Mary Healy, senior representations manager, and Lorraine Sheegar, tax manager, Irish Tax Institute

Budget 2023

September’s Budget included a number of measures focused on supporting SMEs:

  • Improving the Key Employee Engagement Programme (KEEP)
    The tax-efficient share option scheme is intended to help SMEs attract and retain talent. It is being extended to 31 December 2025 and the lifetime company limit for KEEP shares will increase from €3m to €6m. Finance Act 2019 amendments, designed to introduce greater flexibility regarding group structures and qualifying employees, are also being brought into effect. The scheme will also be amended to provide for the buy-back of KEEP shares by the company, which should help to create liquidity.
  • Increase to the Small Benefits Exemption
    The annual limit to the non-cash benefits an employer can give their employees tax-free is being doubled from €500 to €1,000. Employers will be permitted to provide an employee with two vouchers in a single year, provided that the cumulative value of does not exceed €1,000. The change is effective from the 2022 tax year.
  • Change to payment system for R&D tax credit
    The credit will be aligned with new international definitions of refundable tax credits, for the purpose of the OECD’s Pillar Two Global Anti-Base Erosion (GloBE) Rules. The current system of offsetting the R&D tax credit against corporation tax liabilities and providing for payment in three instalments is being changed to a fixed, three-year payment system. A company will have an option to call for payment of their eligible R&D tax credit or request that it is offset against other tax liabilities. The existing caps on the payable element are being removed. The first €25,000 of a claim will now be payable in the first year, to provide a cashflow benefit for smaller R&D projects and to encourage more companies to engage with the regime.

The Commission on Taxation and Welfare report has prompted mixed reactions

Finance Bill 2022

Finance Bill 2022, which runs to 93 sections and more than 200 pages, has now been published. This implements the taxation changes announced in the Budget, as well as introducing some necessary administrative and technical changes to the tax code.

Commission on Taxation and Welfare

The government established the Commission on Taxation and Welfare last April to independently consider how the tax and welfare systems could best be refined to ensure their sustainability over the medium and longer term, and support the state in meeting the costs of public services and support into the future.

It has now published a report, which runs to more than 500 pages and contains 116 recommendations on potential future strategic changes to Ireland’s tax and welfare systems, some of which have prompted mixed reactions.

They include significantly increasing Pay Related Social Insurance (PRSI) paid by the self-employed, imposing capital gains tax on assets transferring on death, and by substantially reducing the parent-to-child threshold for gifts and inheritances.

In examining the personal income tax regime, the commission considered the possibility of a third rate of income tax that would apply before the top rate of 40% applies.

During his initial response to the report in his Budget speech, Finance Minister Paschal Donohoe noted that his department will engage with Revenue on the necessary preparatory work should the government opt to do this in the future, as considerable change to the systems of both Revenue and payroll providers would be required. However, he considered that this could be done for January 2024.

Debt warehousing scheme – Period 1

Revenue recently issued Level 1 Compliance Intervention Notifications to all taxpayers participating (or who were eligible to participate) in the Debt Warehousing Scheme, offering them the opportunity to review their warehoused tax liabilities and make an Unprompted Qualifying Disclosure in relation to any additional liabilities identified, if necessary.

A condition of the Debt Warehousing Scheme is that the taxpayer had to be compliant with their tax obligations

Any additional undisclosed employer PAYE, VAT or income tax liabilities identified in respect of ‘Period 1’ (the ‘Covid-19 restricted trading period’) can be included in the taxpayer’s debt warehouse, provided that the disclosure is made by 31 January 2023.

This additional debt can be paid with the qualifying disclosure or included in a phased payment arrangement (PPA), with payments to begin in 2023 at the reduced interest rate of 3% per annum.

One of the main conditions for participating in the Debt Warehousing Scheme is that the taxpayer had to be compliant with their tax obligations. This new programme should allow participants to regularise their position, where necessary. Otherwise, if Revenue discovers defaults in the warehoused debt after 31 January 2023, the taxpayer’s warehouse would be revoked and the benefits of warehousing would be lost.

Revenue has issued a 15-page manual, Level 1 Compliance Programme – Debt Warehousing Scheme, with guidance for taxpayers and practitioners on this development.

Debt warehousing scheme – Period 2

The majority of businesses benefiting from the Debt Warehousing Scheme will have to start paying their warehoused taxes from January 2023. Revenue is writing to these businesses requesting engagement by the end of 2022 to arrange payment.

Businesses that cannot pay the debt in a lump sum can enter a PPA at a 3% rate of interest, by applying through Revenue’s online PPA system. It is expected that a standard PPA will require a downpayment of 25% and will carry a term of up to 36 months. However, Revenue has acknowledged the current difficult environment and that requests for non-standard arrangements, made through the online system, will be considered on a case-by-case basis.

Around 24,000 taxpayers had their warehouse revoked for non-filing, despite multiple Revenue contacts

Businesses predominantly in the hospitality and entertainment sectors do not have to start paying their warehoused taxes until 1 May 2023 (if they qualified for an extension to Period 2). Revenue will be writing to these businesses early next year.

Around 24,000 taxpayers had their warehouse revoked for non-filing of tax returns, despite multiple contacts from Revenue. If a warehouse is revoked, normal interest rates (8%-10%) apply and the warehoused debt will become immediately due for payment, with Revenue’s debt-collection activities, including enforcement using the Sheriff, triggered.

Revenue is prepared to reinstate a taxpayer’s participation in the scheme where their warehouse has been revoked, if the outstanding filings are brought up to date promptly. Businesses are advised to engage with the Collector General’s Division as a matter of urgency.

While every effort has been made to ensure the accuracy of this information, no responsibility for loss or distress occasioned to any person acting or refraining from acting as a result of the material contained in this article can be accepted by the Irish Tax Institute or ACCA. Professional advice should always be sought for your particular circumstances before acting on any tax issue.