Ireland, outlines some of the elements affecting SMEs.

 1. Earned Income Tax Credit for Self-employed and USC Changes

In last year’s Budget, the Minister introduced an Earned Income Tax Credit of €550 for small business owners who cannot benefit from the PAYE tax credit of €1,650 available to employees. The Minister announced an increase in this credit to €950 for 2017.

The three lower USC rates have been reduced by 0.5%. Accordingly, all income earners will have a lower tax burden to varying degrees. The ceiling at which the 2.5% USC rate applies is increased to €18,772 – this ensures that a full-time worker on the minimum wage will remain outside the top rates of USC.

 

2. Minimum Wage

The higher cost to employers arising from the increase in the hourly minimum wage from €9.15 to €9.25 will take effect from 1st January 2017.

 

3. Entrepreneur relief

The standard rate of capital gains tax remains at 33%. However, the Minister announced a reduction to 10% in the capital gains tax rate that applies to disposals by Entrepreneurs of qualifying assets. Entrepreneur relief offers the reduced rate of capital gains tax on the disposal by an individual of business assets up to a lifetime limit of chargeable gains of €1 million. The Minister is to review this lifetime limit in future budgets.

To qualify for the relief, the business assets which include shares in a company must have been owned by the individual for a continuous period of at least three years in the five years immediately prior to the date of disposal.

 

4. Share-based remuneration

Following a public consultation and review of share-based remuneration earlier this year, the Minister announced the intention to develop a new, SME, focussed share-based incentive scheme which is to be introduced in next year’s Budget.

 

5. Retailers and Tourism

The reduced 9% VAT rate for tourism and related activities will continue to apply.  The Minister noted that the reduced rate will act as a buffer for the sector against the weakness in sterling which increases the cost of holidaying in Ireland for British tourists.