Employment tax and the 2018 Budget

Oct 10, 2017

  • Employer PRSI is set to increase by 0.1% per year over the next 3 years, to 11.05% by 2020
  • The standard rate tax band has been increased by €750. The 2.5% rate of USC has been reduced to 2% and the ceiling for this rate has increased from €18,772 to €19,372. The 5% rate of USC has been reduced to 4.75%
  • The Minister has announced the set-up of a working group to plan for the amalgamation of the USC and PRSI
  • There is a further increase in the earned income tax credit for self-employed individuals of €200, bringing the credit to €1,150. The Home Carers’ Credit has been increased by €100, bringing it to €1,200
  • Those who took out home loans between 2004 and 2012 get to keep their mortgage interest relief up to 2020, but reduced each year from 2018 by 25%
  • The Minister has announced a Key Employee Engagement Programme (KEEP) providing for advantageous tax treatment on share options for employees of SMEs
PwC 2018 Budget Ireland logo.

The big talking point – Employer PRSI to increase

As part of the Minister’s package to improve “education for all”, an increase in the National Training Fund Levy was announced. This will increase by 0.1% per annum over the next three years, bringing the Levy from 0.7% to 1%.

This is significant for employers. The Levy is a component part of the Employer PRSI charge. Therefore, employers are facing an increase in their PRSI costs from 10.75% t0 11.05% by 2020. This will provide €47.5 million of additional investment in the Higher and Further Education sectors in 2018 alone.

The Employer PRSI increase will be of interest to business, going from 10.75% in 2017 up to 11.05% in 2020.

Doone O'Doherty PwC Ireland

Other significant changes

The Government has stressed its focus on rewarding work and enterprise, benefitting those who pay the highest rates of tax on modest incomes.

This is being achieved in two ways:

  • Raising the point at which people begin to pay the top rate of tax by €750. At present, single individuals pay the 40% rate on income over €33,800 and married one earner couples pay the rate on income over €42,800. The increase in this ceiling means an additional €150 a year, or €3 a week, to a worker who pays the top rate of tax. While this is a positive move, it is still a very low entry point by international standards to a tax rate of this magnitude

and

  • reducing the 2.5% rate of USC to 2% and increasing the ceiling on which this applies from €18,772 to €19,372. The 5% rate of USC has also been reduced to 4.75%.  This rate will apply to income from €19,373 to €70,044.

The Minister also announced a number of measures to tackle climate change, including a 0% benefit in kind (BIK) rate on electric vehicles provided as company cars for 2018 only. This will allow time for a comprehensive review of BIK on motor vehicles in general, which is likely to inform part of next year’s budgetary announcements. Electricity used in the workplace for charging electric vehicles will also be exempt from BIK.

This time last year the Minister signalled the introduction of Real Time Reporting (RTR) for employment tax and payroll compliance with effect from 1 January 2019. This year, he has announced the allocation of additional resources to support a range of compliance interventions in the run up to the ‘go live’ date. This will include enhancements to ICT capacity for data matching and analytics. This is consistent with the message that we delivered to attendees at our first RTR workshop late last month.

A signalled change is the establishment of a working group to plan for the amalgamation of USC and PRSI. I think this will be a very tricky one to implement for a number of reasons. For example:

  • Individuals aged 66 and over are not liable to PRSI but they are liable to USC
  • PRSI operates on a weekly/monthly basis whereas the USC is a cumulative, annual tax

What we already knew

There were a number of measures signposted in the 2017 Budget, which have now been confirmed.

The Earned Income Credit for self-employed individuals has been increased from €950 to €1,150, which brings it closer to the PAYE Credit for employed workers.

The so called ‘negative equity generation’, who bought homes between 2004 and 2012, will get to keep their mortgage interest relief for another three years. However, the tax relief will be reduced by 25% over each of those three years. The relief will cease entirely from 2021.

On foot of last year’s Budget announcement focusing on share based remuneration in the SME space, the Minister has announced a new Key Employee Engagement Programme (KEEP) to facilitate the use of equity by unquoted SMEs to attract key employees. The gains arising on the exercise of KEEP share options will be liable to CGT on disposal in place of income tax, USC and PRSI on exercise. The incentive will be available for five years for options granted between 1 January 2018 and 31 December 2023.


Portrait of Doone O'Doherty, PwC Ireland.

Doone O'Doherty, Employment tax

Doone is a partner in the firm's people and organisation practice. Doone's focus is on employment tax and global mobility.

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The standard rate tax band increase and reduction in USC rates shows a resolve to reduce the tax burden on middle-income earners.

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