It’s fair to say, even before we know the precise outcome of Budget 2021, that we should not expect any major surprises. However, there are real opportunities for the Government to help both businesses and employees to weather the current COVID-19 storm, and in the medium term, an unpredictable future.
Rather than wholesale change, I expect and hope to see some movement in certain areas that will provide relief to both groups. These measures could help us all adapt better to the new reality and look to the future with a renewed sense of optimism. Here, I will outline some of those key areas for change and give my prediction on the potential Budget 2021 outcome.
Employer Social Security costs – change a possibility
The Minister for Finance has repeated on numerous occasions that there will be no change to income tax rates, but there is still a possibility that he could look to raise employer social security costs. This has risen in very small increments over the last few years but because of additional costs to the HSE and the need to raise ICU bed capacity, they might increase employer social security costs to 11.5% to pay for some of the increased Government spend. That could be a potential area for change.
Stay and Spend Initiative – needs to be tweaked
If Level 3 restrictions or higher are going to remain in pace nationally for a more prolonged period, then the current scheme will not help the hospitality sector. There is a better way of doing things.
The ‘stay and spend’ initiative which came into effect from the 1st October will benefit those that will spend money while on a staycation in Fáilte Ireland recognised holiday accommodation, or when paying for a meal eaten in a restaurant or café either on holiday or in their local environment. It does not apply to takeaway food or the consumption of alcohol.
Currently, those doing so can avail of a tax credit of up €125 per person, or €250 per couple over the period of October 2020 to April 2021. The issue is that if this is going to be a period of lockdown, it won’t help the hospitality sector that it’s intended to. Under Level 3 restrictions, people are not allowed to travel outside their county or eat inside in restaurants, completely undermining the benefit of the relief.
In comparison to the UK, they started an initiative called ‘Eat Out to Help Out’ in August, where everyone got 50% off the cost of their meals when eating out at a restaurant. So, if there is going to be something targeted for the hospitality sector, the Government could change the Stay and Spend initiative from something you get a tax credit for to an immediate cost reduction, similar to the UK scheme.
In Level 3, where restaurants can only offer takeout meals, this initiative should also be allowed for takeout meals, something that could easily be tweaked in the Budget. This will help keep the local economy afloat, especially during Level 3 restrictions that put the hospitality sector in even more trouble.
Wage Subsidy Scheme – no change
The scheme is due to be in place until the end of March 2021, but as we will not see an end to certain lockdown provisions until we get a vaccine, people are likely to want more longer term certainty, but I don’t see any change happening in this Budget. In many ways, the scheme has got a lot easier for employers to administer, rather than having to work out the average weekly pay of employees and complete a taper relief exercise, giving a flat rate amount per employee is a lot easier. It may be less than some people received before, but in purely practical terms, companies are finding it easier to administer and easier to understand. One possibility is pushing the scheme out until the second quarter of 2021.
One potential issue is that to qualify for the Wage Subsidy Scheme, companies must have a 30% reduction in turnover between July and December 2020, compared to the previous period in 2019. Given that it’s going to be in place until next March, this could disincentivise those that had a stronger than expected trading performance over the summer, with the impact of staycationing providing a much-needed bounce for the hospitality sector. That is an anomaly and perhaps could be more progressive by basing the 30% test over the entire period up until March 2021.
Homeworking allowance – needs to be tweaked
Perks like company cars for business, free canteen meals, workplace gyms and Tax Saver rail cards are attractive benefits when employees are travelling to and from an office in Dublin every day. They may now have no value for an employee working from their parent’s home in Athenry. On the other hand, medical insurance, bike to work schemes, wellness allowances and home office furniture expenses are all now top of the benefit hierarchy.
The upcoming budget may also include a stimulus package centred around home working. Providing tax breaks for expenditure on home or garden offices would provide a boost to the construction industry over the coming 12 to 18 months, help employee wellbeing and meet the Government agenda of home working where possible.
The realisation that the remote working world is here to stay and is not going to change until a vaccine is found has made employers think about their current benefit packages to see what is valued by employees, what can be paid tax efficiently and what changes need to be made to continue to motivate employees.
Employers in Ireland have so far resisted the urge to pay employees the €3.20 per day working from home allowance but with the winter kicking in, the pressure may build to pay this allowance to compensate employees for the heating and lighting expenses they will have whilst working from home. As this is additional compensation and an incremental cost for employers, it would be really useful if the Government announced that the €3.20 payment could be paid tax free by employers instead of taxable salary so that there would not be an additional cost for employers. The salary sacrifice legislation would have to be amended to facilitate this.
The green agenda – expect some change
The Green party will rightly have to have a say in Budget 2021. The company car benefit in kind rules are due to change to an emissions-based model, which was supposed to come into effect from 2023. That might be brought forward to start earlier, which would sit well with the Programme for Government proposal to limit the sale of petrol and diesel cars. I would like to see an incentive programme in terms of expenditure on home offices, providing tax relief on renovation work which would have a knock-on effect of helping the construction industry. This could be similar to what we already have in place in terms of incentives for energy efficiency upgrades and solar panel installation.
Overseas workers – no change likely
We have incentives like the Special Assignee Relief Programme to attract key talent to come and work in Ireland. With the current restrictions on quarantine and travel we have seen a huge reduction in the amount of short-term business trips in recent months. On the flip side companies are looking again at long-term assignments as employees have concerns about air travel and the effect of Coronavirus in other jurisdictions.
I am seeing an upsurge in Irish people enquiring about coming back to Ireland permanently especially from the US and UK, which is a reaction to political and social turbulence. Despite obvious anxiety in Ireland about the growth of COVID-19, there is a view from outside that Ireland has handled the crisis better than a lot of countries, acted quickly and decisively and the messaging has been for the most part clear. The Government should really be encouraging this exiled cohort to come home, many of these people can benefit the country economically and may plug the skills gap. We have seen the idea of Virtual Assignments or Work Anywhere in recent months, so these Irish people may still be able to work for a US employer or UK company but pay their taxes in Ireland which would be a huge benefit for Ireland Inc.
A programme of incentives to encourage Irish expats to come home by making it better financially in terms of increased tax credits in the first year which could be restricted for high earners would soften the burden of moving from lower tax jurisdictions like the US or UK.
There is also an opportunity to attract entrepreneurs back to Ireland by offering incentives that could bring additional income to the Exchequer, additional incremental income for the state and potentially create jobs. At a time where we are looking at cost optimisations and workforce reductions, the ability to bring home more companies, and particularly Irish businesses, should not be overlooked.
For more information, visit our Budget 2021 page here.