The July Stimulus Package – key tax changes

On 23 July 2020, the government announced its July Stimulus, a range of measures designed to help business meet the challenges caused by the ongoing COVID-19 pandemic, stimulate economic growth and protect employment. The relevant legislation has now been enacted.

Employment supports

Since the onset of the pandemic measures in March 2020, the government has been supporting the incomes of up to one million people through various social welfare and wage subsidy schemes. The July Stimulus revamps and extends these schemes.

Employment Wage Subsidy Scheme (EWSS)
The Temporary Wage Subsidy Scheme (TWSS) has been an important support for many employers since the end of March 2020. The government has now announced that this scheme is being phased out and replaced with the EWSS.

For more detail about the EWSS read our recent article The Employment Wage Subsidy Scheme (EWSS).

Pandemic Unemployment Payment
The COVID-19 Pandemic Unemployment Payment has been extended until 1 April 2021. However, the amount payable will be gradually reduced to €203 per week (equivalent to Jobseekers’ Benefit) during that time, and the scheme will be closed to new entrants with effect from 17 September 2020.

Tax changes

A number of taxation changes have been introduced.

VAT rate reduction
The biggest single tax measure introduced was the reduction of the standard rate of VAT from 23% to 21%. This is a temporary measure, to apply from 1 September 2020 to 28 February 2021. This will result in a VAT reduction for a wide range of goods and services, although it remains to be seen if it is of sufficient quantum to impact consumer spending. The Minister for Finance has also acknowledged that some businesses may, rather than reduce prices, retain the benefit of the VAT saving to assist their business through this challenging period.

Businesses must ensure that their systems and invoicing procedures are updated in preparation for these changes. For more detail, read our recent article, Information on preparing for the VAT rate change.

Stay and Spend incentive
In introducing a reduction to the headline rate of VAT, the government has rejected calls for a more targeted VAT reduction for the tourism and hospitality sector, which has been so badly impacted by the fallout from the pandemic. Instead, they have introduced an income tax relief designed to stimulate consumer activity in that sector during the tourism “shoulder season”.

This relief comes in the form of a tax credit of 20% on amounts spent on accommodation, food and non-alcoholic beverages in the period from 1 October 2020 to 30 April 2021. The minimum spend per transaction is €25 and the maximum credit is €125 per person. Therefore, for example, a couple could spend a total of €1,250 in hotels, restaurants and similar establishments and obtain a tax refund of €250, although if they are separately assessed for income tax they would need to split the bills between them to maximise relief. The Revenue Commissioners are in the process of developing a new mobile app which taxpayers can use to claim the credit.

Warehousing of tax debts
Since March 2020, subject to certain conditions, the Revenue Commissioners have not been imposing interest on late payments of VAT and PAYE. This applies to the January/February, March/April and May/June 2020 VAT returns and PAYE returns from February to June 2020. The returns themselves must still be filed, however. 

This has now been put on a legislative footing. Furthermore, businesses will have the option to warehouse those debts, as well as any PAYE and VAT liabilities arising for the first two months after any COVID-19-related restrictions on their sector are lifted. This means that those debts will not be payable for a further 12 months, during which time no interest will accrue. Once that period has elapsed, interest will apply on the outstanding amounts at a reduced rate of 0.0082% per day, an effective rate of 3% per annum, until they are fully discharged.

In order to avail of the warehousing provisions, a taxpayer must ensure that their ongoing tax obligations are kept up to date, otherwise the benefits of the warehousing scheme will be withdrawn. For example, if a taxpayer warehouses their PAYE and VAT liabilities up to the end of June, they must ensure that their July/August VAT return is filed and paid by 23 September 2020. 

Loss relief
Many companies, individuals and partnerships that would have been profitable in previous years may find themselves in a loss-making position in 2020. The July Stimulus Package contained a number of measures to provide enhanced relief for such losses. As with most of the other measures, the taxpayer must be tax-compliant in order to avail of these.

In the case of companies, they are already entitled to offset trading losses of a current year period against the profits of the immediately preceding period; however, they must wait until the current period return has been filed, i.e. well into 2021 in most cases. The measures now introduced allow them to make an interim claim for up to 50% of these losses before the current period has elapsed, thereby obtaining a refund of tax paid, or reduction of tax payable for that prior period. This applies for any accounting period that includes part or all of the period from 1 March 2020 to 31 December 2020. They may apply for it once four months of the current period have elapsed and may revise their interim claims (up or down) as the period progresses and up to five months after the period has ended. The prior year return must however be filed before a claim is made.

For example, a company with a year end of 31 December 2020 may file and revise a claim at any time between 1 May 2020 and 31 May 2021. If the company made a profit of €100,000 in the year ended 31 December 2019 but expects to make a loss of €100,000 in the year ended 31 December 2020, it may make an interim claim to have €50,000 of that loss carried back and obtain an immediate corporation tax refund of €6,250. The balance of the loss may be claimed in the normal manner when the 2020 return is filed.

In the case of individuals and partnerships, under existing legislation they may only carry forward trading losses against future trading profits. The July Stimulus Package however provides for a one-off entitlement to carry back losses of up to €25k for 2020 against profits taxable in 2019. Again, an interim claim may also be made for these losses at the time the 2019 income tax return is being filed.

Cycle to Work Scheme
The Cycle to Work Scheme has been popular in recent years. It allows an employer to provide employees with a bicycle and related cycling equipment without it being taxed as a benefit-in-kind. The maximum expenditure has now been increased from €1,000 to €1,250, and €1,500 in the case of e-bikes. An employee may also now avail of the scheme once every four years, instead of every five years as had been the case.

Help to Buy Scheme
The Help to Buy Scheme is designed to help first-time buyers fund a deposit for a house or apartment by refunding income tax and DIRT paid in the previous four years. The July Stimulus provides that the maximum refund is increased to the lower of 10% of the value of the property or €30,000 (up from 5% and €20,000), but only until 31 December 2020. 

Other measures

A range of other measures have been introduced, including:

• The waiver of commercial rates has been extended until the end of September 2020
• The maximum restart grant for small and micro businesses has been increased to €25,000
• A Credit Guarantee Scheme has been introduced whereby the government will guarantee 80% of certain business loans of up to €1m
• A range of loan and working capital support schemes

The key details of the July Stimulus Package are available in a downloadable PDF.