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

Finance Bill 2011 – Taxation impact for Employees and Employers Sean Walsh & Anne O’Dowd PwC Slide 1

Key Issues Affecting Individuals • Tax bands & credits • PRSI & Universal Social Charge • Effective tax rates after the Budget • Share Awards • Pensions • Bankers Bonus • Other Oddities PwC Slide 2

Tax bands/credits • Broadening of the tax base through: - Reduction in tax bands - Reduction in tax credits • Tax rates unchanged PwC Slide 3

Tax credits/reliefs • Reduction in personal tax credits 2010 2011 Personal – single 1,830 1,650 Personal – married 3,660 3,300 • Abolition/phasing out of other credits 2010 2011 Employee 1,830 1,650 Home carer 900 810 Age related (single) 325 245 Age related (married) 650 490 PwC Slide 4

Tax bands 2006 to 2011 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 PwC Slide 5 5

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?) PwC Slide 6

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. PwC Slide 7

Universal Social Charge Rates 2011 Threshold Rate Taxpayer Below € 4,004 Exempt N/A 0 to € 10,036 2% All € 10,037 to € 16,016 4% All Greater than € 16,016 4% Medical card holders and over 70s Greater than € 16,016* 7% All Greater than € 100,000** 10% Self employed PwC Slide 8

Summary Employee & Self Employed Marginal Rates 2011 Employee Self Employed Income tax 41% 41% PRSI 4% 4% USC 7% 10% Total 52% 55% PwC

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% Budget 2011 PwC Slide 10

Example – change in tax for single person earning € 40,000 per annum. Single Person earning € 40,000 pa. Pension € 2,000 2010 2011 Difference Income Tax € 4,276 € 5,392 € 1,116 PRSI € 1,256 € 1,336 € 80 Income Levy (2010) € 1,520 - Health Levy (2010) € 800 - USC (2011) € 2,119 - € 201 Total Additional deductions 2011 € 995 PwC

Example – change in tax for married couple earning € 100,000 – one income. Married Couple earning € 100,000 pa. Pension € 5,000 2010 2011 Difference Income Tax € 23,926 € 25,222 € 1,296 PRSI € 2,788 € 3,736 € 948 Income Levy (2010) € 2,499 - Health Levy (2010) € 4,000 - USC (2011) - € 6,319 - € 180 Total Additional deductions 2011 € 2,064 PwC

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

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 PwC

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? PwC Slide 15

Pension Contributions – Summary Position 2011 Occupational PRSA Employee Contribution (net pay) • USC relief 7%? No – 7% No – 7% • PRSI employee relief 4%? No – 4% No – 4% • PRSI employer charge? 5.38% 5.38% Employer Contribution • USC charge? No 7% employee • PRSI employee charge? No 4% • PRSI employer charge? No 5.38% PwC Slide 16

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? PwC PwC Slide 17

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. PwC

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. PwC

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! PwC

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; PwC

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) PwC Slide 22