Positivity for small businesses despite austere budget

MGR Accountants’ Tax Manager Anne Hogan assesses Budget 2013 for the Limerick Leader.

Ministers for Finance, and Public Expenditure and Reform, Michael Noonan TD and Brendan Howlin TD delivered the sixth “austerity” budget last Wednesday afternoon, 5th December. “Austerity” is a word that has unfortunately become very familiar to us all and there is no need today to look to the dictionary to understand that the definition of the term encompasses “severity, self-denial, plainness and shortage”.  And this is the sixth out of eight such budgets.

Despite the underlying theme of austerity the Minister for Finance did however emphasise that his aim was to “reassure people and boost confidence” and stated that “we are well on the road to recovery so let’s look to the future with confidence”. To that end there was some good news as there were no increases in Income Tax, Corporation Tax or VAT rates. The pension changes that had been flagged for this year have been deferred until 2014 and tax relief at the marginal rate of tax for pension contributions remains in place. The possibility of withdrawing up to 30% of pension AVCs was introduced albeit that these funds will be taxed at the marginal rate.

Whereas more recent budgets had concentrated on incentivising foreign direct investment this budget seeks to assist the SME sector by improving cash flow and reducing compliance costs. The measures outlined include:

  • An extension of the Employment and Investment Incentive Scheme to 2020 (subject to State Aid Clearance)
  • The carry forward of unused credits from 3 year start up business relief
  • An increase in the threshold for qualification for the cash receipts basis for VAT to €1.25m
  • An increase in the R&D credit available to €200,000 without reference to the 2003 threshold
  • Increase in the de minimus amount of undistributed investment or rental income which may be retained by a close company (mainly family companies and companies owned and controlled by a small number of people) without giving rise to a surcharge on such income from €635 to €2,000

Property, alcohol, cigarettes, cars and capital taxes provided the main sources of extra funding from taxation. It would seem that the aim of the budget was to avoid measures that would directly raise business costs. The fallout from this is that living standards in general took the hit with the introduction of measures including:

  • An increase of in the rate of Capital Gains Tax from 30% to 33% for disposals of chargeable assets on or after 6 December 2012.
  • An increase in the rate of Capital Acquisitions Tax from 30% to 33% for gifts and inheritances taken on or after 6 December 2012 with the current tax free group thresholds being reduced by 10%.
  • An increase in 3% in the tax on income from savings and investments.
  • Abolition of the exemption from PRSI for the first €127 of weekly income for most employees which will equate to a €5 per week reduction in take home pay for most employees.
  • Abolition of the cap of 4% on USC for persons over the age of 70 so that individuals over 70 that have annual income over €60,000 will now pay 7%.
  • The introduction of Income Tax on maternity benefits (exemption from USC still applies) as well as a reduction in child benefit by €10 per month for the first two children and €18 for the third and subsequent children.
  • 31% relief on all charitable donations irrespective of donor’s marginal rate of tax – however self-assessed taxpayers are no longer entitled to a deduction with tax relief being paid directly to the charities instead.

One of the most widely anticipated tax changes was of course the introduction of the Local Property Tax (“LPT”). Although this is obviously a very unpopular tax it should be noted that most other European countries have some form of local property tax in place and indeed Ireland has previously had similar type taxes in place e.g. the residential property tax. A half year of LPT will be payable in 2013 with a full year payable in 2014. The rate will be 0.18% up to property values of €1m and 0.25% on property value over €1m. Household charge has been abolished from 1 January 2014 and NPPR charge will no longer be payable from 1 January 2014. An important point to note is that a tax clearance certificate will not issue to a taxpayer who has unpaid LPT.

Of local interest the introduction of incentives for the aircraft sector should give a well needed boost to Shannon Airport. The Minister also made reference in his speech to the fact that he intended to look at a more targeted incentive for areas already identified for urban regeneration. Although no further details were provided one would be hopeful that Limerick should benefit from such incentives. Licensed road hauliers will benefit from a relief from excise duty on auto-diesel to be introduced from 1 July 2013.

By outlining many of the measures that will be introduced for 2014 the Minister did provide a level of certainty for the future which is to be welcomed. Unfortunately it would appear that austerity is to remain a feature of all our lives for the next few years albeit that there are a few positive measures which, if effective, should help us to take the Minister’s advice to “look to the future with confidence.


Tax Manager Anne Hogan

Tax Manager Anne Hogan

Anne Hogan is a Manager in McKeogh Gallagher Ryan Accountants, Limerick. She graduated from the University of Limerick with a first class honours B.A. in Law and Accounting. She is a Chartered Accountant and an Associate of the Irish Taxation Institute. Anne advises on tax issues across all tax heads specialising in the areas of EIIS investment, Revenue Audits, Debt Restructuring and Succession Planning.