Benign budget puts off tough decisions for another year
Personal Finance columnist Jill Kerby gives her take on Budget 2021 and how it's going to affect you (or not)...
This wasn’t one of those Budgets where there were obvious winners and losers – for obvious reasons.Instead it will go down as the Great Prevention Budget: preventing small businesses that were once viable and profitable from going bust; preventing other companies from letting go even more workers; preventing young people from falling through education and training cracks that have appeared; preventing health service workers – and especially their patients in the community - from exposure to high Covid-19 loads by ensuring sufficient PPE. The list goes on and on.
The relatively minor social welfare changes announced will help older people living alone – they get another €5 per week and a higher fuel allowance.Their carers, will get another €150 a year towards their Carer’s Support Grant, which will be €1,850.Ditto for families on benefits who will see their weekly payments rise slightly with the increase in the qualified child payment. For a family with three children, two aged over 12, this amounts to an extra €12 a week or €624 per annum.
One of the biggest social welfare wins is the decision to defer the pension age at which the State pension can be claimed. It was supposed to rise to 67 this year but this has been deferred until the pension Commission reports back.
Acknowledging just how difficult the pandemic has been for the self-employed, who have been entitled to claim the Pandemic Unemployment Payment (PUP) but only if their earnings disappeared, Budget 2021 introduced a few measures that will hopefully prevent them from losing their businesses. The most important is the introduction of a 12 month tax deferment payment, without interest, for 12 months. The earned income tax credit is also, as expected, rising €150 to €1,650 and brings the self-employed in line with the PAYE working population.
“This [tax postponement] measure could be the difference between survival and personal insolvency,” this year, said Marc O Dwyer of Big Red Cloud, an accounts software provider to SMEs and could save a typical self-employed business from having to pay between €15,000-€20,000 by the pay and file deadline.
“With the self-employed tax payment date fast approaching, these workers and businesses will be hugely relieved that they can delay their final 2019 tax payment and their 2020 preliminary tax for a year without interest or penalties. And even if they’re still struggling at that point, they can continue to defer it and pay just 3% interest thereafter, which is far lower than the interest that would ordinarily be charged.”
However, O’Dwyer warned that the deferral “could lead to a tsunami of tax debt that many may struggle to cope with while keeping their current taxes up to date.
“Even if these businesses get back to normal turnover volumes sometime next year, it’s unlikely that new business will be sufficiently booming to enable them to pay a double tax liability. The real hope is that there will be little or no tax due for 2020 as it was so poor, which would only leave the balance of 2019 and preliminary for 2021 to pay.”
It isn’t just the self-employed, or people working from home who should be paying closer attention to their tax position post-Budget.
With the pay & file deadline pushed out to December 10, this means we all have extra time to get our personal taxes in order and see that all tax relief, allowances, refunds are up to date. The key personal tax reliefs and greatest savings (going back four years) include:Topped up pension contributions at your top rate of income tax - 20% or 40% - in order to cut this year’s tax bill. For every extra €100 you can add to your occupational or private pension, you will save €20 or €40.
Home Carer’s Credit of €1,600 per annum for a married couple in which one partner cares for one or more dependent person (not just children, but someone over age 65 or who is permanently disabled.)
Private health insurance standard rate tax relief (20%) where it is paid for by an employer and/or qualifying medical and dental treatments.
Qualifying higher education fees reliefs; nursing home tax relief (at 40% marginal rate), the claiming of the €1,270 capital gains tax annual personal allowance.
We’ve all been hit with higher carbon tax and many motorists will pay higher VRT and motor tax. Smokers won’t like it – a standard pack of 20 goes up to €14 after the added 50c tax – there has been no rise in personal income tax, USC (thresholds were actually widened) or PRSI and no sneaky levies on savings, personal pension funds or insurance products. The 4.5% VAT reduction for the food/beverage hospitality industry, if passed on, will make eating out (or in) and holiday breaks, when they can happen, less expensive.
Who knows? The ill-timed, over-complicated ‘Stay & Spend’ tax refund scheme may even be revised when the Finance Bill is published.