13 Oct 2020
EY Ireland Budget 2021

Budget 2021 - Planning for recovery

By Kevin McLoughlin

EY Ireland Head of Tax

Tax leader, Cyclist and music fan

13 Oct 2020
Related topics Tax

Minister for Finance Paschal Donohoe announced the Budget on 13 October 2020.

Find all the commentary and analysis in the lead up and throughout Budget day.

For all Budget related documents refer to Department of Finance Budget 2021.

On 22 October the Government published Finance Bill 2020. The Bill primarily seeks to implement the tax elements of the 2021 Budget measures announced on 13 October. However, in addition to clarifying aspects of the Budget 2021 announcements, it also contains previously unannounced measures, some of which are highlighted in the Bill.

Read the Finance Bill 2020

 

Compare your salary after Budget 2021

Find out how the Budget impacts you. Calculate your tax at the link below.

Budget income tax calculator 2021

Refer to our tax calculator assumptions for further detail. 

Podcast:  'We are just in circumstances that are so difficult at the moment' - Minister for Finance Paschal Donohoe on Budget 2021

The Floating Voter by Independent.ie

Listen now

Reaction Commentaries

  • Kevin McLoughlin, Partner & Head of Tax

    "Traditionally budgets have been characterised by reliance on the so called ‘old reliables’ to raise taxes, but Budget 2021 could be seen as ushering in the era of the ‘new reliables’:

    • Reliance on the domestic economy for future recovery and on helping businesses retain jobs and survive the impact of Brexit and Covid-19.
    • Reliance on new sectors to deliver growth as demonstrated by the support for the digital gaming sector and the creation of a state-backed equity fund to invest in domestic, high innovation enterprises.
    • Reliance on generating tax revenue in the future in ways that support sustainable development and the state’s commitment to achieving carbon neutrality.
    • And reliance on “saving jobs and protecting our health,” as the priorities to ensure a swift and stable economic recovery.

    "This was a budget delivered by a finance minister who is also the President of the Eurogroup:

    • There was clear acknowledgement of the scale of borrowing required to fund this unprecedented quantum of public spending and the need to ensure a prudent approach which is comparable to other EU member states.
    • There was reference to the joint effort required by member states and institutions such as the ECB to ensure an all-EU approach to dealing with the economic fallout from the pandemic.
    • Noting of ongoing processes including OECD negotiations on significant proposed international tax policy changes and their possible impact on Ireland."
  • Neil Gibson, Chief Economist, EY Ireland

    "Brexit may have been in the first line but, as expected, this was a firmly Covid related budget in tone and measure. Despite better headline economic performance than most peer economies, the Minister for Finance did not dwell on this, as might have been expected, and instead focussed on the rise in unemployment and the need to spend more to address the pandemic damage. The increase in spending of €17bn is significant. To put in context this is more than annual PAYE returns or nearly three times annual excise tax receipts. Ensuring that the extra money is spent effectively and avoiding a sharp step up in the cost of public service delivery in future years will be challenges to face in the year ahead.

    “In a Budget mostly about the ‘here and now’ there were a few hints about the future direction of the coalition Government. As the Minister spoke about a bridge to a better tomorrow, he referred to the Commission on Taxation on Welfare, a recognition of the need to think strategically about how to meet public sector costs and achieve long term aims through the tax system. There was also a paper on well-being indicators published, further reflecting the move away from headline growth as the measure of Ireland’s success. It was perhaps not surprising then that the GDP numbers did not feature more prominently in the speech."

  • Peadar Andrews, Tax Partner

    Hospitality

    "Building on the July Stimulus measures including the ‘stay and spend’ incentive, Budget 2021 saw further relief and much needed cash injection measures for the troubled hospitality sector. This included the much-heralded VAT rate reduction from 13.5% to 9% which will run to 31 Dec 2021.

    "We also saw a much-needed cash flow injection under the Covid Relief Support Scheme (CRSS). This measure will allow business closed as a result of level 3 and above Covid restrictions apply for a cashflow support from revenue. The amount will be an accelerated tax deduction and will be calculated by reference to 2019 revenue. It will be capped at an amount of €5,000 per week, again highlighting the pace at which Government and Revenue are responding to Covid. It is expected that the first payments under CRSS will be made by revenue from mid-November."

  • Deirdre Hogan, Partner, Indirect Taxes

    "My take is that the VRT discussed will be revenue raising and only the carbon tax will be ring-fenced as stated last year.  I think that in an ordinary year the government could have been pushed to ring fence all carbon/emissions related taxes to further the green agenda but in the current climate it is understandable why they may not. While not quite a “green” budget the government is taking us in the right direction albeit the pace is still not quite fast enough due in some part to the lack of supportive infrastructure."

  • Lorraine McCann, Climate Change and Sustainability Services Leader

    Carbon tax

    "Carbon tax will increase by €7.50 annually out to 2029, and a €6.50 increase in 2030, to bring us to €100 per tonne of carbon. This goes even further than the €80 per tonne of carbon set out in the national Climate Action Plan in 2019. This will impact the price of auto fuels and home heating considerably out to 2030."

  • Ian Collins, Partner and Head of R&D Tax Services

    Innovation

    "The budget was pitched to focus on the immediate challenges, but the Minister clearly had an eye towards the future economy and the critical role that innovation has to play in that.

    It is good news that the knowledge development box that supports R&D has been extended by 2 years to 31 Dec 2022.  The proposal to look at a new tax credit for the digital gaming sector from 2022 is very welcome. In addition, the mandate announced by the Minister to form a group geared towards leveraging European capital with a view to establishing an equity fund to invest in domestic, high innovation enterprises builds on Ireland’s exiting suite of innovation incentives. All this underlines the importance of innovation in Ireland’s future competitiveness.

    Given the increasingly important role of the knowledge economy and the need for Ireland to continue to remain internationally competitive, we would have liked to have seen a 4-year extension to the knowledge development box. This would provide even greater certainty to business and encourage more taxpayers to avail of this regime. We will continue to engage with Government to seek the improvements we feel are still needed here."

  • Joe Bollard, Partner & Head of International Tax Services

    "We welcome the Minister for Finance reiteration in Budget 2021 of Ireland’s commitment to the 12.5% corporation tax rate. The stability of Ireland’s tax regime is an important signal to business in the challenging environment presented by COVID-19."

  • Ferga Kane, Partner, Strategy and Transactions

    Today’s Budget shows the Government’s continued commitment to infrastructure investment in Ireland and the acknowledgment that infrastructure can act as a critical element of the country’s economic recovery following the grave and on-going impact of the Covid-19 pandemic. 

    An increase of €1.6billion on capital expenditure programmes in 2021 and an overall increase to €10.1billion for capital expenditure focussed on housing, public transport and schools is an overwhelming positive response from Government and we look forward to understanding further the plans for the €3.4billion Recovery Fund to be established which will focus on infrastructure development; reskilling and retraining and supporting investment and jobs as well as the other investment channels today’s Budget sets out to support the country’s recovery.

  • Cian O’Donovan, Tax Partner & Real Estate Tax Leader

    Help to buy scheme 

    "First time buyers and the construction/development sector alike will be very happy to see the extension of the help-to-buy scheme to the end of 2021, an important and sensible support to a key sector of the economy at this time". 

    Stamp duty rebate scheme for land used for residential development 

    "It is good to see that the Minister has listened to industry concerns around the stamp duty rebate scheme for land acquired and subsequently developed for residential purposes.   The scheme has been extended to projects commenced by 31 December 2022, and issues highlighted with the time period allowed between the start of development and completion have been mitigated by increasing the permitted time gap to two and a half years."

  • Frank O’Neill, Tax Partner, Business Tax Advisory

    Comment on Entrepreneur Relief

    "We welcome the change introduced in Budget 2021 today, allowing Entrepreneur relief to be assessable to more taxpayers.  A person who owns 5% or more of ordinary shares in a qualifying company for a period of three years now qualifies for the relief.  Previously, the person had to own at least 5% of the shareholding for three years in the five years immediately prior to the disposal.  However, it was another missed opportunity by the Government by not increasing the lifetime limit of €1 million ensuring our Entrepreneur relief is in line with similar incentives in the UK and in other countries."

    Employment and Investment Incentive (EII) Scheme

    "The announcement of a review of the EII scheme to enhance the scheme in response to the challenges presented by COVID-19 is a step in the right direction.  Assessing the EII scheme has proven difficult in the past and various changes were introduced last year attempted to make the scheme more effective.  The EII scheme needs to help with the challenges new and growing Irish businesses are facing with COVID-19 in accessing vital funding and allowing growth and job creation in the current environment. "

Videos: Budget reactions

    Our budget case studies provide more information based on specific scenarios

    Scenario 1

    +0.23%

    Peter is a self-employed accountant who earns €90,000 p/a. Fiona is a homemaker. They have three children under ten. Change to net income – increase of €155.

    Scenario 2

    +0.62%

    Kate is 28 and lives in an apartment in Sligo. She earns the minimum wage working 39 hours p/w in a restaurant. Change to net income – increase of €116

    Budget 2020 Tax Alert

    Having faced the twin threats of Brexit and a global economic slowdown at the beginning of the year, Ministers Donohoe and McGrath delivered the first budget of the current coalition Government against the backdrop of an unprecedented, century defining global pandemic.

    Read more

    Summary

    The Government announced the details of Budget 2021 on 13 October 2020.

    About this article

    By Kevin McLoughlin

    EY Ireland Head of Tax

    Tax leader, Cyclist and music fan

    Related topics Tax