Finance Bill 2011 Taxation impact for Employees and Employers Sean - - PowerPoint PPT Presentation

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Finance Bill 2011 – Taxation impact for Employees and Employers Sean Walsh & Anne O’Dowd

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Key Issues Affecting Individuals

• Tax bands & credits
• PRSI & Universal Social Charge
• Effective tax rates after the Budget
• Share Awards
• Pensions
• Bankers Bonus
• Other Oddities

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Tax bands/credits

• Broadening of the tax base through:
• Reduction in tax bands
• Reduction in tax credits
• Tax rates unchanged

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Tax credits/reliefs

• Reduction in personal tax credits
• Abolition/phasing out of other credits

2010 2011 Personal – single 1,830 1,650 Personal – married 3,660 3,300 2010 2011 Employee 1,830 1,650 Home carer 900 810 Age related (single) 325 245 Age related (married) 650 490

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Tax bands 2006 to 2011

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Single Married / one income 2006 €32,000 €41,000 2007 €34,000 €43,000 2008 €35,400 €44,400 2009 €36,400 €45,400 2010 €36,400 €45,400 2011 €32,800 €41,800

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PRSI

• No change to employer PRSI
• Abolition of employee PRSI ceiling
• Removal of relief for employee pension contributions
• Application of PRSI to share awards
• Self employed PRSI increases to 4% (non executive directors?)

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Universal Social Charge

• Merger of health levy/income levy into new USC;
• Exempt USC income includes:
• Deposit Interest (subject to DIRT only)
• Social Welfare Payments;
• Travel Pass/cycle to work scheme
• Tax free element of severance payments;
• Rent a room relief.

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Universal Social Charge Rates 2011

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All 7% Greater than €16,016* Self employed 10% Greater than €100,000** Medical card holders and over 70s 4% Greater than €16,016 4% 2% Exempt Rate Threshold Taxpayer Below €4,004 N/A 0 to €10,036 All €10,037 to €16,016 All

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Summary Employee & Self Employed Marginal Rates 2011

Total USC PRSI Income tax 55% 10% 4% 41% Self Employed 52% Employee 41% 4% 7%

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Summary Expat Marginal Rates 2011

Tax and Social Security Rates - Comparison

• 2010 Income tax @ 41%
• 2010 Income Levy up to 6%
• 2010 Health Levy up to 5%
• 2010 PRSI @ 4% (however note ceiling!)

2010 2011 European expat 41% 45% US Expat 47% 48% Others 56% 52%

Slide 10 Budget 2011

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Example – change in tax for single person earning €40,000 per annum.

€995 Total Additional deductions 2011

• €201

€2,119 USC (2011)

• €800

Health Levy (2010)

• €1,520

Income Levy (2010) €80 €1,336 €1,256 PRSI €1,116 €5,392 €4,276 Income Tax Difference 2011 2010 Single Person earning €40,000 pa. Pension €2,000

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Example – change in tax for married couple earning €100,000 – one income.

€2,064 Total Additional deductions 2011

• €180

€6,319

• USC (2011)
• €4,000

Health Levy (2010)

• €2,499

Income Levy (2010) €948 €3,736 €2,788 PRSI €1,296 €25,222 €23,926 Income Tax Difference 2011 2010 Married Couple earning €100,000

• pa. Pension €5,000

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Share Schemes

Share Schemes aimed at employee participation

N/A   Tax free Approved SAYE No    Unapproved share option schemes     Share awards (generally at vesting)    PRSI ? Income tax? USC ? PAYE ? Approved share option schemes   No Approved profit sharing scheme Tax free  N/A ESOTs Tax free  N/A

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Share Schemes

• APSS & SAYE schemes also liable to PRSI and USC
• But income tax exemption still applies
• Restricted shares (“clog” schemes)
• Still income tax efficient
• USC / PRSI applies to abated gain

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Share Options – Collection of tax etc

• Share options remain taxed via

self assessment system but

• Income tax payable within 30

days via RTSO1

• USC will also be payable via

RTSO1

• PRSI intended to apply – how

will it be collected?

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Pension Contributions – Summary Position 2011

Occupational PRSA Employee Contribution (net pay)

• USC relief 7%?
• PRSI employee relief 4%?
• PRSI employer charge?

No – 7% No – 4% 5.38% No – 7% No – 4% 5.38% Employer Contribution

• USC charge?
• PRSI employee charge?
• PRSI employer charge?

No No No 7% employee 4% 5.38%

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Annual earnings cap

• €115k, 2011;
• Age limit also,15%-40%;
• Maximum (115k @ 40% = €46k);
• Individual contributions only;
• Employer contributions not so restricted;
• May be planning around reward;
• ‘Salary sacrifice’ (bonus);
• 4 year plan – 20% employee relief;
• Efficient for marginal rate taxpayers?

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Taxation of bonus payments to Bankers

New tax called the Excess Bank Remuneration Charge (EBRC). Applies to bonuses paid by Banks who are part of the Bank guarantee scheme. Taxation of bonuses paid to bankers will now be:

• EBRC at 45% + income tax + PRSI = 90%
• Applies to bonuses in excess of €20,000 p.a.

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Impact on Employees

• Reduced net pay due to tax band and credit reductions;
• PRSI on pension is now an additional charge;
• Share awards will suffer higher reductions (now PRSI/USC);
• Four year plan will offer more of the same!
• Now is a good time to review current reward structures and plan for

the future.

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Impact on Employers

• Budget for increased Employer PRSI costs;
• Share Schemes (10.75%);
• Employee Pension Contributions (5.38%);
• Still scope still for employer pension funding (salary sacrifice issues?);
• Existing PRSA schemes should be reviewed to see if they are still tax

efficient;

• Disgruntled workforce – reward and incentive policies under more

pressure!

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Other Oddities

• Rent relief – abolished for all new tenancies post 7 December 2011;
• Rent relief – phase out for existing tenancies;
• Professional subscriptions now a benefit in kind;
• Employer sponsored creche facilities – now a benefit in kind;
• Trade union subscriptions relief – now gone;
• Service charges – last year to claim (for 2010);
• Artists exemption – capped at €40,000;

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Summary

• Lots of (inevitable) pain...
• ... but simplification is welcome
• What does this mean for Ireland’s competitiveness?
• Not everything is finished (or clear...)
• Queries – please contact Sean Walsh (tel: 01 792 6543)

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