The Government’s July Jobs Stimulus package announced last week was trumpeted with much acclaim over the “Stay and Spend Incentive”. This gives taxpayers a tax credit on 20% of the money they spend on hotel accommodation and eating out in Ireland between October 2020 and April 2021.
However, no matter how much the beleaguered taxpayer might long for a staycation break, clever number crunchers would give the package more than a passing glance. A deeper look at the proposal offers the taxpayer many things to interest Ireland’s self-employed and SMEs.
With the lifting of the lockdown proceeding quickly between the phases, all of the government’s stimulus measures need to be seized to improve cash flow and business infrastructure if the challenges of the coming months are to be met.
The Employment Wage Subsidy Scheme is a wage subsidy scheme that will replace the Temporary Wage Subsidy Scheme from September 2020 until 31 March 2021.
Qualifying employers will receive a flat-rate subsidy of €203 or €151.50 per paid employee per week. The scheme will require employers to demonstrate that turnover or customer orders are estimated to fall by 30% for the period July – December 2020, compared with the same period last year. Employers will need to review their turnover each month to ensure that they continue to meet the qualification criteria.
In addition to existing employees, the subsidy will be available for new and seasonal employees and new businesses. Proprietary directors (that is, company directors owning more than 15% of the company’s share capital) will also be entitled to avail of the EWSS in respect of their own salaries, provided they retain ‘ordinary’ employees on their company payroll as well.
An issue that many companies and self-employed individuals may face in the coming tax period is that the tax on the previous year’s profits is due to be paid at a time when turnover or retained cash is under pressure due to loss of earnings in the current year.
The stimulus package contains a temporary acceleration of corporation tax and income tax loss relief for profitable companies and self-employed traders that have become loss making in the Covid-19 period.
Companies can make an early claim to carry back up to 50% of estimated 2020 losses against taxable profits of the preceding accounting period. Self-employed individuals can claim to have estimated 2020 losses of up to €25,000 carried back for offset against their 2019 profits.
The Covid-19 Credit Guarantee Scheme was created to enable SMEs that are adversely affected by the Covid-19 pandemic to access bank finance and credit facilities.
To qualify for the scheme, the SME borrower will have to declare an adverse impact of either 15% of actual or projected turnover or profit due to Covid-19. Moreover, the amount of the loan is limited to 25% of 2019’s business turnover or double the business’s 2019 wage bill.
Lenders will be delighted to see that the Government guarantees 80% of the loan. The banks’ loan-loss provisions should fall as a result. Borrowers too ought to be cheerful. By reducing the lender’s exposure to 20% of the loan value, the scheme is designed to become available to a wide spectrum of applicants. Moreover, interest rates on Covid-19 loans should fall appreciably.
There will be a temporary decrease in the Standard VAT rate from 23% to 21% which will apply from September 2020 to February 2021 inclusive. This will have an impact on the sale of a broad range of goods and services across Ireland, including professional services, most household goods and, in some cases, rental payments for a commercial property.
Consideration will need to be given to any contracts that might take place within the time period. Care will also need to be taken when reviewing the sales and purchases details to be included in the VAT returns falling due to be paid in the September to February period to ensure the correct rate of VAT is reported on each transaction.
In addition to these reliefs, the July Stimulus package included other benefits and reliefs to help Irish business recover its stride in the wake of the Covid-19 pandemic and lockdown. For more information on these reliefs, please click here.
If you feel that your business could benefit from these reliefs but you may be unsure with how to proceed in availing of the reliefs, feel free to contact any member of our tax team.