Budget 2023 – The EY Perspective

“The Minister for Finance, Paschal Donohoe today delivered his Budget 2023 speech with the stated aims of supporting people and businesses, now, with cost of living challenges, whilst guarding against further fuelling inflation. Backed by a current year budget surplus of €1Bn, the Government’s response is to enhance personal tax credits and tax bands for people with supports for SMEs in the form of the Temporary Business Energy Support Scheme.

“At the same time, the post Covid recovery of the economy has allowed the Government to sustainably manage the public finances by banking €6Bn to the National Reserve Fund for 2022 and 2023 and to deal with future population, digital and climate-based challenges.  

“I welcome the Minister signalling in his speech that our R&D credit will be amended in the Finance Bill to ensure it aligns with global tax developments and ensure the incentive continues to attract foreign investment.  Further refinement to the Vacant Homes Tax and Residential Zoned Land Tax will promote residential development and housing supply, key to maintaining Ireland’s status as a preferred location for foreign direct investment.”

SARP (Special Assignee Relief Programme)

“It was really important for Ireland to extend SARP relief for attracting talent into Ireland until 2025 so that we can compete with our European neighbours in attracting talent to work in Ireland. Even though the recent UK budget has been widely criticised, it will offer a competitive advantage to companies in attracting employees to come and work in the UK and pay a top rate of income tax of 40%. In addition, in recent days, Spain has offered a digital nomad VISA to allow foreign nationals to work in Spain and pay a preferential rate of income tax.

Small Benefits Exemption

“Employers and employees alike will welcome the doubling of the Small Benefits exemption to 1,000 euro. This is often paid as a Christmas tax free voucher by employers and will also help to boost the retail trade in the really important run up to Christmas.”

“The increase in the Small Benefits Exemption was welcome news today but the devil is in the detail in that the proposed wording in the resolution published by the Department of Finance states that the exemption is only available to the first or second incentive provided to an employee.  If an employer provides an employee with two small vouchers, say for 25 euro each then the exemption is used up and the employer would not be able to pay a significant voucher later in the year, perhaps as a Christmas bonus."

"This really restricts the employer and does not allow the employer flexibility in choosing what small benefits/vouchers are subject to the maximum relief and a number of employers could be caught out by this.  A more equitable solution would be to allow the employer to choose what vouchers qualify for the exemption so that the maximum benefit of €1,000 can be provided to employees.”

Tax relief

“The increase in the 20% tax band to €40,000 will make a significant difference to taxpayers earning more than €40,000. They will see tax savings of €830 euro if they are a single taxpayer or €1,661 euro for a married couple with two incomes.  This is before energy credits,  renters credits or the one off enhanced social welfare benefits are added to the targeted measures for certain groups. The Budget will certainly put money back in the pockets of individuals, but this should not be seen as a windfall budget, as most people have already mentally set this money aside to pay for the cost of living pressures they will face over the long winter months.”

Research and Development Tax Credits and the Knowledge Development Box:

“The Minister announced amendments to the payable element of the Research and development (R&D) tax credit scheme to align with international tax developments. Adapting our R&D tax credit scheme to ensure it continues to be among the best in class internationally is critical in order to preserve Ireland’s competitiveness with respect to attracting future R&D investments.

It’s positive to see the Minister’s intention to extend the Knowledge Development Box (KDB) regime for a further 4 years. It is hoped with the appropriate level of reform that this regime can be enhanced to encourage greater levels of engagement across SMEs and multinational corporations alike.”

SARP

“The extension of the Special Assignee Relief Programme (SARP), which was due to expire at the end of this year, is a welcome measure to ensure that Ireland remains competitive in attracting international talent and foreign direct investment. However, increasing the qualifying income threshold to €100,000 makes the relief less accessible than the expatriate regimes made available by many of our European neighbours.

Business Energy Support Scheme

“The Minister for Finance announced a temporary business energy support scheme for SMEs to assist them with additional costs as a result of rising inflation and energy costs.

“This relief will be available to businesses carrying on a ‘case I’ trade, such as manufacturing businesses, who have experienced a significant increase in their natural gas and electricity costs.  The scheme will only apply to those businesses that are tax compliant and who are experiencing a 50% or greater increase in the average unit price of electricity in 2022 compared to 2021 prices."

"The relief will be calculated based on 40% of the increase but subject to a cap of €10,000 per month. Interestingly the Minister for Finance referred to ‘case I’ trades in his speech which would indicate that those businesses carrying on a profession under ‘case II’ may not be in a position to participate in this scheme, even if they would otherwise meet the criteria with regard to the substantial increase in the cost of electricity per unit.  We await further details on this.”

Employee reward

“Attraction and retention of top talent is a key focus for most employers.  The extension of the Key Employee Engagement Programme (KEEP) to 31 December 2025 will be welcomed by employers wishing to provide share based remuneration to their employees.  The additional change to allow employers to buy back shares from employees will also be welcome.  The change will allow employees to realise value from their options without depending on an external buyer.  This has the potential to open up the scheme to many more employers, including family businesses, who might previously have found KEEP unworkable.   

“The increase of the small benefit exemption from €500 to €1,000, although not significant, will be welcomed. This allows employers to reward employees at a time when they are likely feeling the pinch from the current cost of living crisis; this increase applies for 2022 also and can be paid in two vouchers.  Therefore where an employer has already given a €500 voucher to employees under this scheme in 2022, they will not be prevented from making a second payment to allow the employee to fully utilise this exemption.”

VAT and period products

“Period products currently subject to the 9% rate of VAT are set to be subject to the 0% rate of VAT from 1 January 2023. This is a win for both the cost of living and the environment as reusable menstrual cups will be taxed at the 0% rate.”

VAT and HRT

“The supply of non-oral hormone replacement therapies are to be subject to the 0% rate of VAT from 1 January 2023. Given the impact of hormone imbalances due to life events, this will be welcome news from people who struggle to go about their daily lives while experiencing the side effects of such change. It should make such treatments more affordable to all.”

VAT and newspaper publications

“The reduction of the 9% Vat rate applied to newspaper publications (both paper and digital format)  from 1 January 2023 is welcome news for the industry. It will put newspaper publications in Ireland on equal footing with many of their EU counterparts and will enable them to invest more in an industry that is battling for survival. The assistance this measure will provide should help sustain generally, creditable news sources which compete with news content on online platforms. This is a much needed boost for the publication industry in Ireland.”

Flat-Rate Farm Addition

“There is a requirement per the EU VAT Directive to decrease the flat rate compensation percentage for Farmers from the current 5.5% to 5.0% in accordance with criteria set out in the legislation. This change will be introduced from 1 January 2023.  In a sector that is already struggling with pricing and energy costs this will be unwelcome news.”

Fuel

“Excise rate reductions in the order of 5, 16 and 21 cents per litre VAT inclusive currently apply to MGO, diesel and petrol respectively. These rate reductions due to expire on 12 October 2022 will be extended to 28 February 2023. This is a small but welcome relief extension in times of high energy costs.”

Special Exemption Order licence fee reduction

“The excise fees for an application for a special exemption order are being reduced by 50% in support of the night time economy. The excise fee of €110 per application is reduced to €55.  Generally applications need to be made once a month. The reduction will be welcomed in a struggling industry.”

Small Cider Producer Excise Relief Scheme

“Good news for cider producers. An alcohol excise relief scheme is being provided for small producers of cider and perry. A 50% excise relief will be available on up to 8,000 hectolitres of cider produced by microproducers with an annual production threshold of up to 10,000 hectolitres.”

“This budget is described as a ‘budget for its time’ by Minister McGrath with the focus very much on cost of living measures, but aiming to protect the sustainability of the public finances. The ongoing issue of housing remains a key challenge for the economy. In that regard there are a number of welcome measures to boost housing supply."

"The new zoned land tax, which was actually introduced in Budget 2022, will see a tax levied at 3% of the market value of land zoned as suitable for residential development (and serviced), but has not yet been developed for housing. Care will be required to ensure the application of the tax doesn’t impact the overall viability of sites. There is welcome news that landowners will have the opportunity to apply to amend the zoning status of their land if they don’t agree with the designation by local authorities.

“The vacant homes tax will be levied on properties occupied for less than 30 days p.a., at a rate of three times the local property tax rate. It is specifically a measure to boost supply rather than raise revenue, so it will be interesting to see the behavioural changes that may result.

“There is relief for tenants and higher tax breaks for landlords which should support the viability of small scale landlords currently exiting the sector. On the demand side there is the retention of the Help to Buy scheme for first time buyers until end 2024, and combined with the current First Home Scheme these will provide certainty to potential first-time buyers. 

“The overriding issue remains housing supply and the focus needs to continue to be on delivery of new supply to ensure our expanding population and economic growth can be accommodated.”

“Between addressing the immediate and critical needs generated by the trilemma facing Irish business and individuals (energy, inflation, supply chains), and also maintaining a focus and momentum for positive climate action and sustainability – Budget 2023, more than most in the past, had to get the balance right between short term needs and long term obligations. Incentives and grants for retrofitting and energy efficiency upgrades, as well as funding for public transport, EV charging and agriculture initiatives are all welcomed and positive.

The science however, says we need to accelerate our climate action, and in light of this, there is more work to do to help increase the pace of our climate or sustainability ambitions. Our climate ambition and sustainability goals require that we adapt and think differently about how we function as an economy.”

Concrete Levy

“While it wasn’t intended as such, I suspect that the 10% levy on concrete products will prove a positive incentive for decarbonisation in the building and construction sector. Many of our large indigenous businesses involved in this industry have very positive sustainability plans aimed at decarbonising their product portfolios. I would hope that “green” concrete type products might be given exemption from the levy as a further incentive for transformation.”