Budget 2022 was delivered on 12 October, with Finance Bill 2021 published the following week, on 21 October 2021. Here are the highlights.
DWS
The debt warehousing scheme (DWS) has been expanded to allow self-assessed income taxpayers with a ‘material interest’ in their employer company to warehouse tax liabilities relating to their schedule E income from that company if it has warehoused the PAYE.
Interest will not apply to both the company and the employee/director on the same tax debt. Although interest, where applicable, will be collected from the employer only, if the employer does not pay the tax liabilities and related interest, then the individual will be liable for the interest on amounts unpaid.
Paragraph 9.4 of Revenue’s ROS manual includes a screenshot of the declaration to make on the form 11 income tax return to warehouse the schedule E liability.
EWSS
The employment wage subsidy scheme (EWSS) will remain in place in a graduated form until 30 April 2022 with the subsidy rates unchanged for October and November 2021. However, a two-rate structure will apply to payments made from December to the end of February 2022. A rate of €151.50 per week will apply where the qualifying employee’s gross pay is at least €151.50 but not more than €202.99 per week. A rate of €203 per week will apply where the weekly gross pay is at least €203 but does not exceed €1,462 per week. For March and April 2022, a flat-rate subsidy of €100 will apply.
The current reduced rate of employers’ pay-related social insurance (PRSI) of 0.5% will cease on 28 February 2022, with the full rate applying for the final two months of the scheme.
Eligibility criteria remain unchanged: the business must have experienced at least a 30% reduction in turnover/customer orders in 2021 compared with 2019, due to Covid-19. The EWSS will close to new employer claimants from 1 January 2022.
On 21 October, Revenue deregistered those employers that had not submitted claims for EWSS payments since the end of June, on the assumption they were no longer eligible. Should a business’s circumstances deteriorate to the point that they meet the eligibility criteria again, they can reregister for EWSS.
Startups
The Finance Bill broadens the ability to claim income tax relief for investment in startup companies under the employment investment incentive (EII), startup relief for entrepreneurs (SURE) and startup capital incentive (SCI) schemes.
Institutional investors will be able to access the EII through a wider range of investment funds in future, notably investment limited partnerships and limited partnerships, rather than just designated investment funds.
The EII ‘capital redemption window’ rules will also be relaxed. Investors with a number of investments in a company over multiple years may redeem an investment for a year without triggering a clawback of EII relief.
The schemes have been extended for a further three years, up to 31 December 2024.
Startup relief has been extended until 31 December 2026 for companies which commence a new trade between 1 January 2022 and 31 December 2026 and have tax liabilities below that outlined in section 486C of the Taxes Consolidation Act 1997. Relief claimed by companies that commenced a new trade on or after 1 January 2018 is extended from three to five years in recognition of difficulties they may have experienced from its being linked to employer PRSI payments (which were reduced for those using employment-related Covid support schemes).
Current tax reliefs aimed at scaling businesses, such as the EII, will feature in a consultation on the medium- to long-term structure of the Irish tax and social welfare system. The feedback period closes 7 January 2022.
Corporation tax
The Finance Bill completes the transposition of the EU anti-tax avoidance directive into Irish law. The directive’s interest limitation rule will apply for accounting periods commencing on or after 1 January 2022, imposing a tax deduction ceiling for net borrowing costs of 30% of EBITDA for corporate taxpayers with limited exemptions.
Technical amendments have been made to the current anti-hybrid rules, and ‘anti-reverse hybrid’ rules have been introduced for tax periods commencing on or after 1 January 2022.
Transfer pricing has been amended to more clearly provide for the exclusion from its scope of bona-fide non-trading ‘Ireland to Ireland’ transactions.
The authorised OECD approach can be applied to the attribution of profits to branches of non-resident companies in Ireland for accounting periods commencing on or after 1 January 2022. However, the ability of SMEs to apply this approach is subject to a ministerial commencement order.
Tax for non-resident corporate landlords has been increased from the 20% standard rate of income tax to the 25% rate of corporation tax, equalising the position with Irish-resident companies. Chargeable gains arising for such companies will still be liable to an effective rate of 33%.
The bill also provides for the transposition of new EU tax transparency rules for digital platform operators.
Digital gaming
Projects in the digital gaming sector can now claim a refundable corporation tax credit of 32% of eligible expenditure with a maximum spend cap of €25m per project. It will be available up to 31 December 2025. As EU state aid approval is required, the credit is subject to a commencement order.
Capital taxes
Under capital acquisitions tax legislation, a charge is currently applied where a gift or inheritance comprises the free use of property. But the calculation of the value of the benefit of the free use of money is now to be determined by reference to the best price obtainable for borrowing the equivalent amount on the open market, rather than the opportunity cost (eg the deposit interest rate). It is hoped that Revenue guidance will address some of the practical questions about how to identify the correct rate to apply, as the borrowing rate can reflect an individual’s personal circumstances, and the term of a loan, etc.
Capital gains tax for certain domestic mergers has been aligned with that for crossborder mergers under the mergers directive.
VAT
Revenue must be notified of certain changes to a VAT group, otherwise penalties will apply. The VAT group remitter must notify Revenue within 30 days if the conditions for VAT grouping are no longer met.
There is also a change to the treatment of cancellation deposits. Cancellation fees will now be subject to VAT on the basis that they constitute a payment for a service or a right to access a service.
Environmental taxes
In his Budget speech, the minister referred to climate change as ‘one of the most important issues of our time’. New measures include changes to vehicle registration tax to reduce emissions from road transport. Equipment directly operated by fossil fuels will no longer qualify for certain accelerated capital allowances. Accelerated allowances for vehicles powered by natural gas/biogas and related refuelling equipment will be extended to 31 December 2024 and will include hydrogen-fuelled vehicles.
A new tax disregard of €200 is being introduced for income received by households from the sale to the grid of residual electricity generated from renewable, sustainable or alternative sources. This will apply for the tax years 2022 to 2024 inclusive.
Other measures
The bill made some amendments to tax appeals, mainly to alter the time frame for preparing and signing a case stated for the High Court.
Administrative provisions in the Revenue audit code that allow for the non-application of penalties in certain circumstances are being reflected in legislation. Certain restrictions on penalty mitigation for disclosures to Revenue of tax defaults involving ‘offshore matters’ (ie non-Irish income or gains) are being removed.
There is an increase in the threshold for publication of settlements in underpaid tax from €35,000 (inclusive of tax, interest and penalties) to €50,000. Additional details on a tax defaulter’s identity can also be published by Revenue, including, for example, an alternative name.
A new zoned land tax is being introduced to encourage the use of land for building homes. It will be levied at a rate of 3% based on the market value of the land at the valuation date. There will be a two-year lead-in time for land zoned before 1 January 2022, and a three-year lead in time for land zoned after 1 January 2022. Technical amendments clarify the recent 10% stamp duty charge on the bulk purchase of houses and duplexes.
Disclaimer
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