The Covid-19 pandemic has altered the economic landscape in all countries. Policy makers have responded through economic, tax and public health measures: this article outlines the Irish government’s tax and economic stimulus response.
The tax elements of the stimulus plan focused on measures that are designed to protect jobs, ease cash flow problems and stimulate demand. Together with the Credit Guarantee (Amendment) Act 2020, these legislative initiatives constitute a stimulus package worth 7.4 billion euros ($8.7 billion), representing the largest cash injection in the history of the Irish economy.
Fiscal Support for Business
Companies are entitled to immediately carry back 50% of their 2020 trading losses against their 2019 corporation tax liabilities. This is intended to provide a refund of corporation tax paid in respect of 2019 and an immediate cash flow boost. A similar relief has been introduced for self-employed individuals to carry back up to 25,000 euros in 2020 losses (and unused capital allowances). Under normal tax rules, relief for such losses and capital allowances would only become available in the subsequent financial year, so this measure has the effect of accelerating relief.
The stimulus package also provided for the warehousing, or deferral, of certain tax liabilities. This allows businesses affected by Covid-19 to delay payment of their payroll tax (PAYE) and value-added tax (VAT) debts in part, or in full, for a set period with no interest or penalties. No interest will be charged on tax and employment contribution debts up to August 31, 2020 or 12 months thereafter. In addition, the interest rate applicable to agreed repayments of all tax debt (where agreement has been reached prior to September 30, 2020) has been reduced to 3%. This applies where the business can show that its inability to discharge tax liabilities arose as a result of the impact of Covid-19.
As a further support to businesses, commercial property rates have been waived until the end of September 2020.
The Credit Guarantee (Amendment) Act 2020 was enacted in July to implement the Covid-19 Credit Guarantee Scheme (CCGS). The CCGS enables the Irish Minister for Jobs, Enterprise and Innovation to operate a 2-billion-euro credit guarantee scheme aimed at small and medium-sized enterprises (SMEs) and some larger Irish-based businesses. The purpose of the CCGS is to support businesses to access additional finance, and it offers a partial government guarantee (currently up to 80%) to lenders against losses on qualifying loans to eligible SMEs.
Under the CCGS, participating lenders will offer loans of between 10,000 euros and 1 million euros to Qualifying Enterprises, subject to certain limits, which reference the wage bill or total turnover of the relevant participant. Under the terms of the scheme, a Qualifying Enterprise will either:
- meet the SME criteria for the existing credit guarantee schemes, namely:
- be established in Ireland, employ fewer than 250 persons (whether or not in Ireland); and
- have an annual turnover not exceeding 50 million euros, or an annual balance sheet total not exceeding 43 million euros; or
- be established in Ireland and employ no more than 499 persons (whether or not in Ireland).
The CCGS operates under the EU’s State Aid Temporary Framework and will be in place until December 31, 2020. It is possible that the scheme will be extended.
Additional funding supports have also been made available to specific sectors and through state partners such as the Ireland Strategic Investment Fund and Enterprise Ireland.
In terms of employment support, the most significant measure introduced by Ireland is an Employment Wage Subsidy Scheme (EWSS). The EWSS was introduced from September 1, 2020 as a longer-term replacement to the previous Temporary Wage Subsidy Scheme. The EWSS supports businesses impacted by Covid-19 by providing qualifying employers with a flat-rate subsidy based on the number of eligible employees on the employer’s payroll, and charges a reduced rate of employer’s social insurance (PRSI) of 0.5% on those wages.
The amount of subsidy payable is dependent on the gross income levels of the individual employees:
- for employees paid between 203 euros and 1,462 euros gross per week, the subsidy is 203 euros;
- for employees paid between 151.50 euros and 202.99 euros gross per week, the subsidy is 151.50 euros.
No subsidy is paid for employees paid less than 151.50 euros or more than 1,462 euros gross per week.
In order to qualify, businesses must demonstrate that as a result of Covid-19 their business will experience a 30% reduction in turnover or customer orders between July 1 and December 31, 2020. The comparison is to be relative to:
- the same period in 2019, where the business was in existence prior to July 1, 2019;
- the date of commencement to December 31, 2019; or
- where a business commenced after November 1, 2019, the projected turnover or customer orders.
The EWSS also applies to new employees and seasonal workers and can be backdated to July 1, 2020, subject to certain exceptions.
The EWSS can be reclaimed from companies, in the form of a tax assessment, if it is found to have been claimed incorrectly. The EWSS was expected to run until March 2021 but as part of Budget 2021, published on October 13, 2020, it was announced that the scheme will likely continue until December 2021 (if necessary).
Other measures intended to boost employment include investment in training, skills development and work placement schemes, as well as additional government supports for apprenticeships.
Additional Tax Measures
A reduction in the general rate of VAT from 23% to 21% was introduced from September 1, 2020 and will remain in place until February 28, 2021, impacting a wide range of consumers and suppliers. It may require repricing of goods or services which were originally priced as VAT inclusive amounts. In addition, as part of the Budget 2021 measures, the government announced that the supply of services in the hospitality, tourism and entertainment sector will be liable to a reduced VAT rate, down from 13.5% to 9%, with effect from November 1, 2020 until December 31, 2021.
The Irish government also introduced a tax credit known as the “stay and spend tax credit” for individual taxpayers, with the intention of promoting the Irish tourism industry. The measure entitles taxpayers to a credit of up to 125 euros on qualifying expenditure subject to a minimum spend of 25 euros. The expenditure must be on accommodation, food and non-alcoholic beverages and will apply between October 1, 2020 and April 30, 2021. The tax credit can be claimed by submission of receipts using an app on mobile devices.
The Help to Buy Tax Credit, which is an incentive scheme for first-time property buyers that aims to assist them in building the deposit needed to buy or build a new home, has been increased from 20,000 euros to 30,000 euros until December 31, 2020. This temporary enhancement is intended to support the housing sector through encouraging the construction of new housing units.
The Irish government has also taken some measures to alleviate the tax compliance burden on businesses. In line with many other EU member states, the reporting date for DAC 6 reporting has been moved to February 2021.
The Irish government announced Budget 2021 on October 13, 2020. It included support for Covid-19 impacted businesses, a change to capital gains tax, Entrepreneur Relief and a reduced VAT rate for the hospitality, tourism and entertainment sectors.
A new Covid Restrictions Support Scheme (CRSS) was announced for businesses which have either been prohibited from trading or are only able to trade at a significantly reduced level as a result of restrictions imposed under the government’s Resilience and Recovery 2020–2021: Plan for Living with Covid-19. The scheme will generally operate when “Level 3" restrictions, or higher, are in place.
The support will take the form of a cash rebate to businesses based on their average VAT-exclusive turnover for 2019 and will represent an advance credit for trading expenses that are deductible for income tax or corporation tax for the period of the restriction or reduction in activity from October 13, 2020.
The cash payment will be calculated as 10% of the first 1 million euros in turnover and 5% of turnover in excess of 1 million euros. Payments will be subject to a maximum weekly payment of 5,000 euros. To qualify for the scheme, businesses must demonstrate that their turnover has been severely impacted by Covid-19. The turnover of the relevant business must not exceed 20% of the turnover for the corresponding period in 2019.
Although there was speculation about a capital gains tax rate reduction in recent media commentary, no such change was announced as part of Budget 2021. The Budget did, however, announce some improvements to the Entrepreneur Relief from capital gains tax. The relief provides for a 10% rate of tax on the first 1 million euros of gains on disposals of qualifying assets. Under the changes, an entrepreneur who has held at least 5% of the ordinary shares in a qualifying company for a continuous period of any three years can qualify for relief. Previously, a person had to own at least 5% for a continuous period of three years in the five years immediately prior to the disposal. This measure will provide entrepreneurs with a greater ability to expand their business and seek capital investment without worrying about losing the relief.
A National Economic Plan is also set to be published later this year which will set out the government’s plan for long-term economic recovery. In addition to Covid-19, the long-term recovery may also be impacted by Brexit. Measures to address these challenges are likely to dominate tax and fiscal policy in Ireland in the short to medium term.
It is important that businesses take a methodical and prudent approach in determining whether they are eligible for these supports and whether the benefits are appropriate, in consultation with their tax and legal advisers. Some points for businesses to consider are:
- Records should be reviewed and updated in order to ensure that sufficient documentary support is retained for those schemes that require the business to be able to show adverse economic impacts of Covid-19.
- Ensure that all tax returns are up to date and all outstanding tax liabilities are paid (unless availing of the warehousing with respect to PAYE and VAT). Certain supports require the business to be tax compliant and/or entitled to a tax clearance certificate in order to qualify for the scheme.
- Review, with appropriate legal and tax advice, the conditions for any support measure or scheme and ensure that procedures are in place to allow for review of criteria, where required as part of the scheme conditions.
- Continue to ensure all tax obligations are complied with to avoid any clawback of reliefs.
- Review contracts and supply pricing to determine the impact of the VAT rate reduction, in particular in terms of timing and the relevant tax point.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Lynn Cramer is a Partner and Niamh Cross is an Associate with Maples Group.
The authors may be contacted at: lynn.Cramer@maples.com