A jobs-led recovery from the serious impact of the pandemic is at the heart of this Budget, writes Claire Davey, Head of PAYE & Personal Tax Compliance at KPMG in Ireland.
COVID-19 and the prospect of a hard BREXIT confirms we are presently living in unprecedented times. Businesses are having to adjust to new ways of working and many employers have had to consider how to meet the difficulties of continuing to trade in ever changing circumstances.
Central to the government’s response to date has been supporting job retention and income protection for employees, and the Temporary Wage Subsidy Scheme (TWSS) and the Employment Wage Support Scheme (EWSS) have been instrumental in achieving these aims.
The Minister confirmed in his Budget speech that approximately 320,000 jobs will be lost in 2020 and estimated that approximately 155,000 jobs could be recovered in 2021. A jobs-led recovery from the serious impact of the pandemic is at the heart of this Budget.
The Minister announced measures confirming the future of the wage subsidy schemes which will help to achieve his mandate for creation and maintenance of employment levels in the State.
The TWSS provided much needed cashflow assistance to businesses in the early stages of the crisis and was instrumental in maintaining the link between the employer and employee. Whilst this scheme has now formally ceased, many employers still need to refund overpaid subsidies to Revenue, a process which is currently being undertaken by Revenue.
In a welcome move, the Minister confirmed that TWSS subsidy repayments can be included in the tax debt warehousing scheme to provide additional liquidity support at this time for employers affected by Covid-19.
Further, the Minister confirmed that the government has begun the process of applying for EU funding towards the cost of TWSS, a figure at which he estimates at €2.5 billion to be utilised in the governments continued management of the crisis.
As part of the July jobs stimulus package the government announced the introduction of the EWSS to replace the TWSS with effect from 1 September 2020. It had previously been announced that the scheme was expected to run until 31 March 2021 and minister confirmed that further wage subsidy supports will be required beyond this date in 2021
The government will decide on the form of extended wage subsidies based on the economic landscape at the appropriate time. This will hopefully provide confidence to employers as they navigate through these difficult trading conditions.
It is hoped that any new scheme will be more widely accessible to include employers who have suffered significant losses during 2020 but have recovered to the extent they currently do not qualify for EWSS under the existing eligibility criteria. What we would like to see is a more equitable qualification criteria which provides graduated turnover thresholds, rather than an “all or nothing” approach which currently exists.
On 6 October 2020 the Minister for Social Protection, Heather Humphreys, announced an increase in the national minimum wage to €10.20 per hour from 1 January 2021. This is an increase from the existing rate of €10.10 per hour.
To ensure that this increase in the minimum wage would not result in an increase in the level of employer PRSI charged, the budget provided for an increase in the employer PRSI threshold from €395 to €398 from 1 January 2021. This aligns the employer PRSI threshold with the salary/wages of a full-time employee earning the minimum wage. We understand the policy decision here to align the rate in this way with the minimum wage was to disincentivise employers from cutting employee hours to avail of the lower employer PRSI rate.
Similarly, the Minister also announced an increase in the ceiling of the second USC rate band from €20,484 to €20,687 to ensure that those minimum wage earners, working full-time, would remain within the 2% USC band.
As a result of the overnight onset of this pandemic back in March 2020 and the government restrictions imposed as a result since then, employers and employees across the country have had to adapt very quickly (and in many cases for the first time) to a new remote way of working.
The Programme for Government had included a commitment to develop a strategy for remote working and the Minister confirmed in his Budget speech that an Inter-Departmental Group has been set up to work on this strategy.
While the results of this Group are not yet known, the minister did remind us about the measures of relief already in place to support remote working as follows:
Historically this phrase “wholly, exclusively and necessarily” incurred has been interpreted quite narrowly by the Revenue in deciding whether an employee is entitled to tax relief in respect of the expenses incurred and as such the terminology has been subject of many court decisions.
Typically, it must be free from doubt that the employee was required to incur the expense as a part of their employment, that the expense relates solely to the performance of their duties and that they could not have been expected to carry out their duties without bearing the expense.
This can be a high threshold to reach, particularly when an individual is incurring expenses in their home so more detailed guidance from Revenue in terms of how they intend to apply these conditions in a remote working context would be very useful.
As COVID-19 looks set to remain with us far into 2021, remote working is likely to be a way of the future. More and more employers are now seeking to find new and more creative ways to reward their employees remotely whether this be in the form of virtual team events, virtual Christmas parties etc. In addition to the specific measures mentioned by the Minister in his Budget speech, further clarification and guidance from Revenue in this area is needed to give comfort to employers that such virtual staff events shouldn’t attract any benefit-in-kind charges.
Should you have any questions on Real Time Reporting or any other PAYE compliance matters, please contact Claire Davey, Head of PAYE and Personal Tax Compliance, or one of the People Services compliance team.