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The purpose of this article is to outline the significant measures which were introduced in the Budget 2009 and are expected to be implemented in Finance Act 2009.

At the time of writing this article, the Finance Bill is scheduled to be published on 20 November 2008. In the next issue of Accountancy Ireland we will review any unexpected changes introduced to the budgetary measures, together with other legislative amendments not mentioned in Budget 2009.

Income Tax Income Levy A new income levy is being introduced that will apply at the rate of 1% to gross income up to €100,100 per annum or €1,925 per week. A rate of 2% will apply to income in excess of that amount. The levy is paid on gross income, before deductions for capital allowances or contributions to pensions. The levy does not apply to social welfare payments including contributory and non-contributory social welfare pensions. In addition, the levy does not apply to interest which has been subject to DIRT.

The above is based on the Financial Resolution passed on Budget night. Any subsequent changes, including the Taoiseach’s announcement in the Dáil on 21 October that the income levy would not apply to those on the minimum wage, will have to be included in the Finance Bill. Where income is above the minimum wage, the levy will apply to the entire amount.

The income levy was first introduced in Budget 83 for one year when the then Minister for Finance, Alan Dukes described the Government’s room for manoeuvre in framing the budget strategy as extremely limited. Former Taoiseach and Minister for Finance Bertie Ahern reintroduced the measure in Budget 93, again for one year, as a means of seeking an equitable contribution from all income earners in a position to bear such a burden.

As with the previous times an income levy was introduced, it is expected that the measure in this year’s Budget will also be temporary.

Preferential Home Loans and Other Loans To reflect changes in interest rates, the specified rate in respect of loans (other than home loans) is being increased from 13% to 15%. This change will take effect from 1 January 2009.

DIRT The rate of retention tax that applies to deposit interest, together with the rates of tax that apply to (a) life assurance policies and (b) investment funds, are being increased by 3 percentage points to 23% and 26% respectively. The increased rates will apply to payments, including deemed payments, made on or after 1 January 2009.

Pensions The annual earnings limit for determining maximum tax-relievable contributions for pension purposes is being set at €150,000 for 2009 as compared with the 2008 limit of €275,239.

By reducing the pension contribution limit, the Minister may have contained the most costly Income Tax relief, but largely at the expense of the private sector. In so doing, he has abandoned the line in recent Government policy to encourage adequate provision for retirement.

Cycle to work scheme From 1 January 2009, the provision of bicycles and associated safety equipment by employers to employees who agree to use the bicycles to cycle to work will be treated as a tax exempt benefit-inkind. - The exemption may only apply once in any five year period in respect of any employee. - There will be a limit on the value of such purchases of €1,000 for each employee.

The scheme may also be implemented via salary sacrifice arrangements.

Car Parking Levy A flat rate levy of €200 per annum will be charged on employees whose employer provides them with car parking facilities. Revenue have stressed that the levy must be seen to be borne by the employee. The levy will be confined to employerprovided car parking facilities situated in the main urban centres.

VAT Increase in standard VAT rate from 21% to 21.5% The standard rate of VAT will be increased from 21% to 21.5% with effect from 1 December 2008. This increase will apply to all goods and services which are currently subject to VAT at 21%.

The burden of the increase in the VAT standard rate will fall on the final consumer as businesses can usually offset any VAT charged on their purchases.

Revenue have published a VAT Information Leaflet on the implications for traders of the change in the standard VAT rate.

Corporation Tax By holding the rate of Corporation Tax at 12.5%, the Minister has sent out a strong signal of confidence in Ireland as an ideal place to invest and develop business.

R&D Credit The current 20% rate of tax credit for incremental expenditure undertaken by a company on qualifying research and development (R&D) is being increased to 25%. This will apply to accounting periods commencing on or after 1 January 2009. The increase in the R&D credit is to be welcomed and should encourage more knowledge-based industries to locate in Ireland. However, it is essential to expand the R&D measures, not just in percentage terms but also in terms of the types of industries that qualify for the relief. Preliminary Tax payment dates for Large Companies The current single payment for large companies’ preliminary corporation tax will be split into two instalments. This will apply to accounting periods commencing on or after Budget day, 14 October 2008.

At present, large companies, i.e. companies with a corporation tax liability of more than €200,000 in their previous accounting period, are obliged to pay preliminary corporation tax (amounting to 90% of the liability for the current accounting period) one month before the end of the current accounting period (and not later than the 21st day of that month). For accounting period commencing on or after 14 October 2008: - The first instalment will be payable in the sixth month of the accounting period. The amount payable will be 50% of corporation tax liability in the preceding accounting period or 45% of corporation tax liability for the current accounting period – e.g. 21 June of the current year for a company with a 31 December yearend. - The second instalment will be payable (as at present) in the eleventh month of the accounting period. The amount payable will bring the total preliminary tax paid to 90% of corporation tax liability for the current accounting period – e.g. 21 November of the current year for a company with a 31 December year-end.

This measure highlights the importance of seeing the detail in the Finance Bill prior to concluding on the exact workings, e.g. what is the position for companies with short accounting periods?

The bringing forward of the payment date for large companies has compounded the inequity of the Corporation Tax system for those companies. Even though the first instalment may be based on the prior year results, the second instalment must be based on the current year results which are not known at the date of payment.

Surely the Minister could have allowed these companies to base the two preliminary tax payments on the previous year’s results when they are expected to make an earlier payment.

Exemption for Start-up Companies New start-up companies which commence trading in 2009 will be exempt from tax, including capital gains, in each of the first three years to the extent that their tax liability in the year does not exceed €40,000. This measure is being examined to ensure it is compliant with EU rules on State Aid.

This exemption is to be welcomed. It should encourage the setting up of smaller enterprises which could assist the economy in terms of employment.

Newly constructed commercial buildings Where newly constructed commercial buildings are used before being sold and the sale does not take place within one year of first use, the purchaser gets the value of available capital allowances on expenditure on a more restrictive basis. The one-year time limit for disposal is being extended to two years.

Energy-efficient Equipment The tax incentive (introduced in Finance Act 2008) which provides for capital allowances of 100% of expenditure incurred by companies in the year the equipment is purchased is being extended from three categories to seven categories. The new categories to be included in this scheme are: - Data server related systems and large energy saving office equipment associated with Information & Communications Technology. - Efficient heating/electricity provision equipment and control systems. - Efficient electrical and control equipment associated with Process & Heating Ventilation and Airconditioning systems. - Alternative fuel vehicles.

Stamp Duty Commercial Property The top rate of duty is being reduced from 9% to 6% in respect of instruments executed on or after 15 October 2008. Revenue have confirmed that the reduced rate refers to all non-residential property, and not just commercial property.

Capital Gains Tax Change in Rate of Tax The rate of capital gains tax is being increased to 22% from 20% in respect of disposals made from midnight on 14 October 2008.

Change in Payment Dates The payment date in respect of disposals in the period January to November is being changed to mid- December and the tax on disposals in December will now be due on the following 31 October (the existing pay and file date). Given the confusion surrounding the current system for payment and tax return dates, the above changes will only add to the confusion. In 2009, the CGT changes will result in two different rates being applied, with three effective payment dates – 20% on disposals from 1 October 2008 to 14 October 2008, payable by 31 January 2009; 22% on disposals from 15 October 2008 to 31 December 2008, payable by 31 January 2009; and 22% on disposals from 1 January 2009 to 30 November 2009, payable by mid-December.

Of course, forgetting to include the mire of payments in the correct tax return may result in interest and penalties.

Charge on Non- Principal Private Residences A charge on all non-principal private residences will be introduced in 2009. The new charge will be set at €200 per dwelling and will be levied and collected by local authorities. It will be payable by the owners of private rented accommodation, holiday homes and other nonprincipal residences but will not be applied to new dwellings as yet unsold.

This measure is under the care of the Minister for the Environment and hence will not be included in the Finance Act.

The concluding part of this article on Finance Act 2009 will consider unexpected changes to the Budgetary measures, together with other legislative changes not announced in the Budget.

Mary O’Brien, ACA is Senior Manager at the Taxation Department of the Institute of Chartered Accountants in Ireland.

I am just enquiring about the €200 per dwelling I have spoken to my local council and they did not have any idea about the it. Who should i speak to about this matter? Also will this be passed on to tenants of rented accomidation?

Mary, I am just wondering if the levy would apply to staff in the following situation. We contribute €100 a month to pay for parking. The employer pays the rest. The space cost €2540 to rent year. The company have 7 spaces for free with the building which is owned by them and rent an additional 7 spaces from the management co.The total cost minus the employer contribution is spread over the 14 employees.