Budget 2012 introduced several changes that employers will need to be aware of including pension changes and changes to the Redundancy & Insolvency Scheme. In this review, our Irish tax team has outlined the key issues that will affect Irish employers.
Universal Social Charge
The exemption threshold for the USC has been increased from €4,004 to €10,036 from 1 January 2012. This measure will remove many lower income, part time and temporary employees from the charge to USC. Additionally, the USC is set to be calculated on a cumulative basis similar to the way PAYE is currently calculated. Payroll systems will need to be updated in the coming weeks to take into account this change.
Illness Benefit / Occupational Injuries Benefit
In a move aimed at tackling absenteeism in the workplace, Budget 2012 has abolished the existing exemption from income tax on the first 36 days of Illness Benefit and Occupational Injuries Benefit receivable for the tax year 2012 onwards. Payroll operators will need to familiarise themselves with the impact of this change for them as this will vary depending on the payroll method applied.
Special Assignee Relief Programme (SARP)
Much of Ireland’s future growth will be dependent on its attractiveness for inward investment. As part of a strategy to support this key area, a new Special Assignee Relief Programme (SARP) will be introduced. The current SARP which is in effect a limited remittance basis is both complex and restrictive. The suggestion to introduce a newer, more user-friendly relief which can be applied to more key employees is therefore much welcomed. It is also hoped that this may be operated via payroll resulting in cash-flow advantages.
This measure will hopefully allow multinational and indigenous companies to attract key people to Ireland so as to create more jobs and to facilitate the development and expansion of businesses in Ireland. Specific details regarding this new relief are expected in the Finance Bill however it is hoped that it will be wide-ranging enough and indeed, of value, to employers in order to stimulate growth in this area.
Foreign Earnings Deduction
A reintroduction of the Foreign Earnings Deduction which was abolished at the end of 2003 has been announced. The new Foreign Earnings deduction is not expected to be a carbon copy of its predecessor but may well bear some similarities. It will be aimed to further support the export drive by aiding companies seeking to expand into emerging markets. This targeted deduction will apply where an individual spends 60 days a year developing markets for Ireland in Brazil, Russia, India, China and South Africa.
Many companies, both indigenous and multinational, require employees to work in foreign markets on a regular basis in order to develop business opportunities in those areas. It can often be difficult for employers to incentivise employees to spend time, even a short amount of time, working in a foreign market as not only personal circumstances but also domestic and foreign tax and social security issues must be taken into consideration.
Again, specific details regarding this measure are expected in the Finance Bill. Under the previous regime a proportion of employment income relating to workdays spent overseas could be excluded from tax in Ireland and the tax that had been paid on this portion of income via the PAYE system could then be reclaimed via the tax return filing process. This may give some indication of the type of relief being introduced.
Minister for Public Expenditure and Reform, Brendan Howlin, announced that the Redundancy and Insolvency Scheme is being amended to reduce the employer rebate on statutory redundancy payments from 60% to 15%. This reduction in rebate is expected to affect a redundancy which takes place with effect from 1 January 2012, however no transitional arrangements have yet been announced in order to address a scenario whereby a redundancy programme has already been initiated but perhaps may not be complete by the end of the year.
The good news:
- No further reduction in the tax relief applying to pension contributions.
- No change to the Standard Fund Threshold or the pension cap.
- No change to the taxation of pension lump sums.
The bad news:
- Removal of the remaining 50% relief on PRSI that employers benefit from when employees make pension contributions. (This will result in significant financial strain to many employers)
- An increase in the imputed distribution from 5% to 6% on individuals with Approved
- Retirement Fund (ARF) holdings greater than €2m.
- Assets held in PRSAs from which retirement benefits have commenced to be taken will now be subject to the same deemed distribution rates similar to ARFs.
- An increase from 20% to 30% in the rate of tax on assets transferred on the death of an
- ARF owner to a child of that owner aged over 21.