Ireland: 2011 Budget and the Universal Social ChargeFriday, December 10th, 2010
Ireland’s 2001 Budget measures, presented by the Minister for Finance on 7 December, include significant changes to taxation in employment. The key changes involve:
- replacing the Income Levy and Health Levy with a single Universal Social Charge
- removing the PRSI employee contribution ceiling
- increasing the PRSI rate for the self-employed, higher earning public servants and office holders
- reducing the value of bands and credits by 10%
- reducing reliefs on private pensions.
- abolishing or restricting many tax reliefs.
The following Tables give the details of the changes.
Trade Union Subscriptions
Relief for trade union subscriptions paid is being abolished for 2011 and subsequent years.
Tax Rates and Tax Bands
The tax rates remain unchanged at 20% (standard rate) and 41% (higher rate).
The table below sets out the tax rates and bands.
The exemption limits for persons aged 65 years and over have been changed as follows:
The above exemption limits are increased by €575 for each of the first two dependent children and by €830 for the third and subsequent children.
Universal Social Charge (USC)
The Universal Social Charge (USC), which comes into effect on 1 January 2011, is a tax payable on gross income, including notional pay, after any relief for certain capital allowances, but before pension contributions.
The rates and thresholds of the Universal Social Charge are as follows:
Individual aged under 70 years
The Income Levy and Health Levy are abolished with effect from 1 January 2011.
Employment-related Share Schemes
New shares purchased on issue by employers
The scheme (section 479 TCA 1997) that provides for a single lifetime income tax deduction of up to €6,350 for an employee who purchases shares in his or her employer company, where those shares are retained for a period of three years without being sold is terminated where shares are subscribed for on or after 8 December 2010.
Approved Share Option Scheme
Tax relief in respect of share options, granted and/or exercised on or after 24 November 2010 (date of publication of National Recovery Plan) under Approved Share Option Schemes has been terminated, including schemes that have already been approved by Revenue. Such share options are now to be treated in the same manner as unapproved share option schemes.
Approved Profit Sharing Schemes
Shares appropriated to employees on or after 1 January 2011 under Revenue approved profit sharing schemes will continue to be exempt from income tax but will be subject to PRSI and the new Universal Social Charge.
Approved SAYE Share Option Schemes
Any gain on options that are granted and/or exercised under SAYE Approved Share Option Schemes on or after 1 January 2011 will continue to be exempt from income tax but will be subject to PRSI and the new Universal Social Charge.
The treatment of shares and other securities awarded to employees in their employer company, or its parent company, under unapproved share schemes will be brought into the PAYE collection system from 1 January 2011 and will be chargeable to PRSI and the new Universal Social Charge.
Employee PRSI on pension contributions
From 1 January 2011, employee contributions to occupational pension schemes and other pension arrangements will no longer be exempt from employee PRSI. Such contributions will also be subject to the Universal Social Charge which comes into effect on 1 January 2011.
Employer PRSI on pension contributions
Employer contributions to occupational pension schemes and other pension arrangements are exempt from employer PRSI which would otherwise apply at a rate of 10.75%. The extent of this relief will be reduced by 50% from 1 January 2011.
The annual earnings limit, which (along with age-related percentage limits) determines maximum tax-relievable contributions for pension purposes, is being reduced from €150,000 to €115,000 for 2011. The annual earnings limit for 2010 will also be deemed to be €115,000 for the purpose of determining how much of a pension contribution paid by an individual in 2011 will be treated as paid in 2010, where the individual elects under existing rules to have it so treated.
Relevant Contracts Tax (RCT)
As announced in the Budget, Revenue are streamlining and modernising the RCT system. The new system will involve replacement of the current RCT rate of 35% with a two-rate withholding system. This system will involve
- a 20% rate for subcontractors registered for tax with an established compliance record
- a 35% rate for subcontractors who do not qualify for the 20% rate e.g. not registered for tax
- the abolition of the monthly repayment system and replacement with an offset system
- a move to an e-based system for RCT Principals which will enhance efficiencies within the system.
Details of the new system will be included in Finance Bill 2011.
The employee PRSI ceiling of €75,036 is abolished.
Class S PRSI is increased from 3% to 4%.
The modified PRSI rate for civil servants increases to 4% on incomes in excess of €75,036.
A 4% PRSI charge will apply to certain Office Holders.
Public Service Pension-Related Deduction (PRD)
From 1 January 2011, employee PRSI will apply to the pension-related deduction which is charged to earnings in the public service. The pension-related deduction will also be subject to the Universal Social Charge.