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Welcome to Budget 2021

The Minister for Finance introduced the 2021 Budget on 13 October 2020. Further detailed measures will be included in the Finance Bill to be published on 22 October 2020, writes Tom Woods, Head of Tax.

Budget 2021 was introduced by the Minister for Finance against the backdrop of two significant economic uncertainties – the impact of Brexit and the continuing effect of COVID-19. In his Budget speech, the minister indicated that the Budget had been framed on the assumption that no free trade agreement will be agreed between the EU and the UK, and that COVID-19 would continue to be present in Ireland next year with the absence of a broadly available vaccine. 

In summary there were very limited tax measures announced – €270m in the context of an overall budgetary package of €17.75 billion. There were no tax measures specifically introduced to address Brexit but there were a range of supports announced for affected businesses.  There were, however, a few tax measures introduced to deal with the impact of COVID-19 on certain sectors of the economy, such as a reduced 9% rate of VAT for the tourism and hospitality sector and an extension of certain measures which were announced in the July Stimulus Plan such as warehousing of tax liabilities to now include income tax.

The minister also emphasised the importance of tackling housing and climate change as two of the core missions of the current Government, which can be seen in a number of announced measures including:

  • The extension of the accelerated capital allowances scheme for energy efficient equipment for a further three years
  • An increase in carbon tax of €7.50/tonne
  • Modifications to the VRT regime and motor tax in the context of CO2 emissions
  • An extension of the Help-to-Buy measures which were announced in the July Stimulus Plan
  • Extension of, and amendments to, the Stamp Duty Residential Development Refund Scheme

The minister acknowledged the role that the relatively stable corporation tax receipts have played in funding pandemic related expenditure and reinforced the commitment to the 12.5% rate of corporate tax. The need for Ireland’s broader corporation tax regime to remain competitive, legitimate and sustainable was also emphasised in the context of international developments such as the EU Anti-Tax Avoidance Directive and the various OECD BEPS Inclusive Framework reports.

As expected, no changes were announced in relation to income tax bands. However, some minor amendments to the entry points for USC and employer’s PRSI were introduced as well as an increase in the self-employed earned income credit to bring it in line with the PAYE credit. Whilst some minor amendments to Entrepreneur Relief were announced, unfortunately the €1m lifetime limit has not been adjusted. Bringing down the capital gains tax rate was a missed opportunity.

Given the broader economic uncertainty and shift from a surplus position of €1.3 billon to a projected 2020 deficit of €21.5 billion, it was broadly expected that there would be a limited number of tax relieving measures introduced in this year’s Budget. That said, it is hoped that measures which have been lobbied for in recent years to improve the competitiveness of Ireland’s tax regime will be revisited as the economy stabilises.

More on Budget 2021