Budget 2023 and its implications for businesses

The main aim of Budget 2023 is to protect jobs and the economy during a time of soaring inflation.

There are two aspects to the budget, one being temporary measures to help individuals and business cope with the impact of the current rising prices, and then there is a package of permanent measures.

By and large, the temporary measures come into effect before Christmas 2022, whereas the tax measures start from January 2023.

The good news is that the budget is being financed for the most part by a surplus of corporation tax receipts.

This article discusses the main budget measures designed to help businesses, as well as new income tax changes.

Here’s what we cover:

• Income tax changes
• Budget measures for businesses
• Changes in corporation tax schemes
• Budget cuts
• Final thoughts on the budget

Income tax changes

The budget is very generous on the income tax front, but it will benefit higher income earners more than lower income earners.

Most importantly, the standard 20% tax rate band will increase to €40,000, up by €3,200, for single individuals.

For married couples and civil partners with one earner, it increases to €49,000, also up by €3,200.

This increase brings Ireland closer in line with most European countries, where workers only start paying a higher level of tax on higher levels of income.

This increase should deliver an annual saving of €640 for a single person earning more than €40,000 per annum and up to €1,280 for married couples/civil partners.

In addition, all taxpayers will benefit from the increase of €75 in the personal tax credit, as well as the €75 increase in the PAYE tax credit and earned income tax credit (for self-employed taxpayers).

Measures for those on low incomes

To help those on the minimum wage or lower incomes, the ceiling in which a taxpayer has to pay the higher rate of Universal Social Charge (USC) will increase to €22,920 from €21,295.

This is designed to ensure that those on the newly increased minimum wage of €11.30 per hour, up from €10.50 per hour, do not have to pay the higher rate of USC.

The new minimum wage rate comes into effect in January 2023.

The extension of the band will also result in a modest decrease in USC for people with income in excess of these levels.

In addition, the reduced rate of USC for medical card holders who earn less than €60,000 per annum was due to expire at the end of 2022, but has again been extended by a year to the end of 2023.

Lastly, though not a tax change, the increase in the social welfare Working Family Payment threshold by €40 per week will also benefit low-income families and will come into effect in January 2023.

Also, recipients of the Working Family Payment will get a one-off payment of €500 in November 2022.

More generous incentive payments

Employees who receive a tax-free bonus in vouchers will be able to keep more of it outside of the tax net, as the Small Benefit Exemption scheme has increased from €500 to €1,000.

The number of qualifying vouchers or incentives per year has also increased from one to two.

This change applies for 2022 and subsequent years, so employees will be able to avail of a higher tax-free Christmas bonus at the end of this year.

In addition, the Key Employee Engagement Programme (KEEP), a tax relief for share option schemes for employees and directors of certain qualifying SME companies, is being extended until 31 December 2025 and a number of other positive amendments are being made to the scheme.

Software updates

In terms of housekeeping, companies will need to update their payroll software before January 2023. Check with your vendor, as updates may happen automatically if your company is using cloud software.

Budget measures for businesses

The budget also contains measures that are specifically targeted at businesses.

Supports for energy costs

The headline measure in terms of businesses is the €1.2bn Temporary Business Energy Support Scheme (TBESS).

This scheme will cover 40% of the increase in electricity or gas bills, compared with 2021, and up to a maximum of €10,000 per month per business.

It will be administered by Revenue, backdated to September 2022, and will run at least until February 2023.

It’s open to all businesses that are tax compliant and that experience at least a 50% increase in gas and electricity costs in 2022 compared with the previous year.

Farmers are also going to benefit from a similar energy package.

There is also a Ukraine Enterprise Crisis Scheme of €200m, which is to be administered by the Department of Enterprise, Trade and Employment.

One strand of the scheme will provide up to €2m in grant aid for energy intensive companies impacted by the exceptionally severe increases in gas and electricity costs.

It will be administered through Enterprise Ireland, IDA and Údarás na Gaeltachta, and eligible businesses must produce an energy efficiency plan that shows how they will get their energy costs down.

Specific targeted measures

There were also more specific targeted measures:

• In line with the National Development Plan, €11.7bn of capital expenditure is planned for 2023 and it’s estimated that approximately 80,000 construction jobs will be sustained by this NDP investment. The budget has also ringfenced €2.6bn spend on transport infrastructure in 2023, the largest infrastructure spend in 15 years.
• To support the night-time economy, in particular nightclubs, the fees for an application for a special exemption order are being reduced by 50%. The excise fee of €110 per application is reduced to €55.
• An alcohol excise relief scheme is being provided for small producers of cider and perry. A 50% excise relief will be available on up to 8,000 hectolitres of cider and perry produced by small producers, with an annual production threshold of up to 10,000 hectolitres.
• The qualifying production threshold for microbreweries is being increased to allow the industry more scope to expand. The current production ceiling of 50,000 hectolitres will increase to 75,000 hectolitres.
• The VAT rate on newspapers and news periodicals will be reduced to zero from 9%. This measure will also apply to digital editions of these publications.

Changes in corporation tax schemes

Knowledge Development Box

The Knowledge Development Box (KDB) is an intellectual property (IP) regime that provides for an effective 6.25% rate of corporation tax on certain income from qualifying IP assets.

It’s currently available for accounting periods commencing before 1 January 2023.

Budget 2023 provides for the extension of the KDB for four years, to allow the relief to be available for accounting periods commencing before 1 January 2027.

However, given the low numbers that currently avail of the KDB, this change is unlikely to help with the uptake of the relief.

Research & Development tax credit

The Research & Development (R&D) tax credit provides a 25% tax credit for all qualifying R&D expenditure.

In order to align with new norms in international tax, there will be adjustments to the timing of payment of the credit, and no changes are being made to the amount of credit that a company may earn.

As a result, the changes are net neutral in budgetary terms.

The current system of offsetting against corporation tax liabilities and payment in three instalments is being changed to a new fixed three-year payment system.

A company will have an option to call for payment of their eligible R&D tax credit or to request that it be offset against other tax liabilities, and existing caps on the payable element of the credit are being removed.

The first €25,000 of a claim will now be payable in the first year, to provide a cash-flow benefit for smaller research and development projects and to encourage more companies to engage with the regime.

Transitional measures will be in place for one year, to smooth the transition to the new payment system for companies that are already engaged in research and development activities.

Section 418 tax relief

The Section 418 tax relief allows films, television dramas, animations, and creative documentaries that are produced in Ireland up to 35% tax credit and has proved very successful in attracting a large number of jobs and also expenditure to Ireland.

The budget extends Section 481 by four years and it will now end on 31 December 2028.

Budget cuts

While the budget for the most part was about putting more money in people’s pockets, new levies have also been introduced.

The introduction of a 10% levy on concrete blocks was announced in the budget.

It’s designed to offset the cost of the €2.7bn mica redress scheme. But the fear is that the cost of this levy will be passed on to those already struggling to buy a house.

And reports following the budget suggest the 10% levy will be either postponed or scrapped by the government. More will be revealed in due course.

There was also disappointment for the hospitality industry. The industry had lobbied hard to extend the lower 9% VAT hospitality rate beyond February 2023.

The lower VAT rate was introduced to help hospitality cope with Covid and lobbyists were looking for a further extension.

However, in the budget, it was confirmed that the normal 13.5% VAT rate will come into effect again in February 2023.

Final thoughts on the budget

Will the budget do its job of protecting jobs for the year ahead?

Business lobby group, IBEC, was for the main part supportive. However, ISME (The Irish SME Association) was less enthusiastic, saying the TBESS was the only substantial direct support for SMEs.

The reality is that most businesses might struggle this year, but hopefully the budget has lessened the blow, so that companies and jobs can survive.

Also, in the months ahead, companies should keep an eye on changes in terms of business grants and supports, as many of the new measures are not completely written in stone.