I know a tax wish list for 2025 doesn’t set the pulses racing like Tom Cruise jumping from the roof of Stade de France. Or a new David Beckham line of underwear. But the small things keep us happy and small tax changes can put more cash in our pockets. Enough to fund some of the nicer things you deserve after working so hard to keep the show on the road.
“The tax man’s taken all my dough
And left me in my stately home
Lazin on a sunny afternoon
And I can’t sail my yacht
He’s taken everything I got…” Sunny Afternoon – The Kinks
Let’s look at some changes across different tax heads to save us from this squeeze like
- Income Tax
- Capital Gains Tax
- Other areas
- Tax Administration
Income Tax
The highest income tax rate is 52%. That’s 40% Income Tax, 4% PRSI and 8% USC. Not so long ago the number of people employed in the Irish economy hit a record 2.5 million. That has now risen to 2.75 million with record female participation. All those extra people working boosts the Income Tax take. But the downside of a 52% marginal tax rate is it can act as a disincentive too. Sure, why would I bother when more than half goes to the government?
The wish is to reduce the marginal tax rate to 50%. PRSI won’t change so either reduce the top Income Tax rate from 40% to 38% or reduce USC from 8% to 6%. By doing this you reduce the disincentive to work. Plus, you attract more higher-skilled employees into the country. Having more cash in your pocket increases your purchasing power.
The knock-on effect is the government gets a lot of the tax cuts back anyway. More spending means a higher VAT and Excise duty intake for them. Other taxes like Stamp Duty can also get a boost with more people being able to buy a home. That’s if they can find an affordable one!
USC
As mentioned, the top USC rate is 8% but that’s for employees. For the self-employed, the top rate rises to 11% for those who have profits of more than €100,000. That makes the marginal tax rate for self-employed people at 55%. If we are trying to have a fair tax system, then the extra 3% USC surcharge should be done away with.
A lot of these self-employed people are running businesses. They are the ones taking the risks, creating employment, and generating wealth. Their reward is to pay more tax than an employee. Is that fair? Nope.
Enhanced Reporting Requirements – ERR
ERR puts an onus on employers to report certain non-taxable benefits and expenses. These are the
- Remote working daily allowance
- The Small Benefit Exemption
- Travel & Subsistence Payments
The big issue is the number of benefits an employee can get from the Small Benefit Exemption being only 2. The maximum value of the benefits is €1,000 in a calendar year. The Revenue guidance on this is very restrictive as any benefit at all must be reported. Yes, even the Easter Egg and the flowers for a special occasion.
Amazing Individuals Ltd gives their team a voucher in March for €300 and a voucher in December for €500. One of the team, Mary, had a new baby in June and the employer sent her flowers. As a result, her 2nd benefit was the flowers. So, Mary would pay Income Tax, USC, and PRSI on the €500 voucher she receives in December. If she’s a marginal rate taxpayer that would cost her €260. Expensive flowers!
The solution here is to allow unlimited benefits that have a cumulative value of €1,000 in a tax year. Anything above €1,000 is subject to the usual taxes. If unlimited benefits is too much of a stretch, then increase the number from 2 to 4 or 5. Remember that the suppliers of the flowers, cakes, and small gifts are small businesses. They rely on the support of local businesses who want to keep their staff happy.
Another issue with ERR is the fixed penalty of €4,000 for failure to follow ERR in real-time. Employers are getting used to the new system and are doing their best to comply. Having such a high penalty, especially for small businesses, is draconian. A lower fixed penalty or more appropriate fine should be up for discussion.
Capital Gains Tax – CGT
The current CGT rate is 33%. That’s crazy high and one of the highest in Europe. And the tax take from CGT is falling in recent years. So, why is that?
Well, if the rate is 33% people and companies may not sell. The rate acts as a disincentive to transactions happening. The lower the rate the more people will sell or dispose of assets resulting in a greater tax take. This has happened in the past when the rate dropped to 20% and it stimulated a much larger number of disposals. So, why not reduce the rate to 25%? Or if that’s too much of a stretch, reduce it to 30% in 2025 with a commitment to reduce it to 25% in the next couple of years.
Entrepreneurs Relief
The Irish Taxation Institute [ITI] made some suggestions about improving Entrepreneurs Relief [ER]. This is in their pre-budget 2025 submission. One example is that ER is not available where a dormant company is present in a group. This restriction should be removed.
Another is where a purchaser may prefer to buy a trading company only rather than an entire group. When this happens, ER is not available on the liquidation of a holding company after the sale of a trading subsidiary. Again, the relief should be allowed in this case.
Other Areas
A few other areas that are important to the growth of the economy include
- House building
- Share awards
- Green Agenda
House building
Added to house building could be other critical infrastructure projects like a Metro. The longer we delay these the more expensive they get. We are building between 30,000 and 40,000 a year but it’s not enough. Recent reports suggest there’s a shortage of about 250,000 homes in the country. But we don’t have enough carpenters, block layers, or plasterers in the country to build these.
What about offering tax incentives to employees coming to Ireland? Those that take up employment with a construction company or become self-employed get a tax credit of €5,000 over 3 years. €2,000 in their first and second tax year and €1,000 in their third year of employment.
Share awards
Often, employees in receipt of share awards like share options must fund the tax cost on the exercise of the award. In some cases, the employee can’t sell the shares for a set period. So, they get hit with a tax cost without having the funds by selling the shares to pay the tax. Some employers give employees a loan to buy the shares, exercise some share options or to pay the tax. But loans to do this are a benefit in kind [BIK] and the rate is 13.5% of the value of the loan.
The 13.5% BIK is the annual rate, and the employee pays this until the time the loan is repaid. This rate is very high and not in line with other countries that apply a more commercial rate. Would an employee borrow money at 13.5% from the bank? Most likely no. But a fairer and more commercial rate would be between 6 and 8%.
Another suggestion would be to defer the tax until the time the employee disposes of the shares. Then he/she would have funds to pay the tax owed.
“Share-based remuneration has become an increasingly effective way of rewarding key employees at all stages of development of a business. It can also significantly reduce fixed labour costs and free up business cashflow.” ITI Pre-Budget submission
Green Agenda
Ireland has set itself ambitious targets to reduce carbon emissions. We all hear about the amount of energy that data centres use. But the big tech companies that build these are our largest payers of corporation tax. Can these data centres become energy consumption neutral? If so, and they can build a solar farm or install wind energy infrastructure to supply the energy, then build away. If not, then refuse planning.
There is some progress in the retrofitting of homes and the availability of cheap loans. But going back to my earlier point have we enough skilled people to do this work? Many smaller companies don’t know what their carbon emissions are. If you asked me what ours is the words Scooby Doo come to mind. If we know what they are then we can plan to reduce them.
The main suggestions by the ITI are
- Enhancing the existing accelerated capital allowances scheme for energy-efficient equipment and
- Introducing targeted measures for green or energy-related R&D
Tax Administration
The tax administration side of Revenue is quite good. Yet there’s room for improvement. Some bugbears could do with sorting to include
- An overview for tax agents of clients that have liabilities owing and refunds due from Revenue
- Speeding up the refund process. Make it as efficient as the collection process
- Have a set timeline that balancing statements or self-assessment letters issue after submission of tax returns
- Getting rid of the VAT return of trading details. If not, at least make it easier to do and do it for each VAT period when filing the VAT return.
- Have all forms as editable PDF forms to save on printing and writing etc
- Updating forms for the current year. Like a Capital Gains Tax return form CG1 for 2024. Editable too, please.
- Making VAT registration easier. You’d have to be the seventh son of the seventh son to figure out all the information needed to get an EU VAT registration.
Take tax payments, too often tax agents don’t know that a taxpayer has missed a payment. Then a demand letter issues and the next thing it’s with the sheriff. The client thinks the tax agent is doing a good job, and it costs the taxpayer time and more money than the actual liability.
A big thank you to the Irish Taxation Institute and their pre-budget 2025 submission. I borrowed heavily from that for this blog. There are many more things on the Tax wish list for 2025 but I can bore you about those in the future.
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