Minister for Finance, Paschal Donohoe, delivered his first budget in his new role today, Tuesday the 10th of October 2017.
With Fine Gael backbenchers, their Independent Alliance colleagues in Government and Fianna Fail, through the confidence and supply agreement, all to be satisfied the Minister had a very delicate balancing act to undertake.
In the end, he announced a budget package of approximately €1.1billion in tax cuts and spending increases.
Here we take a look specifically at how it affects small businesses and the self-employed.
Universal Social Charge Rate Cut:
- The 2.5% rate of USC has been reduced by 0.50% to 2.0%
- The 5% rate of USC has been reduced by 0.25% to 4.75%
- The second rate band i.e. 2% band in 2018 has increased by €600 to €19,372
- The 11% rate for self-employed income over €100k remains in place also.
Earned Income Tax Credit
The Earned Income Tax Credit has been increased from €950 in 2017 to €1,150 in 2018. This means the self-employed are €500 worse off than their PAYE counterparts. It had been promised that this position would be equalised by 2018.
Increase in 20% Income Tax Band:
The amount of income you can earn which is taxed at the lower rate of tax has been increased from €33,800 to €34,550 for a single person and from €67,600 to €69,100 for a married couple.
Increased Tax Deductions
- In order to encourage more housing stock onto the rental market, a deduction of a maximum of €5,000 per property for pre-letting expenses of a revenue nature will now be allowed. This could result in a potential tax saving of approximately €2,438.
- Under current rules, the vast majority of these types of expenses could not be used to reduce your tax bill on a rental property.
- In addition, as announced and approved in last year's Budget the amount of mortgage interest you can deduct on a residential investment property will increase from 80% to 85% in 2018.
- This means an additional €5 tax deduction for every €100 spent on mortgage interest in 2018.
Key Employee Engagement Programme – (KEEP)
A share-based remuneration incentive is being introduced from 01 January 2018 to assist SME's to attract and retain key employees.
Many young ambitious companies can find it impossible to match the salary packages on offer from large multinationals when competing for key staff.
This new incentive will reduce the tax burden on an employee receiving share options in an unquoted company by ensuring that any increase in value of the shares on offer will be subject to CGT only and no portion of the gain will be liable to Income Tax, USC, and PRSI which is currently the case.
As a result, in a scenario where an employee believes in the growth potential of a small firm, share options could be used to increase the value of a job offer without the downside of an Income Tax burden for the employee when the shares are acquired with any tax bill being postponed until the shares are disposed of.
This new incentive is initially to apply to share options granted between 01 January 2018 - 31 December 2023.
In order to fund spending increases on education Employers PRSI, will be increased by 0.1% from 01 January 2018.
This will result in the lower rate being raised from 8.5% to 8.6% and the normal rate being increased from 10.75% to 10.85%.
Future increases of 0.1% per annum for 2019 and 2020 were also flagged by the Minister subject to an independent review of the National Training Fund.
The national minimum wage will increase from €9.25 per hour to €9.55 per hour in 2018.
Increase in non-residential rate:
- It was announced that the rate of Stamp Duty on Non-Residential Property i.e. commercial property transactions will triple from 2% to 6%.
- This increase will take effect from Midnight October 10th, 2017.
- It is hoped that this will encourage developers to embark on more residential rather than commercial building projects to try and ease the housing crisis.
Mortgage Interest Relief
Extension to 2020:
- The Mortgage Interest Relief which was due to expire in 2018 has been extended for certain individuals for a further two years to 2020. However, the relief will be phased out on a tapered basis between 2018 and 2020
- Those who bought a house between 2004 and 2012 will continue to get tax relief on the mortgage interest that they pay but will only get relief at 75% of the existing relief in 2018, 50% into 2019 and 25% in 2020.
For full TaxAssist Accountants Budget Summary, please click here
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