Vicky Crosby of TaxAssist Accountants takes a look at Budget 2013 and how it will affect you.
The aim of this year’s budget was to get back at least €3.5 billion in a combination of cuts to spending and in increased taxation. Minister for Finance, Michael Noonan, opened his speech by saying the government wanted to give the critical small to medium enterprise sector a ‘helping hand’. He announced that rather than focusing on the large export sector, new initiatives in this year’s budget would concentrate on helping SMEs specifically. Several new measures were introduced but with the Minister himself accepting they were ‘modest’ the effects are unlikely to make massive differences to small business owners.
As expected, the property tax was the big ticket item in this budget. With average households facing bills of between €300 and €500 this tax is likely to cause major pain across the board. Aside from this, the other major items affecting the self employed were; further reductions in tax relief on pensions, increases in PRSI, CGT and CAT and a plethora of increased indirect taxes.
Overall this budget was light on good news but some initiatives such as the extension of the cash receipts basis for VAT and the dropping of any plans to make employers cover the cost of sick pay will help somewhat.
Read on to see how Budget 2013 will affect you and your business.
RESIDENTIAL PROPERTY TAX
Specifics on the new property tax were finally announced. The basic rate has been set at 0.18% of the value of your home which will equate to roughly €300 to €500 per house. A higher, so-called ‘mansion tax’ rate of 0.25% on the portion of value over €1m has also been introduced. The property tax is due to take effect from July 2013.
Homeowners will pay half a year’s liability in 2013 with the full amount falling due in 2014. A self assessment system will apply with Revenue publishing a guide on how to value your home soon. Alternatively, homeowners are free to consult with an estate agent on finding the correct value.
The initial valuation will last up to 2016 giving homeowners 3 and a half years of certainty as regards to what they will pay.
In a move to encourage first time buyers to take the plunge the government announced that no property tax would be chargeable to this group for 3 years provided the property is purchased in 2013. However, enhanced interest relief was not extended beyond 2012. As well as first-time buyers anyone who buys a new or previously unoccupied home in 2013 will also be exempt from property tax up to the end of 2016.
With the introduction of the property tax, old charges such as the NPPR and the household tax will be eliminated.
Lastly, and perhaps somewhat controversially local authorities will have the power to change the property tax rate by either 15% above or below (of .18%) to match their funding requirements.
Anyone earning over €60,000 who has been contributing to a pension faces a heavy hit as a result of this budget. Up until now, depending on your age, you could avail of tax relief on your pension contributions ranging from 15-40% of your income subject to a maximum income threshold of €115,000. The percentage of relief stays the same, however the €115,000 threshold has been lowered to €60,000.
This exposes a large chunk of income that would ordinarily have been sheltered from tax to the top tax rate. This will not take effect until January 2014 so there is time to make top up payments to your pension before then.Example: John is 45 and runs his own consulting business. He is on salary of €100,000 and has been making the maximum pension contributions every year. From 2014 John will see his tax bill increase by €4,100 as a result of this change.
Two big changes will affect PAYE workers as a result of this budget. PRSI will now be charged on income that is not from employment – such as rental profit and dividends from shares. This will only affect PAYE workers as self employed individuals already pay PRSI on this income.
Take for example a married couple renting out a home with rental profit of €2,500. Next year will see them landed with an additional liability of €125. The same is true of anyone receiving other investment income.
As well as this, the PRSI free allowance has been cut meaning a large swathe of
people will now pay more PRSI. From January 2013, the first €127 of weekly income will no longer be exempt from the 4 per cent PRSI charge which means that everyone earning €18k per year or more will have an additional liability of €264 per year.
If you have received or are expecting to receive a taxable redundancy package of over €200,000 you stand to lose out. Top Slicing relief will no longer be available on these payments from 1st January 2013. The percentages vary depending on your personal circumstances but on average you could end up paying 10% more tax on your package.
Child Benefit has been cut by €10 a month dropping from €140 to €130. Means testing is to be introduced so that poorer families are not affected.
Motor tax on the average family car will increase from 2013. The exact increases are detailed on www.revenue.ie but the most common family car, a 1.6 litre engine, will see a jump in cost from €478 to €514. If you are driving a car with a two-litre engine, you will fork out an extra €50.
Maternity benefit will be taxable from July 2013. It will not however be subject to USC.
Deposit Interest Retention Tax (DIRT), which is applied to the interest earned on savings, has also been increased. It now stands at 33%.
Capital Gains and Capital Acquisitions tax have both been increased by 3%. This means the rate is now 33%. Unlike some of the other changes this takes effect from midnight on the 5th of December 2012. Capital Acquisitions tax free thresholds have been decreased by 10%.
OTHER SMALL BUSINESS NEWS
The minimum amount of PRSI the self employed earning over €5k must pay has been increased from €253 to €500. So someone who is self employed with a profit of say €6,000 will see their PRSI bill go up from €300 to €500.
In some good news, start-ups will be able to extend the period in which they do not have to pay corporation tax. Previously, unused credits in this area were lost. Today’s budget will allow companies to bring forward any unused credits.
To assist with cashflow, the threshold to qualify for the ‘cash receipts’ basis of VAT, whereby you only pay over VAT to the Revenue once you have actually received the money for a sale has been increased to €1.25million. This means more businesses out there will qualify.
Hauliers will be able to avail of a rebate on diesel from July 2013. The exact amount will be 7.5 cent per litre.
The R&D tax credit will be amended to double the initial spend eligible for credit from €100,000 to €200,000.