July Stimulus Package – Key tax measures and what they mean for your business

The July Jobs Stimulus Plan announced by the Government contains a spending package of circa €7billion to reboot the economy and set business on the path to recovery following the COVID19 pandemic shut downs in Q2. The Stimulus plan includes a range of fiscal measures to be considered by the Oireachtas in the coming days and weeks.

Taoiseach Michael Martin said prior to the release of the package that “the important thing of the July stimulus is what will work quickly in terms of getting jobs back”. It has a number of key features including backing business, creating jobs and building back up consumer confidence.

Tax measures inevitably will play a key role in the July stimulus package, with the key tax features outlined below.

i. Measures to support business certainty – Wage Supports and Pandemic Payments

The Stimulus Package provides for new Employment Wage Subsidy Scheme (“EWSS”) to replace the existing Temporary Wage Subsidy Scheme (“TWSS”) from 1 September 2020. Both schemes will run in parallel from 31 July until the conclusion of the TWSS at the end of August 2020 to include seasonal workers who previously were not eligible for TWSS. The new scheme is to provide a subsidy to employers whose turnover has fallen by 30% from the period July 2020 to December 2020 compared to prior year results. This new wage support, in addition to the seven month extension of the Pandemic Unemployment Payment until 1 April 2021 should act to give further clarity and certainty to businesses as they navigate a post COVID19 economy.

Previous payments under the TWSS were processed by Irish Revenue, leveraging off the existing detailed infrastructure created through the PAYE modernisation project in early 2019. Ongoing monitoring of the conditions around the new wage scheme and in particular how such subsidies interact with existing payroll will be a key consideration for businesses in the weeks and months to come.

ii. “Spend and save” income tax credit 

In recognition of the impact of COVID19 on domestic tourism and food service sectors, the Stimulus Bill provides for an income tax credit for taxpayers spending over €625 on accommodation, food and non-alcoholic drinks between October 2020 and April 2021. Revenue will provide an income tax credit of €125 per taxpayer, or up to €250 for a jointly assessed married couple.

iii. Immediate carry back of losses and other tax measures 

Under Irish tax law, trading losses incurred may be carried back to prior years resulting in a potentially refundable amount of tax. However, under normal rules such carry back may only be completed after the end of the chargeable period and thus the cash benefit is delayed. The Stimulus Package provides instead for an immediate carry back of trading losses and thus an accelerated cash benefit, subject to cap of 50% of the expected current year loss. 

Action now needs to be taken by those individuals and businesses who have been impacted – in particular, companies with December accounting year-ends who are due to file their FY19 corporate tax returns in September 2020 should take action now. 

Similar relief is available for self-employed individuals who were profitable in 2019, but have incurred losses in 2020 up to a value of €25,000. 

The Package also legislates for the previously announced warehousing of tax liabilities, allowing businesses affected by COVID19 to “shelve” payment of their VAT and PAYE debts for a set period with no interest or penalties.

Finally, in further recognition of the pressures placed on consumer businesses during the COVID19 lockdown period, there will be a 6 month reduction in the standard rate of VAT from 23% to 21%, effective from 1 September 2020. With consumer confidence holding steady into July, as evidenced in Deloitte’s most recent State of the Consumer tracker report*, the reduction in the standard VAT rate from 23% to 21% should encourage spending in the retail and hospitality sectors in particular.

iv. Other measures and supports 

Aside from the specific tax and wage support measures announced, the Stimulus Package provides further funding to assist businesses in looking to future challenges and opportunities. Key areas of focus include significant investments in COVID Life Sciences Products, training and skill development and a renewed focus on helping businesses adapt to the green economy. The package also recognises that unique challenges posed by COVID19 to some businesses have resulted in unique solutions, with many companies increasing their online presence to serve customer and maintain revenue levels – In light of this, businesses can expect to see further supports and funding to develop their online service offerings through Enterprise Ireland and Local Enterprise Offices.

Further Considerations and next steps 

The stimulus is a welcome step in getting businesses back on track post COVID19, and we expect to see the theme of recovery featuring heavily as the Government now looks ahead to Budget 2021 and Finance Bill 2020. Measures providing investment in training and reskilling employees are in particular a welcome development, and should be seen as a first step in recovery. COVID19 has given rise to permanent shifts in ways of working and consumer behaviour. In particular, significant costs have been and continue to be incurred by businesses to ensure a safe work environment as the economy gradually reopens. Going forward, we hope that tax policy should take into account such costs and consider tax reliefs to reduce the overall cost of such measures.

*Deloitte’s State of the Consumer Tracker is a bi-weekly survey, which tracks Irish consumers’ attitudes towards personal well-being, financial concerns, travel and hospitality, transport and retail. The results are based on a survey of 1,000 consumers across 18 countries respectively (1,000 Irish consumers). The most recent data was gathered between 7 and 11 July, one week following Ireland entering the third phase of the lifting of restrictions put in place in response to the COVID-19 pandemic.