The Budget 2014 has been greeted by mixed reviews and little fanfare.....Is this really the turning point for the Irish Economy?
Hailed by Michael Noonan, Minister for Finance as the last budget before we exit the bail-out we are please that there have been no changes to to headline rates of income tax, PRSI or USC. However, Budget 2014 introduces changes around pension limits which will be of particular concern to those planning for retirement.
In our on-going endeavours to bring you all the latest news affecting payroll, we endeavour to summarise the budget 2014 implications pertaining to payroll for employers and employees.
Budget 2014 - Employment Taxes:
Income tax, PRSI and USC rates remain unchanged. However it is worth noting that based on existing legislation, the reduced rate of 4.25% Employer PRSI is due to revert to 8.5% on 1st January 2014.
As a carry forward from Budget 2013, PAYE employees will be subject to PRSI on their unearned income, including rental and investment income, dividends and interest on deposits and savings, effective from 1st January 2014. Details of this change are expected in the forthcoming Social Welfare Bill.
Budget 2014 - Termination Taxes:
Currently an employee who receives a taxable termination payment may also claim an additional relief from Revenue known as Top Slicing Relief. This reduces the tax on termination payments from the marginal rate to the individual's average rate for the previous three years.
Last year restrictions were introduced on the relief, limiting its availability to payments up to €200,000. Budget 2014 has abolished Top Slicing Relief completely from 1st January 2014, meaning that individuals in receipt of termination payments will pay tax at the marginal rate from 1st January 2014.
Budget 2014 - Tax Credits:
The One-Parent Family Tax Credit is being replaced with a new Single Person Child Carer Tax Credit from 1st January 2014. The new credit will be the same value as the One-Parent Family Tax Credit (€1,650) but is available only to the principal carer of the child.
This will have a knock-on effect on the SRCOP. Currently individuals entitled to the One-Parent Family Tax Credit are also entitled to the SRCOP band of €36,800 however non-principal carers previously claiming this credit, will see their SRCOP reduced to €32,800.
Overall the increase in tax for a non-principal carer previously claiming the One-Parent Family Tax Credit could be as much as €2,490 annually.
Budget 2014 - Private Medical Insurance:
Tax Relief at the standard rate of tax, currently 20%, is available on private medical insurance premiums. From 16th October 2013 tax relief is being capped on premiums of up to €1000 for and adult and up to €500 for a child.
Budget 2014 - Maternity & Adoptive Benefit:
Rates of Maternity Benefit and Adoptive Benefit will be standardised at €230 per week for all new claimants from 1st January 2014. Existing claimants will not be affected.
Budget 2014 - Illness Benefit:
Effective January 1st 2014 the number of 'waiting days' for illness benefit will increase from 3 to 6 days. Individuals will not be entitled to Illness Benefit for the first 6 days. It is worth noting that this may lead to increased costs for employers who operate a sick pay scheme.
Budget 2014 - Pensions:
Relief for pension contributions remains at the marginal rate of tax. The Minister announced in last year's Budget that from 2014 tax relief will not be available for pension schemes providing over €60,000 annual income. To achieve this the SFT (Standard Fund Threshold) is being reduced from €2.3 million to €2 million from 1st January 2014. Where an individual has pension rights in excess of this new limit on January 1st they will be able to claim a PFT (Personal Fund Threshold) subject to a maximum of €2.3 million.
Any amount in excess of the appropriate threshold will be subject to an effective rate of income tax of 65%.
The 0.6% Pension levy introduced to fund the Jobs Initiative in 2011 will be abolished from 31st December 2014. However, an additional levy on pension funds of 0.15% will be introduced for 2014 and 2015. Therefore the total pension levy in 2014 will be 0.75% reducing to 0.15% in 2015.
Budget 2014 - Start Your Own Business (SYOB)
We are always excited to see new business starting up!
This encourages the long-term unemployed (at least 15 months prior to starting the business) to start their own qualifying, un-incorporated business by providing a two year exemption from income tax to a maximum of €40,000 per annum.
We were delighted to see that the Ministers speech contained 25 pro-business measures, many of which are non-tax related and we look forward to helping businesses new and established with their payroll requirements throughout the coming year.
Minister Noonan also emphasised Ireland's commitment to the 12.5% corporation tax rate "We are 100% committed to the 12.5% corporation tax rate. This will not change."
As ever, the team at Paycheck Plus will be on hand in 2014 to guide, advise and implement the changes that affect you, your business and your employees. We hope that this information will simplify the changes in Budget 2014 but we remain at your service to assist you with any questions or questions that you might have. We look forward to working with you in the year ahead!