The Government’s recently announced Economic Recovery Plan includes a number of welcome tax and non-tax measures focused on the continued recovery of our economy. The plan seeks to build on existing COVID supports and provide some certainty to businesses on the supports that will be available through the planned re-opening of the economy, writes Olivia Lynch, tax partner.
Overview of key measures
From an employment tax perspective, the Pandemic Unemployment Payment will be gradually phased out with no new claimants permitted from 1 July 2021, however it should be possible for individuals to instead claim jobseeker benefits.
The Employment Wage Subsidy Scheme (EWSS) has also been a lifeline for many businesses, subsidising the cost of getting employees back to work. This scheme has been extended to 31 December 2021, with Government indicating that the current enhanced payment rates will be retained for the third quarter, but rates may be reviewed in September. The time period for assessment for EWSS has also been broadened from the current 6 months to 12 months with the aim of benefiting more businesses. The extension of the scheme will provide reassurance to businesses and facilitate better planning for the months ahead, however we would strongly urge Government to consider a targeted approach should rates be reduced, ensuring support is continued for the most affected industries like hospitality, leisure and tourism.
A further note of caution is the lack of clarity on the period of assessment that will apply for qualification for the scheme. For example, if the period concerned is January to December 2021, this would require businesses that have experienced a 30% decline during the first 6 months of 2021 to maintain that decline until the year end. This would seem to suggest that only businesses that continue to suffer a decline in the second part of 2021 will be eligible to continue in the scheme past 30 June 2021. We expect to receive clarity on this in due course.
The plan also signals a potential future increase to PRSI rates across all classes, with no specific details included. It will be important that the Commission on Taxation and Welfare adequately considers the balance of any rate increases with the need to get people back to work – any significant increase of rates may be viewed as a disincentive.
The COVID-19 Restrictions Support Scheme (CRSS) was introduced by the Finance Act 2020 as a targeted support for businesses which had to temporarily close due to public health guidelines. A re-opening will result in claimants exiting this relief scheme. However, some businesses will remain affected, so it is welcome that the scheme will be extended until the end of the year. Additionally, there will be an enhanced re-start payment for businesses exiting the scheme, equal to three weeks at double rate of payment, subject to certain limits.
A new Business Resumption Support Scheme (BRSS) will be introduced in September 2021 for businesses whose turnover is reduced by 75% compared to 2019 as a result of public health restrictions. The scheme will not be restricted by location, rate paying or physical premises. Qualifying businesses will be able to apply to Revenue for a cash payment. This is a welcome addition and acknowledges the fact that not all businesses will return to full trading activity immediately.
Management of cash flow is going to be a key consideration for businesses in the early months of resumed trading activity. The announcement in the plan to extend the Tax Debt Warehousing scheme to the end of 2021 is therefore very welcome. In practical terms, this means that businesses will not have to pay warehoused tax liabilities until 1 January 2023, with interest of just 3% applying for a certain period thereafter.
The announced extension of the lower VAT rate of 9% until September 2022 and extension of the Commercial Rates Waiver until the end of September will be welcome announcements to businesses operating in sectors such as tourism, hospitality, entertainment, and certain personal services such as hairdressing.
The plan commits to enhancing Ireland’s value proposition for FDI through an ongoing focus on competitiveness, further developing our innovation eco-system and improving high-level skills availability. The plan re-confirms Ireland’s commitment to working toward an agreement at OECD level which accommodates Ireland’s 12.5% corporation tax rate, guards against abusive tax practices and facilitates healthy tax competition.
The Economic Recovery Plan contains many welcome business support measures. However, the challenge of re-opening and recovery cannot be underestimated. This year’s Budget will need to tread a fine balancing act of being creative with tax policy to support Irish businesses in the near term, while also laying out the path to collecting more revenues in the long term. This is particularly relevant in the context of the potential impact of international tax developments on Ireland’s corporation tax receipts, which is signalled in the plan.
Areas for focus in the forthcoming Budget include:
- SMEs - consideration should be given to allowing relief for investment in companies as part of this year’s Budget. This could take the form of an exemption from capital gains tax for investments in affected businesses which are realised within a certain time period and extending the scope of EII relief to company founders and connected parties of affected businesses. Further details on a mentioned “pre-approval” mechanism for the R&D tax credit for SMEs would also be welcome.
- Tourism - while the extension of the lower VAT rate of 9% until September 2022 is welcome, in our view there is more opportunity to support sectors benefitting from the rate by revising the stay-and-spend credit, with staycations on the cards for many people this summer.
- Remote Working - enhanced tax reliefs/supports for home working would be welcome in order to position Ireland as an attractive location for workers and businesses who want to facilitate remote work. This could include reviewing issues such as the BIK rules and dealing with home costs arising from refitting.
- COVID Fit-out - consideration of tax relief in the form of accelerated depreciation for COVID-related fit out costs i.e. changing floor layouts, design, etc. to suit changing public health guidelines, targeted at sectors most impacted.