Budget 2020 Global Mobility, Immigration & Employment

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Global Mobility, Immigration & Employment Taxes

Budget 2021

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Key measures

As had been widely anticipated, there were no changes to income tax credits or bands, but the Minister did announce that the 2% USC rate threshold is to be increased from €8,472 to €8,675. The weekly threshold for the higher rate of employer's PRSI of 11.05% also increases from €394 to €398. These changes are to ensure that those on the minimum wage are not adversely impacted from a tax perspective and that there is no incentive to reduce working hours for a full-time minimum wage worker.

The Minister announced that the Programme for Government includes a commitment to develop a strategy for remote working and remote service delivery and that an Inter-Departmental Group has already been convened to work on this strategy. In advance of this, he announced that the existing regime whereby workers may claim a tax deduction for utility expenses (light/heat) would now be extended to include the cost of broadband. He also highlighted the tax-free allowance of €3.20 per day, which may be paid tax-free by employers to employees who are working from home.

The Minister announced that the government is applying for EU funding towards the cost of the Temporary Wage Subsidy Scheme which ended on 31 August 2020. He also confirmed that that the Employment Wage Subsidy Scheme would not cease completely on 31 March 2021. The Minister gave assurances that a wage support scheme will extend until the end of 2021 with the form of the extension to be determined when economic conditions are clearer.

Our view

In light of the unprecedented circumstances brought about by the Covid global pandemic, it was to be expected that there would be no reduction in the marginal rates of income tax and universal social charge. It is acknowledged that tax giveaways were never likely to feature in Budget 2021 but as our marginal rate remains at 52%, Irish employees still have one of the highest personal tax burdens in the OECD.

The current crisis has shown us that the future of work is likely to change fundamentally as is evidenced by the way employers and employees alike have embraced working from home arrangements over the last number of months. It is welcome news that there will be a focus on developing a remote working strategy and the recommendations of the interdepartmental group will be awaited with interest. It is a positive development that the costs which may be claimed by employees for working from home can now include broadband expenses. However, the existing methodology for calculating allowable utility costs means that in practice the tax relief due to most individuals is minimal. The addition of broadband to this relief is likely to be of negligible value

Employers can make a payment of €3.20 per day tax-free to employees but not all businesses have the financial resources to make this payment in the current climate. For ease of administration where employees make a claim directly it would be beneficial if this could also be based on a flat rate expense of €3.20.

The area of remote working becomes more complex when one considers that many employees are currently working in overseas jurisdictions for their Irish employer. If this arrangement continues for a significant period of time or becomes a permanent arrangement this will lead to administrative complications in terms of payroll withholding obligations, immigration requirements and social security contributions. This is likely to be a key area of focus for HR departments as consideration will need to be given to developing remote working policies as well as implementing procedures for tracking and monitoring the location of employees.

The Minister did not refer to the various employment related Covid concessions which have been introduced over the last few months. In particular, employers would like certainty on when these concessions are likely to end. The Special Assignee Relief Programme is a valuable relief that encourages skilled individuals to relocate to Ireland by providing an income tax exemption for earnings in excess of €75,000 up to a cap of €1m. The fact that some employees may have returned to work from their home locations or that new hires have started working overseas for the Irish entity due to travel restrictions means that there may be difficulties in meeting the some of the technical conditions of the relief. This was consistent with the fact that no administrative supports were announced for the multinational community at a critical juncture for Ireland. It is hoped that these uncertainties will be addressed in the forthcoming Finance Bill.

The announcement that a wage support scheme will extend to the end of 2021 in some form will be warmly welcomed by many businesses and will greatly help them to in their efforts to retain employees. It is hoped that the scheme will broadly follow the same format as the current Employment Wage Subsidy Scheme which is administratively much more straightforward, albeit less valuable, than its predecessor the Temporary Wage Subsidy Scheme.

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