Each October the Government announces how it intends to raise money and spend it in the following year – like a personal budget, but for the country as a whole. This Budget covers how we chose to raise money, primarily through taxation and duties. It also plans how we intend to spend the money raised, covering areas including Health, Transport and Education.
Some years the Government might choose to save a bit, other years they borrow to support additional spend. This year is exceptional. Brexit and COVID19 are massive events fraught with uncertainty. On Tuesday, the Government announced Budget 2021 and in the face of this uncertainty, have chosen to borrow to support massive investment in the Irish economy.
There is extensive coverage of the Budget from many sources over the last couple of days. We have highlighted the measures taken in the Budget that will most directly impact employees financially.
How will Budget 2021 directly affect your how much money you have
Tax Rates: The lower 20% tax rate and the higher 40% tax rate remain unchanged, as well as no change in the level at which you change from 20 to 40%.
Basic Tax Credits: The Personal and Employee tax credits are also unchanged.
Dependent Relative Tax Credit: This increases from €70 to €245 for 2021.
Self Employed: The earned income tax credit increases from €1,500 to €1,650
Minimum Wage: The Minimum wage increases from €10.10 to €10.20.
USC and PRSI: There are some very small changes to the USC and PRSI bands to allow for the impact in the change in the minimum wage, but no changes in the rates.
How will Budget 2021 most directly impact your spending
VAT Changes: The VAT rate applied to the tourism and hospitality sectors will be reduced from 13.5% to 9%. Normally, we could expect this to reduce the cost of these services, but in the context of the extra costs of COVID, we might not see too many of these savings passed on to us as the consumer.
Remote Working: Budget 2021 stated that expenses incurred “Wholly, exclusively and necessarily” to the conduct of working from home that were not reimbursed by the employer, could be claimed as an expense against your taxes. In practice, previously this has meant 10% of your home utilities (Broadband now included), which on average works out at about 20 cents of a tax saving for each day worked from home. This we believe unfairly reflects the financial burden of working from home and we will be pressing for clarification and change in how this applies.
Stay and Spend Tax Credit: Previously announced, the Stay and Spend Tax Credit allows you to claim a tax credit for expenses incurred between 1st of October this year and 30th of April 2021, in registered business in the holiday accommodation and ‘eat in’ food and drink sectors. This tax credit is worth a maximum €125 per person where €625 is spent (Double this for married couples). Keep your receipts over €25!
State Pension Age: This was due to increase to 67 from January 2021, but will now remain at 66 for another year.
Help to Buy Scheme: This initiative to support first time buyers is extended to the end of 2021.