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The current Budgetary environment has meant that there has been very little fiscal space for widespread changes in the area of personal tax, and in line with the Programme for Government agreed in July, there were no broad changes to income tax rates, bands or credits announced in the minister’s speech, writes Robert Dowley, Tax Partner.

The specific measures announced today are detailed below.

Warehousing of income tax liabilities

The minister announced that the tax debt warehousing scheme which is currently available to corporate taxpayers will be extended to self-employed individuals. For these self-employed individuals, the scheme will cover the balance of any income tax payable for 2019 and the preliminary income tax liability for 2020. Both of these liabilities would normally be payable by 31 October 2020 (or the extended deadline applicable to those who pay and file via ROS which is 10 December 2020).

Under this scheme, taxpayers will be allowed to defer payment of their income tax liabilities for up to a year without statutory interest applying. Thereafter, a 3% rate of interest will apply to outstanding liabilities, but no surcharges should arise.

No further details have been provided on the operation of the scheme, such as how it will be accessed by individuals or the criteria for qualification. For example, the equivalent scheme for corporate taxpayers applied automatically for smaller businesses but is only available on request for certain larger businesses. We would anticipate that further guidance on this new scheme will be forthcoming from Revenue.

Universal social charge

As was the case in Budget 2020, no adjustments have been made to the USC rates in this year’s Budget. The USC bands have, however, been adjusted slightly with the ceiling at which the 2% rate applies increasing to €20,687 from €20,484. This is to cater for the increase in the minimum wage to €10.20 per hour from 1 January 2021 and ensure that a full-time worker earning the minimum wage does not suffer a higher rate of USC on their income as a result of the increase.

The reduced rate of USC for medical card holders who earn less than €60,000 per annum was due to finish at the end of 2020 but has once again been extended by a further year to the end of 2021.

The minister’s speech was silent on any potential amalgamation of USC and PRSI so it appears that we will need to continue to wait for developments in this space.

Full details of the revised rates and bands are included in the Tax Rates and Credits 2020 table at the end of this publication.

Income tax bands

No changes have been made to the income tax bands or rates but there may be some movement in this space in Budget 2022 given the commitment in the Programme for Government to index link tax bands and tax credits to earnings. This is long overdue given the trend of wage growth in recent years. The lack of adjustment to the income tax bands to date essentially amounts to a tax increase given growth in wages, so any efforts on the part of Government to address this would be welcomed.

Earned income credit

The earned income credit was introduced from 2016 to address the difference in taxes payable by employees and self-employed individuals. The credit for 2021 will increase by €150 to €1,650, thereby finally equalising the credit with the PAYE tax credit available to employees. 

Dependent relative credit

The dependent relative credit was increased from €70 to €245. This tax credit applies to a taxpayer who maintains a dependent relative, or a dependent relative of their spouse or civil partner, at their own expense. The credit will not be available if the dependent relative’s income exceeds €15,060.

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