What employers and employees should expect in Budget 2023

PwC Doone O’Doherty predicts how Budget 2023 might affect workers and employers, and measures the Government should consider.

Budget 2023 should be viewed as an opportunity for the Government to take clear and effective measures to alleviate the cost of living burden.

Realistically, however, individuals are unlikely to feel better off. Rather, the measures are expected to provide a buffer to protect businesses and households from the worst of the hit. For individuals, we will likely see increases to tax credits and rate bands rather than the introduction of a new 30pc tax rate – the latter seems to have run into the sand over the last couple of weeks.

Either way, the steps taken should have the impact of boosting take home pay and helping employees retain more of their earnings. This would also indirectly ensure that businesses are under less pressure to deliver pay increases. At the same time, the Government should expand its existing supports for businesses in the context of sustaining employment and recruiting and retaining talent.

Reduction in personal tax burden

There are a number of key considerations in the area of personal and tax employment tax changes. It is expected that we will see a reduction to personal tax burdens through either increases to tax bands and credits or the introduction of a 30pc tax rate, albeit the latter is now looking unlikely.

Clarity is also needed on whether formal indexation of the personal tax system will be introduced, now or in the future. This would see increases to bands and credit apply automatically every year, in line with inflation or wage growth.

PRSI rates for employees, employers and the self-employed remain in the spotlight. While not popular, incremental increases may be on the cards to support the Social Insurance Fund.

Finally, with many people now availing of some form of hybrid or remote working, and given the increasing cost of living and rising energy prices, an increase in the percentage of light, heat and broadband costs which can be claimed would be welcome (currently at 30pc for days spent working from home).

Also, it would be good to see some measures which would reduce the administrative burden on employees in claiming this amount which must currently be done by filing a tax return and submitting bills.

Practical supports for business

As businesses are now looking to put the pandemic era firmly in the rear-view mirror, Budget 2023 will be set against a backdrop of rising economic uncertainty.

Many businesses, particularly in the retail and hospitality sectors, face winter months where the impact of rising costs and reduced customer sentiment are likely to be felt. In addition, employers will face further costs once the Sick Leave Act is brought into operation under ministerial order.

This will see employers obliged to pay sick leave of 70pc of an employee’s salary subject to a cap of €110 per day for up to three statutory sick days per year. This three-day threshold will be increased to five days in year two, seven days in year three, and 10 days in year four.

Auto-enrolment also remains firmly on the horizon for employers. It is due to come into effect in 2024 and will see employees enrolled automatically into workplace pension schemes, with matching employer contributions and a State top-up.

Against this backdrop, we would like to see the introduction of practical supports for employers such as the extension of the Special Assignee Relief Programme (SARP) relief beyond 31 December 2022.

The relief is an important component in Ireland’s competitive foreign direct investment (FDI) offering and has proved very valuable in attracting talent to Ireland across a range of sectors.

Additionally, consideration should be given to the extension and reform of the Key Employee Engagement Programme (KEEP) scheme, particularly in relation to the application of capital gains tax treatment to the disposal of shares by participants of the scheme, which can only be achieved in very limited circumstances at present. Again, this would be welcomed by businesses as a means of attracting and retaining talent.

An increase to the small benefit exemption cap to €1,000 (from currently €500) would also be welcome by employers to give businesses further flexibility to reward employees in a tax-efficient and straightforward manner.

Some other measures I would like to see introduced in the upcoming Budget include the creation of tax-efficient incentives for employers within the private business sector to let properties to staff as a simple and quick means of supporting current housing supply constraints.

I would also welcome consideration of a deferral of the planned changes to the company car benefit-in-kind regime, which is due to come into effect on 1 January 2023.

The planned changes will see the benefit-in-kind rate based on a combination of business mileage and the vehicle’s emissions, and is likely to see many employees adversely impacted in comparison to the current regime.

Budget 2023 is rightly positioned as a ‘cost of living’ budget. From a personal and employment tax perspective, the focus will be on tackling short-term inflationary pressures and giving households and businesses a ‘buffer’ against cost-of-living increases.

By Doone O’Doherty

Doone O’Doherty is a tax partner in the People and Organisation Department at PwC Ireland.

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