Whilst this year’s Budget includes many positive announcements with a strong focus on tackling the cost-of-living crisis, these did not hugely impact the employment tax area bar some largely anticipated and prudent measures, writes Claire Davey of our People Services team.
Minimum wage – USC rate band increase
In his Budget Speech the Minister announced an extension to the 2% USC bracket from €21,295 to €22,920 with effect from 1 January 2023. The main purpose of this measure is to ensure that the salary of a full-time employee on minimum wage will remain outside the higher rates of USC. The impact of this increase is included in the Tax Rates and Credits 2023 table at the end of the publication.
This move is on foot of the government’s recent announcement of a substantial increase in the national minimum wage to €11.30 per hour. This represents an 80c per hour increase from the existing rate of €10.50 per hour and is in line with the recommendations of the Low Pay Commission.
Apart from achieving this objective, a modest decrease in USC for employees with income in excess of these levels will apply.
Changes to the small benefit exemption
The tax rules have traditionally permitted employers to provide one non cash incentive of up to €500 per annum to an employee without giving rise to a charge to tax where certain conditions are met. This is commonly referred to as the “small benefit exemption.”
In a welcome adaptation, the Minister has announced an extension to the current rules.
Firstly, an employer will be permitted to provide up to two qualifying awards per annum and secondly, the maximum tax-free amount per annum has been increased to €1,000. This will provide employers with some further scope to reward employees in a tax-efficient manner.
Under financial resolution, this amendment will come into force with effect from 28 September 2022 and so, helpfully the enhanced benefits are accessible in the current tax year.
Key Employee Engagement Programme (“KEEP”)
KEEP is a tax advantageous share option scheme which commenced in 2018 specifically for employees and directors of certain qualifying SME companies.
Due to the low uptake of KEEP, the Department of Finance (DoF) launched a public consultation process in May 2019. The purpose of the consultation process was to seek feedback on those aspects of the structure and design of KEEP that worked effectively, and more importantly, those that did not.
Whilst there were some positive adjustments made to the scheme following this review, in line with its normal practice for review of tax reliefs every three years, the DoF initiated a further consultation on the effectiveness of the KEEP scheme earlier this year.
The Minister announced in his Budget speech that KEEP is being further extended until 31 December 2025 and also a positive amendment to the current workings of the scheme.
Specifically, the programme is being modified to provide for the buy-back of KEEP shares by the company from the relevant employee. Clarification that CGT treatment will apply on a buyback of KEEP shares by amending the share buyback provisions would be welcome. We expect the full detail of the changes to be provided in the upcoming Finance Bill.
Further, the lifetime company limit for KEEP shares is being raised from €3 million to €6 million.
Following a period of consultation and approval from the European Commission, some key Finance Act 2019 provisions with regard to group structures and qualifying individuals are being brought into effect.
These legislative changes provide definitions of a “qualifying company” and a “holding company” which effectively allow companies who operate through a group structure to qualify for KEEP. Previously the rules operated to limit the applicability of KEEP to companies holding shares in a single subsidiary.
In addition, the “qualifying individual” definition will be extended to also include part-time and flexible working employees and for the movement of employees within qualifying group structures.
In brief, KEEP will now be extended to individuals who devote at least 75% of their working time to a qualifying company or work at least 20 hours per week for such a company.
Changes to the Special Assignment Relief Program (“SARP”)
The Special Assignee Relief Programme (“SARP”) was introduced in Ireland from 1 January 2012 and has been extremely successful in encouraging the relocation of key talent within organisations to Ireland. The relief is universally recognised as a key component in Ireland’s competitive foreign direct investment offering.
It is Ireland’s main expatriate tax concession and reduces a qualifying executives income tax rate for up to five consecutive tax years from first arrival.
The availability of SARP under current legislation was due to expire for individuals arriving after 31 Dec 2022. The Minister announced that SARP will now apply for qualifying individuals arriving up to the end of 2025.
The Minister also announced an amendment to one of the qualifying conditions such that an employee will from 2023 need to have a minimum base salary of €100,000 per annum which is an increase from the current €75,000 per annum.
This will no doubt provide certainty and encouragement to mobile international talent with the necessary skills to relocate to Ireland and contribute positively to our economy.
Foreign Earnings Deduction (“FED”) regime
In a further positive development, the Minister also announced an extension of the existing FED relief until 2025. This attractive income tax relief has to date facilitated the greater presence of Irish-resident individuals working in certain overseas locations.
The extension should hopefully continue to incentivise Irish businesses to develop and expand into new emerging markets.
Get in touch
The pace of change is challenging leaders like never before. If you have any queries on the topics covered above, please contact Claire Davey, Head of PAYE & Personal Tax Compliance. We'd be delighted to hear from you.