1. Share options—PAYE requirement
The collection of tax on gains realised on the exercise of a right to acquire shares (i.e. share options) or other assets is being moved from self-assessment to the payroll withholding (PAYE) system. As a result, employers will now be responsible for accounting for the income tax, USC and employee PRSI arising as part of the payroll process. The treatment will apply to exercise gains realised from 1 January 2024 onwards. Exercise gains realised on or before 31 December 2023 will remain taxable under the self-assessment system. This move represents a new compliance obligation for employers.
2. Statute of limitation for PAYE
In a welcome clarification, the Act now provides certainty on Revenues ability to raise PAYE assessment on employers. With limited exceptions, such assessments must be raised within a 4 year window, commencing at the end of the year following the year of assessment in which the income tax month falls. In other words, it appears that a 2019 tax year assessment could be raised at any time up to 31 December 2024.
Where a claim for a refund of PAYE/USC is being submitted by an employer, the supporting return must be filed with Revenue within 4 years commencing at the end of the year of assessment in which the income tax month giving rise to the refund claim falls. This would appear to be a different four year time limit to Revenue’s own in that, continuing the earlier example, employers would only have until 31 December 2023 to claim a refund related to the 2019 tax year.
3. Enhanced employer reporting
While there were no specific measures in relation to Enhanced Employer Reporting Requirements (ERR) contained within this year's Act, the introduction of ERR is expected to commence from 1 January 2024. Confirmation that it will be rolled out for 2024 is dependent on the Minister for Finance signing a Ministerial Order before year end.
The new reporting requirements will place a significant additional compliance burden on practically all employers and steps should be taken over the coming weeks to ensure businesses will be in a position to comply with the requirements from 1 January 2024, on the assumption that the Ministerial Order will be signed.
4. PRSI increases
Employers and employees are also facing a 0.1% increase in social taxes (PRSI) from 1 October 2024. The legislation to underpin this Budget day announcement will be contained in separate social welfare legislation that will likely be released in the new year. It remains to be seen whether this increase will be the first of a number of increases in social taxes over the coming years in response to Ireland’s age demographics and the decision not to defer pensionable age beyond age 66 for the purposes of the state pension entitlements.
5. Company car BIK measures
In a popular move, the Finance Act extends the temporary relief of €10,000 for vehicles in emissions categories A–D to 31 December 2024 for company car benefit-in-kind (BIK) purposes. The reduction of €45,000 in open market value (OMV) will continue to apply for electric vehicles until 31 December 2024.
6. Personal tax thresholds, exemptions and credits
The standard rate cut-off point has been increased by €2,000, resulting in a €400 tax saving for a single individual earning at least €42,000 per annum.
There has also been an increase in the 2% USC threshold and a reduction to the current 4.5% USC rate which will fall to 4% from next year. The personal tax credit, employee PAYE, home carer, and earned income tax credit have been increased by €100 each. The Single Person Child Carer Tax Credit has also been increased by €100 to €1,750 from 2024. In addition, the Incapacitated Child Tax Credit has been increased by €200 to €3,500 from 2024.
7. Employment Investment Incentive
As expected, the Act introduced several necessary amendments to make the legislation compatible with recently updated EU State Aid Rules.
The most fundamental change concerns the rate of tax relief granted to investors. Previously, income tax was granted at the marginal rate (40%). This will change so that, from 2024, differing rates of relief will apply depending on which of the eligibility criteria the investee company satisfies. The rates of tax relief will also be impacted by whether investments are made directly into the company (20%, 35% or 50% depending on eligibility criteria) or indirectly into the company via a financial intermediary (30% in all cases).
8. Angel investor CGT relief
At Budget 2024, the Minister announced a new targeted capital gains tax relief for angel investors in innovative start-up small to medium sized entities (SMEs). We understand that discussions with relevant bodies in the Irish scale-up sector are currently ongoing and this relief is expected to be introduced at Committee Stage after these discussions have concluded.
9. CGT retirement relief
The age limit for qualifying individuals for the maximum amount of CGT retirement relief is increased from 65 years to 69 years, while at the same time, a new maximum limit of €10m is being introduced for disposals to a child up to the age of 70, both of which are due to take effect from 1 January 2025. Introducing the €10m cap will prompt many business owners to consider succession. However, we are concerned that chasing a tax deadline might bring the risk of business owners losing sight of the often far more important questions about what’s best for the family, the business or the people who work in it.
For disposals to third party purchasers, the age limit for the upper threshold has been increased from 65 to 69. The €750k and €500k respective amounts of retirement relief for third party disposals has not changed.
10. R&D credit
An increase in the R&D tax credit from 25% to 30%, and a doubling of the first-year payment threshold from €25,000 to €50,000, is a welcome addition for many private businesses involved in R&D activities.
11. Revised Entrepreneur Relief
The definition of a “holding company” for revised entrepreneur relief purposes has been amended to provide that the holding company must be at least a 51% parent company of subsidiaries and its business must consist wholly or mainly of the holding of shares in those subsidiaries.
This could create challenges for founders seeking to dispose of their shares that have tiered group structures with minority stakes.
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Finance (No.2) Act 2023 comes at a time when individuals, families and businesses are struggling with rising inflation and cost of living increases. There were some small wins for most taxpayers, businesses, and investors. However, employers are facing greater challenges ahead given the increase in employer PRSI from October 2024, additional compliance measures in relation to share options, as well as the expected introduction of Enhanced Employer Reporting Requirements from 1 January 2024 (the last item remains subject to the signing of a Ministerial Order).
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