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Budget 2007 - who gets what?

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Who gets what?

The TAX Expert
Paul Gill


The one per cent income tax cut and the first time buyer mortage relief caught the headlines but the main areas of change delivered by Minister Brian Cowen in his third budget will impact on small business
Owners of businesses looking for outside investors or investors looking to invest in unquoted companies will continue to be able to take advantage of the tax incentive known as the Business Expansion Scheme (BES). 
This scheme provides individual investors with tax relief in respect of investment in certain manufacturing, service, tourism, R & D and plant cultivation companies, companies formed for the purpose of constructing and leasing advance factory buildings and certain music recording activities. BES can substantially reduce the cost to an investor of his/her investment and enhances the ability of eligible companies to attract outside investment.
The amount of funds that can be raised by a company has been increased from €1 million to €2 million, with effect from 1 January 2007, while the amount that an individual can invest in such companies has also been increased from €31,750 to €150,000 and is available for relief at the taxpayer’s marginal rate of income tax.
Seed capital relief for investors has also been extended and the amount available for tax relief has been increased from €31,750 to €100,000 per annum.  Broadly, the relief allows employees who leave employment to invest in certain new businesses to claim tax relief based on their investment.  The relief applies to investments in shares of a company and the relief is available against the personal income tax paid over the last 6 years of employment preceding the investment. 
Both schemes are extended by seven years to 31 December 2013 and are both subject to EU approval.
The Minister introduced measures to ease the administrative burden on small companies  which are now companies with a corporation tax bill of €150,000 or less in a 12-month period. He has allowing such companies to base their preliminary corporation tax bill on 100 per cent of the prior period’s liability, where the prior period’s liability was €150,000 or less (on a 12-month basis). 
This removes the uncertainty involved in estimating preliminary tax and removes the possibility for interest to arise on underpayments of tax caused by estimating errors.  This change is effective for preliminary tax payment dates falling after budget day.
New start-up companies with a corporation tax bill of €150,000 or less for their first accounting period (which cannot exceed 12 months) will not be required to pay preliminary tax.
The turnover threshold above which a business must account for VAT on its sales on the invoice basis has been increased from €635,000 to €1,000,000 with effect from 1 March 2007.  Firms with turnover below this revised threshold can pay the VAT on sales when the payment is received rather than when the invoice is issued.  This is indeed a welcome increase for many small businesses and will ease the cash flow disadvantage of having to apply the invoice basis where turnover exceeded €635,000.
The registration thresholds and the frequency of filing VAT returns have also been amended in relatively minor ways. The Minister has also announced an incentive to allow businesses which incur conference accommodation expenses to recover the VAT incurred.  This change will relate only to conference accommodation and will not effect the general prohibition on the recovery of VAT incurred on hotel expenditure.  The detail will be contained in the Finance Bill next year and this will be a welcome change for hotels offering conference facilities where they compete with other EU locations which up to now may have offered a more favourable VAT recovery treatment.
Retirement relief has been increased from €500,000 to €750,000 with effect from 1 January 2007.  Effectively this valuable relief allows individuals aged 55 or over, and subject to other conditions, to dispose of their business or company shares free from CGT where the proceeds are €750,000 or less.
The headline change is a reduction in the top rate of personal tax from 42% to 41% with effect from 1 January 2007 and the indication of a further 1% cut in 2008 if the present Government is returned to office next year.
Much of the detail in relation to tax matters does not appear until the Finance Bill is published in February 2007. 

This article is not intended to be a full analysis of budget measures and no liability to any party is accepted.

Paul Gill is a Tax Adviser with Paul Gill & Co Chartered Accountants and Tax Advisers, Hopkins Road, Castlebar.

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Viewpoints

PROPERTY
Gerard O’Toole
Managing Director, Sherry Fitzgerald O’Toole,  Castlebar

Gerard O’Toole believes the changes in mortgage income relief for first time buyers will have a positive impact but will not influence house prices.
“Affordability for first time buyers at the lower end of the market has improved but overall I don’t see substantial fall in prices going forward,” he said.
He said the budget was the second “political” budget for first time buyers.
Mr O’Toole said a stamp duty change would have driven prices up in Dublin but not in Mayo. As for stamp duty he expects that the lack of change means it will now become an election issue for the Government.
He expects a more moderate single figure percentage rise in house prices in Mayo next year but he predicted many new houses would come on the market in Westport and to a lesser extent in Castlebar.
He said the local economy is ‘ok’ but more ‘large scale quality employers’ are needed in the county’s three major towns.

POVERTY
Martin Waters
St Vincent De Paul, Castlebar

Overall, Mr Waters, welcomed the budget but said there was nothing ‘startling’ in it. He backed the social welfare increases but said the pension rise was insufficient. He was also against the rise in the price of cigarettes.
The charity worker warned that most of the extra money would be eaten up by increases in the cost of living.
He said the cut in the top tax rate would not benefit any of the 350 people the charity helps in Castlebar. Despite this year’s increases he said welfare payments are not enough to meet the needs of the worst off in communities.
“They are getting enough money to live from one week to the next – they can just about manage that but it is when a crisis happens, that is when they are in bother. They are not able to get enough oil to keep them going,” he said adding that the children’s allowance is being used to pay bills.
Mr Waters said the number of people seeking help has gone up because of the increase in single parent families.

BUSINESS
John Brennan
IBEC’s Regional Director for the West, IBEC

John Brennan, welcomed the new measures for new and small businesses and said the steps will cut paperwork. He said these changes would also benefit farmers.
While the changes were welcomed he said the measures would not create more jobs.
However he said there is nothing either good or bad in the budget for the West. He said the Minister announced that there would be a 13 per cent increase in the money set aside for roads and other infrastructure. He said it is not known what part of the country will get this money but business in the west will have to wait and see if the N5 and other routes in Mayo and other counties get what is needed. Mr Brennan said the west’s poor road network has been holding back business for many years. Referring to the road from Dublin to Mayo Mr Brennan was critical.
“For a national route it is more like a country road,” he said.

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Cowen does homework by targeting tax and social welfare

CONOR GANLY

The Minister for Finance, Mr Brian Cowen did not win the General Election last week but he has done the Government electoral ambitions no harm. He has managed to loosen the purse strings without breaking the bank.
Mr Cowen, did his homework on the income tax and social welfare fronts. The headline tax change announced by the Minister was a reduction in the top rate of personal tax from 42 per cent to 41 per cent with effect from New Year’s Day. 
As a result a single person and a married couple with one income will be able to earn an extra €2,000 at the 20 per cent tax rate (an increase from €32,000 to €34,000 for single persons and an increase from €41,000 to €43,000 for one income married couples).  A married couple with two incomes will be able to earn an extra €4,000 at 20 per cent (an increase from €64,000 to €68,000).  Most taxpayers will also see an income tax cut due to to the increase in certain tax credits.
Around 88,000 people will be removed from the income tax net altogether as a result of an increase in tax credits. The income tax free threshold is now €17,600 per year.
The highest social welfare change was in the area of state pensions which now exceed €200 a week.  Minister Cowen said this increase delivers on a Government promise.
A child benefit package worth €140 million was also confirmed. Rather then plumping for a big hike in children’s allowance the minister opted to target the money. While the child allowance goes up by €10 to €160 a month, single parent family payments go up by €25 to €400 a week. Paid maternity leave goes up by four weeks.
About 40,000 carers will benefit from a big increase in the respite care grant. It went up by €300 to €1,500. A change in welfare rules also means that carers will be entitled to claim more than one type of social welfare payment. The jobseeker’s allowance increases by €20 to €185.80 a week.
In total social welfare increases announced by the Minister will cost the country €1.4 billion.
There was some good news for first-time buyers (including first-time buyers in the first seven years of their mortgage). The Minister has doubled the ceiling for mortgage interest relief to €8,000 for a single person and to €16,000 for married couples. Last week’s interest rate rise erodes some of this benefit.
However, the Minister decided against cutting stamp duty. He said any cuts would more likely than not end up in the pocket of the sellers.
The budget had something for many sectors. He managed to please farmers while at the same time introducing environmental policies. There will be money to expand CCTV Garda systems and money for water schemes.
He even managed to introduce an incentive to encourage the elderly to use mobile phones. Elderly people will get a subsidy if they give up their house phones in favour of a mobile.
The only throwback to the past was the 50 cent increase on the price of cigarettes.
With input from Paul Gill, Tax Accountant, Castlebar

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VoxPop - People of Swinford

Interviews by Aine Ryan

1 Seamus Lavin
Chef, Gateway Hotel

“I think it’s an okay budget for my age group. I’m just starting to pay off a mortgage and the extra tax relief will be very helpful. On average I will save about €40 a month for the house I’m building in Midfield.”

2 Judith Holme
Swinford

“I’m just back from a break in England and I haven’t had time to study it in detail. I think the Old Age Pension increase is great, I wish they’d do that in England because I’ll be entitled to it in a few months time. I hope they’re not decreasing direct taxation and then just increasing stealth taxes. That would be unfair because the revenue goes straight into the pockets of the rich.”

3 Tony Spain
Newsagent, Swinford

“I’m pleased enough. If there’s anything on the negative side, it’s increasing mortgage interest relief and then the European Central Bank as good as taking it back the next day.”

4 Bernadette Henry
Midfield

“It’s a sore subject. I’m a widow for 29 years and I can’t understand why they won’t extend the free schemes to us - the television license, the free electricity and the phone rental. it would make such a difference.”

5 PJ McLoughlin
with anna, Kilkelly

“It was a fair budget, and we will bit a little bit better off. It’s great that the farmers got the increase in REPS and the forestry grants.”

6 Una Gordon
Bohola

“Overall, we are pleased. I was glad to see tax bands being broadened. It is a very good budget for those who depend on social welfare and for pensioners. The two of us work and we will have an annual gain of around €2,000.”

7 Mary and Tom Walsh 
Ballinvoher, Swinford

“We imagine it will be very good. There’s a grant of €10,000 for growing those bio-fuels. We certainly will consider finding out more about that.”

8 Sinéad Durkan
Cuilmore, Swinford

“I’m a student in Killybegs studying Tourism and Hospitality. I think it’s ridiculous. The fags are going up 50 cent. I’ve no intention of giving them up, so I suppose I’ll have to work harder.”
9 James Grady
Killasser, Swinford
“I’m on the Disability and I don’t know what I’ll be getting but when it comes it will be welcome.”

10 Diarmuid Forkan
Fourth Class, Scoil Mhuire agus Treasa

”The budget is useless because it takes up all the good cartoon time on the telly. And my Dad and Mam don’t watch it because they’re too busy working.”