Tracey Glacken from Glacken Accountants discusses the announcements in Budget 2014 in association with Sage.
Budget 2014 has been and gone and what are we left with? For workers Budget 2014 will not affect their take home pay, however for the elderly and the under 25’s cuts to their allowances will have some impact on their lives. Initiatives for new start ups are also being introduced. I have set out below some of the main items announced in the Budget and the effect they may have.
- For those who have been unemployed for 15 months or longer a new initiative was announced yesterday. Those setting up an unincorporated new business will be exempt from Income tax for the first two years up to a maximum of €40,000. This will be a welcome to any start ups as there has not been any real initiative for the start up sole trader in recent times.
- Entrepreneurs who re-invest the proceeds from the disposal of assets on which CGT had previously been paid will be given a relief. The relief will be a tax credit equal to the lower of the CGT paid on the previous asset disposal or 50% of the CGT due on any gain from the future disposal of the new investment. EU state- aid approval is required for this measure. The new investment must also be in productive trading activities.
Employment and Investment Incentive
- To assist SME’s to expand their business the restriction on high earners investing in EEI’s has been removed for a period of 3 years. They can now invest up to the annual limit of €150,000.
- The special rate of 9% will continue. This is a positive for the businesses that fall under this rate as the tourism sector has seen an increase of 15,000 jobs since the rate was introduced in 2011.
- The threshold for accounting for VAT on a cash receipts basis will increase from €1.25m to €2m. Again, this should assist SME’s with their cashflow as it will bring more businesses into the VAT on cash receipts basis and they will not have to be accounting for VAT on an invoice which may not be paid to them for a long period of time.
(3) Property & Incentives
Home Renovation Incentive
- In an attempt to regularise the ‘black market’ construction business and home renovation incentive scheme has been introduced. A homeowner who spends a minimum of €5,000 and up to €30,000 on home improvements in 2014 and 2015 will receive a tax credit over two years following the year of works. The credit will be calculated at a rate of 13.5% and will support tax compliant construction businesses. Hopefully, this will create more of a stimulus in the construction market.
- Property purchased before the end of 2014 will be exempted from Capital Gains Tax if the property is held for a period of 7 years.
(4) Medical Insurance
- For anyone paying medical insurance a cap has been introduced on the amount of relief available. For an adult this will be capped at €1,000 and for a child the amount will be €500. Any policies over the value of this will not qualify for relief e.g. a family of 2 adults and 2 children paying €3,000 for a policy will get 100% relief. There have been comments that this cap will see an increase in the cost of policies but this remains to be seen.
(5) Personal Tax
- There were no changes to the Income Tax credits or cut off points.
- Unearned Income e.g. rental income will be liable to Universal Social Charges and PRSI from 01/01/2014.
- Top Slicing Relief on ex-gratia payments in respect of termination and severance payments has been abolished.
- The ‘One Parent Family’ tax credit will be replaced by a ‘Single Person Carer’ tax credit. Rather than both parents claiming the credit as has happened in the past only one of the parents will be nominated as the main carer and will be awarded the credit.
- From 2014 a single rate of 41% for DIRT will apply on exit of life assurance policies and investment funds.
- Pension relief will continue to be allowable at the marginal rate of tax.
- New changes are being introduced for medical card holders. The income threshold for over 70’s has also been decreased. This means that a married couple over 70 with earnings greater than €900 per week will not be entitled to a medical card.
The elderly will also see an end to some of their household benefits.
- Maternity Benefit will be standardised at €230 per week
- Free GP care has been announced for under 5’s although no start date has been set for this.
- Young people receiving unemployment payments will see their payments reduced by €44 per week.
Overall the Budget has not been as tough as those presented in previous years. However, the issue of top earners not being asked to contribute enough will always be an issue as it has been families and the needy who have taken the hit over previous Budgets. Those with savings accounts will be taking a bit hit on their investment with nearly half of it being deducted in tax.
If, as Enda Kenny has stated that the Troika will leave Ireland in December then hopefully this country can continue to make the progress we have seen in recent months and get back to a better economy. The Government also estimates that the deficit by 2015 will be 2.9% which will be below the GDP of 3%.