COVID-19 Tax Update - July Stimulus Package

The July Jobs Stimulus package is a very welcome set of measures which will give Irish businesses much needed support in light of the continued impact of the COVID-19 pandemic. The package includes a number of tax measures, the proposed legislation for which is included in The Financial Provisions (COVID-19) (No.2) Bill 2020 (“the Bill”). The key tax measures include: 

Temporary VAT Rate Reduction

The standard rate of VAT will be temporarily reduced from 23% to 21% for a six month period from 1 September 2020 to 28 February 2021.   

With a VAT rate change, businesses will need to consider the following key issues:

• Commercial: Do you pass on the entire 2% VAT rate reduction to your customers or retain all or part of it to cover COVID-19 related costs/to increase margins etc.
• Systems: You will need to update your systems for the VAT rate reduction. This can take time and will need careful planning to ensure that the changes are effective from 1 September 2020.
• Contracts: Review existing contracts to consider the impact the VAT rate change will have on supplies and purchases.
• Tax point: When does the tax point arise for your supplies and which VAT rate will therefore apply.   
• VAT Recovery: Businesses who are not entitled to deduct VAT in full (e.g. education, financial services and health etc.) should consider the timing of purchases and potentially delay significant expenditure to maximise the VAT rate reduction. 
• Credit Notes: You will need to ensure that the correct rate of VAT is applied to credit notes.
• Direct Debits: If you pay VAT to the Irish Revenue based on a direct debit payment, you will need to consider whether to reduce your monthly direct debits.  
  

Employer Wage Support

A new Employment Wage Subsidy Scheme (“EWSS”) will be introduced from 31 July 2020. The EWSS will run in parallel with the current Temporary Wage Subsidy Scheme (“TWSS”) until 31 August 2020 when the TWSS will then cease. The parallel run is to allow certain categories of workers previously excluded from the TWSS to benefit from the EWSS (e.g. seasonal workers and new employees).  

The EWSS will run until at least 31 March 2021 and will be open to all Irish businesses subject to meeting the eligibility criteria which are different to that of the TWSS. Businesses will therefore need to re-evaluate whether they meet the new qualifying criteria which includes being able to demonstrate a decline of at least 30% in turnover or in customer orders in the period 1 July 2020 to 31 December 2020 versus the same period in 2019.   

Under the EWSS, employers will receive a subsidy of up to €203 per qualifying employee per week, including seasonal staff and new employees. The level of the EWSS subsidy payment will depend on the employee’s gross pay per week as follows:

• Category 1 - gross weekly pay of less than €151.50:
  • No Scheme subsidy. 
• Category 2 - gross weekly pay of at least €151.50 and not more than €202.99:
  • A Scheme subsidy of €151.50 per week.
• Category 3 - gross weekly pay of at least €203 and not more than €1,462: 
  • A Scheme subsidy of €203 per week. 
• Category 4 - gross weekly pay of more than €1,462:
  • No Scheme subsidy. 
    

Early Carry-Back of 2020 Losses 

• Corporation Tax Refunds 

A significant measure announced for businesses is the introduction of new loss relief measures allowing for the early carry-back of trading losses incurred through 2020 against prior year profits, thereby accelerating tax refunds by up to 12 months.

This will be of benefit to previously profitable businesses that are now in a loss making position in 2020. The measures announced allow for up to 50% of a company’s estimated 2020 trading losses to be available for early carry-back to shelter prior year profits.The remainder of the 2020 losses will be carried back in the usual manner through the 2020 corporation tax return.

• Self-Employed Individuals 

In addition, accelerated loss relief has also been introduced for self-employed individuals. This measure allows self-employed individuals to carry back a maximum of €25,000 of 2020 losses (and certain capital allowances) to shelter their 2019 profits.

Warehousing of Tax Liabilities 

As expected, the Bill includes the legislative basis in respect of the tax debt warehousing measures previously announced in May 2020. These measures allow for businesses affected by COVID-19 to delay payment of certain PAYE and VAT liabilities for a set period with no interest or penalties. These tax debt warehousing arrangements were announced in May 2020 and are currently being operated by the Revenue Commissioners on an administrative basis.  

Under these arrangements, Revenue will warehouse PAYE and VAT tax debts while a business is unable to trade or is subject to restricted trading arrangements due to the COVID-19 crisis. Such tax debts can be warehoused for a period of 12 months, in addition to an initial two month grace period from when a business resumes normal trading. After the 12 month period has ended, a reduced rate of interest of 3% will apply on all tax debts outstanding where agreement has been reached with Revenue prior to 30 September 2020.

Other tax measures include: 

• “Staycation”: 

In a boost for the tourism and hospitality sectors, a Stay and Spend tax credit of up to 20% will be available for taxpayers that spend a minimum of €625 on accommodation, food and non-alcoholic drinks in the period October 2020 and April 2021.  The credit is subject to a maximum refund of €125 per taxpayer, or €250 per jointly assessed couples. 

• Help to Buy: 

In a bid to help first-time buyers and increase the supply of new housing, the Help to Buy scheme has been enhanced to increase the potential tax refund available to €30,000 or 10% of the cost of a new home (buy or self-build) in the period 23 July 2020 to 31 December 2020. 

• Cycle to Work: 

In a green measure aimed at also taking pressure off public transport, the Cycle to Work scheme has been enhanced with the allowable expenditure under the scheme increased by €250 to €1,250 in respect of normal bikes and by €500 to €1,500 in the case of “e-bikes”.

If you would like to discuss any of the above tax measures in more detail, please contact a member of our Tax Team or your usual ByrneWallace contact.

Please note that the content of this summary does not amount to professional advice. Legal and tax advice should be sought in respect of specific queries. The COVID-19 situation is evolving rapidly and this update is provided on the basis of information available from State sources as at 28 July 2020.