Budget 2018 and Employment-Related Changes

It is, of course, Budget 2018 time and Mazars have kindly written an article for Legal-Island readers which sets out the employment-related changes, including the following measures from an employment tax perspective:

Income tax band changes

The standard 20% income tax band is to increase by €750. For single individuals the standard rate band will increase from €33,800 to €34,550 and from €42,800 to €43,550 for married one-earner couples.

USC rates and bands changes

• The USC entry point remains at €13,000
• €0 - €12,012 – 0.5% (No change)
• €12,013 - €19,372 – band increased by €600 and rate reduced from 2.5% to 2%
• €19,373 - €70,044 – band decreased by €600 and rate reduced from 5% to 4.75%
•  €70,045 - €100,000 – 8% (No change)
• PAYE income in excess of €100,000 – 8% (No change)
• Self-employed income in excess of €100,000 – 11% (No change)

Personal tax credit changes

• Home carer tax credit increased from €1,100 to €1,200
• Earned income tax credit for self-employed individuals increased from €950 to €1,150

Benefit in Kind (BK)

To incentivise the uptake of electric vehicles, the Minister has announced a special rate of benefit-in-kind (BIK) of 0% for electric vehicles for a period of 1 year. A comprehensive review of BIK on vehicles will be carried out during 2018 which the Minister has stated will “inform decisions for the next Budget”.

The Minister confirmed that electricity used in the workplace for charging of vehicles will also be exempt from BIK.

Share-based remuneration

In line with expectations, the Minister has announced the introduction of a new tax-advantaged share option scheme known as the Key Employee Engagement Programme (“KEEP”). The incentive has the objective of supporting SMEs with growth potential in the recruitment and retention of “key” employees.

In summary, gains arising to a key employee on the exercise of qualifying share options under the KEEP incentive will be exempt from income tax, USC and employee PRSI contributions. This is the key advantage of KEEP: it means that if the company share price has increased in value between the time of grant and exercise of the qualifying share option the uplift in value is received tax-free by the key employee. Under current rules, the value of the gain is subject to income tax, USC and employee PRSI contributions, with a potential combined liability of 52%.

Under the KEEP incentive, the employee will only pay Capital Gains Tax at the current rate of 33% on the ultimate sale of the company shares.

Increase in employer contribution to National Training Fund levy

Employer PRSI contribution rates under Class A and Class H will increase by 0.7% to 0.8% to fund increases in the National Training Fund levy. Further 0.1% increases will also take effect in 2019 and 2020.

Employer PAYE Compliance Project

The Minister has announced the introduction of an employer PAYE compliance project in advance of the introduction of PAYE modernisation on 1 January 2019. The project is being introduced to ensure that employers are complying with current PAYE requirements and it will involve a range of compliance interventions. Funding of €50million has been set aside for this project in 2018. These resources will include enhancing ICT capacity for data matching, analytics and capability building.

Amalgamation of USC and PRSI

The Minister has announced the establishment of a working group in 2018 to plan the process of amalgamating USC (a form of income tax) and PRSI (social security) over the medium term. A key objective of this working group will be to ensure that the proposed amalgamation of USC and PRSI does not narrow the tax base but ensures that the personal taxation system is both competitive and resilient in the future.

Legal-Island would like to thank Ken Killoran, Tax Director, Employment Tax and Global Mobility Services, and his colleagues at Mazars for the contents of this update.

For more information on Budget 2018, please click on the link below to Mazars Budget Report:
http://www.mazars.ie/Home/News/Publications/Reports/Budget-2018

The Finance Bill 2017 is due to be published on 19 October 2017 and it should contain greater detail on the measures announced in Budget 2018, including the possibility of changes being made to the measures already announced and perhaps new measures being introduced.