Mercer Update: Ireland Budget 2018

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Mercer Update: Ireland Budget 2018
Mercer Update: Ireland Budget 2018
Calendar10 October 2017

Budget 2018 was announced this afternoon and, in line with other recent Budgets, many of the proposed changes were flagged well in advance.

Some of the key changes likely to be of interest to employers are set out below:

State benefits

  • The State pension will increase by €5 per week to €243.30 a week with effect from the last week of March 2018 (or €12,651.60 per annum). Many defined benefit (DB) schemes that are integrated with the State pension will have already considered the impact of a ‘mid-year’ increase in the calculation of their benefits. 
  • This is the third increase in a row to the State pension, which stood at €230.30 per week in 2015.
  • Other weekly benefits (such as carer’s benefit, invalidity and jobseeker’s benefit) will also see increases of €5 per week. The increase in disability benefit is likely to have a small impact on the level of benefits covered under Permanent Health Insurance/Long Term Disability policies.

Income Tax

It was announced that there would be an increase of €750 per annum in the income tax standard rate band for all earners to €34,550 for a single person or €43,550 for a married couple with one income.

USC

For those liable to USC (i.e. earning over €13,000), the rates will reduce in 2018 on income up to €70,044 per annum and the second band will again be widened slightly. The changes which are set out below will result in a marginal tax rate on incomes up to €70,044 of 48.75% down from 49%.

EARNINGS BAND 2018 USC RATE CHANGE
First €12,012 of income 0.5% No change
€12,013 - €19,372 2% was 2.5% on income from €12,013 to €18,772
€19,373 - €70,044 4.75% was 5%
€70,045+ 8% No change


Medical card holders and those over 70 earning under €60,000 p.a. will pay a maximum rate of 2%. The differential between the USC rate for self-employed and PAYE workers earning over €100,000 remains in place.

Health

  • Minister Donohoe announced a reduction in the monthly threshold for the Drugs Payment Scheme, down from €144 to €134.
  • The increase in health funding provides for an additional 1,800 staff for frontline services, including in the area of mental health which represents a key focus for many employers and employees.  
  • In line with our UK neighbours, a sugar tax on sweetened drinks will be introduced with effect from April 2018. 

Key Employee Engagement Programme (KEEP)

Following last year’s Budget announcement by the then Minister for Finance, Michael Noonan, Minister Donohoe has now introduced KEEP, a share-based remuneration incentive for unquoted SMEs. Gains arising to employees on the exercise of KEEP share options will be liable to Capital Gains Tax in place of income tax, USC and PRSI. This incentive will apply to qualifying share options granted between 1 January 2018 and 31 December 2023.

Benefit in Kind (BIK) incentive on electric cars

In recognition of climate change pressures, the Minister announced a 0% BIK rate for employers providing employees with electric vehicles. This measure is being introduced for a period of one year to incentivise the take up of electric cars. A comprehensive review on BIK on vehicles is to be carried out which may be reflected in the next Budget.

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