Budget 2022 changes and coronavirus supports for businesses coming into effect

Many of the changes announced in the October Budget come into effect from January 2022.

While the Budget was hailed as the road to recovery from the pandemic, the epidemiological situation has worsened once again and going into 2022, the backdrop of coronavirus is still very much there.

This article outlines what changes are happening for businesses in 2022 and covers:

Changes in take-home pay

Coronavirus supports for businesses

Other supports for businesses

Building a more sustainable future

Commitment to 12.5% corporate tax rate for most Irish companies

Final thoughts

Changes in take-home pay

The January pay cheque is often the most eagerly awaited by workers, as after the excess spending of Christmas, many people’s finances are running low.

The good news is that take-home pay will be a little higher in January 2022, mainly due to changes in income tax credits and the standard rate tax band.

The income tax credit for PAYE workers and Earned Income for the self-employed will increase by €50.

In terms of the standard rate tax band, the rate will remain at 20% but the band will kick in at a higher amount, increasing from €35,300 to €36,800.

This will work out at an additional €300 in take-home pay over the year.

There is also a change in the Universal Social Charge (USC), in order to account for a higher minimum wage, which is increasing by €0.30 to €10.50 per hour.

The ceiling of the second rate of 2% of USC will increase from €20,687 to €21,295, which will ensure that full-time workers on the new minimum wage will fall outside the higher USC rate.

The new minimum wage will also impact employer Pay Related Social Insurance (PRSI). The threshold for the weekly amount that incurs the higher rate of employer PRSI will increase from €398 to €410.

KPMG outlined some possible scenarios with the income tax changes and for instance, for a married couple with one employed, on a salary of €50,000, this means an increase in the January pay cheque of €38.75.

And for a single person, who earns €45,000, their monthly take-home pay will increase by €34.58.

In addition, as the government continues to make changes in tax relief for remote workers, employees will be able to claim tax relief for vouched expenses of 30% on electricity, heating and broadband on a pro-rata basis – that is only for the hours worked.

However, this doesn’t include employees who are receiving a tax-free daily allowance of up to €3.20 from their employer.

So, most workers will be slightly better off in January 2022, but few if any will be significantly better off, and the threat of rising inflation could possibly erode any savings.

Coronavirus supports for businesses

Budget 2022 was aimed at gradually unwinding coronavirus supports, but this is still a story of shifting sands.

In December 2021, the government was forced to row back on the lifting of some supports, due to the reimposing of certain restrictions that mainly affect hospitality and nightclubs.

Also, some of the worst affected sectors of the economy now have significant debt and will require ongoing support for some time.

Below is an update on the supports that are available to businesses:

Employment Wage Subsidy Scheme

A vital support for many businesses is the Employment Wage Subsidy Scheme.

On 1 December 2021, there were rate cuts but these have since been increased again, in light of the new Covid-19 restrictions, with the previous five payment bands now continuing for December 2021 and January 2022.

A new two-rate structure of €151.50 and €203 will apply for February 2022 and a flat rate subsidy of €100 will apply for March and April 2022, after which the scheme will end.

Also, the reduced rate of Employers’ PRSI will no longer apply for March and April.

The scheme will close to new employers from 1 January 2022.

Covid Restrictions Support Scheme

The end date of the Covid Restrictions Support Scheme has been extended to the end of January 2022 to allow nightclubs, which are again prohibited from opening, to continue to avail of the scheme.

Pandemic Unemployment Payment

The Pandemic Unemployment Payment (PUP), which is open to the self-employed and employees who have lost their jobs, is to finish by the end of March 2022.

However, again due to the newly imposed restrictions in December 2021, PUP reopened to new applicants who were affected by the latest restrictions.

Commercial rates waiver extended

In December 2021, there was an extension of the current targeted commercial rates waiver for the first three months of 2022.

Reduced rate of VAT extended for hospitality and tourism sectors

The reduced rate of VAT of 9% for the hospitality and tourism sectors will continue until 28 February 2023.

Additional funds for the Covid Credit Guarantee Scheme

The Covid Credit Guarantee Scheme, which provides low-cost loans for businesses affected by the pandemic, will receive an additional €15m.

Pilot scheme for artists

In January 2022, a pilot scheme for artists aimed at providing a basic income is to be introduced.

Other supports for businesses

The Budget was designed to boost the economy and create jobs by encouraging startups, both in terms of encouraging investment and also in terms of offering tax incentives for new companies.

Innovation Equity Fund

On the investment side, the Innovation Equity Fund is to be launched in 2022.

Funding of up to €90m may be available to support early stage funding for Irish business and to support regional business development.

Employment Investment Incentive

Also on the investment side, there are further changes to the Employment Investment Incentive, which provides tax relief for investors.

The scheme has been extended for three further years and changes will be introduced to make it more attractive to investors.

Corporation tax relief extended

In terms of tax relief for startups, corporation tax relief has been extended to five years from a previous three years.

Gaming sector tax credit

A new tax credit will be introduced for Ireland’s flourishing gaming sector. The refundable tax credit of 32% on eligible expenditure of up to €25m should give the sector a welcome boost.

There are similar schemes in the UK and Canada, and they have been very successful.

Relief on excise duties for drinks producers

Small producers of cider and other fermented drinks can now avail of 50% relief on excise duties.

Digital Transition Fund

A €10m Digital Transition Fund will be set up to encourage businesses to develop and adopt data analytics and artificial intelligence (AI).

Building a more sustainable future

The Budget contained a couple of measures aimed at reducing our carbon footprint. Carbon tax, which is currently €41 per tonne for auto fuel, will apply to all other fuels from May 2022.

In addition, for those businesses with company cars, there will be increases in VRT (Vehicle Registration Tax) rates for more polluting cars.

Changes will also come into effect in relation to the Accelerated Capital Allowance (ACA) scheme for energy efficient equipment.

Given the higher carbon savings offered by renewable hydrogen, the ACA scheme will now cover hydrogen-powered vehicles and refuelling equipment, while equipment directly operated by fossil fuels will no longer qualify.

However, gas-powered vehicles and refuelling equipment will be covered by the scheme for a further three years.

A new Enterprise Transition Green Fund will also be established in 2022 for climate-focused companies.

Commitment to 12.5% corporate tax rate for most Irish companies

At the end of 2021, Ireland signed up to the OECD tax agreement that will apply a corporation tax rate of 15% for companies with global revenues of over €750m.

However, the government also reaffirmed its commitment to a 12.5% corporate tax rate for companies with revenues below this threshold.

This will apply to about 160,000 businesses in Ireland, which employ approximately 1.8 million people.

Final thoughts

So, it’s time to get all your ducks in a row, and update your payroll software (check with your vendor as this might happen automatically if you’re using cloud software).

And keep an eye on changes in terms of business grants and supports in this time of flux. They may come in handy as you seek to ensure your business thrives in 2022.

Editor’s note: This article was first published in December 2021 and has been updated for relevance.