€5bn of the support is in direct spending while the balance of approx. €2bn is in the form of credit guarantees. Business owners and employees will welcome the package of measures announced as we face up to a different normal over the next number of months and also with Brexit coming down the tracks fast. People will also be looking to the Budget in October 2020 as additional measures may be required to get the economy heading back to where it was previously. A key element of Government policy in the Covid19 crisis has been to support the retention of jobs and ensure that when businesses reopen fully that as many people as possible who were laid off temporarily are taken back on; this stimulus package continues with that theme and is seen as an important and necessary continued partnership between the State, the people and business.
The key measures in the stimulus package include:
- New employee wage subsidy scheme
- VAT reduction from 23% to 21%
- Waiver of commercial rates
- Additional capital spending
- Business reopening supports
- Credit support scheme on loans
Section 2 of the Finance Bill also introduces the new Employee Wage Subsidy Scheme(EWSS), which is to replace the Temporary Wage Subsidy Scheme (TWSS). The EWSS applies from 31 July 2020 in certain circumstances and from 1 September 2020, it replaces the TWSS. Its focus is to give a flat rate subsidy (€203 or €150) to qualifying employers on the basis of the numbers of paid and eligible employees on the employer’s payroll. The level of subsidy payable is dependent on gross income levels of individual employees. The primary qualifying criteria is that due to Covid-19, the employer has had at least a 30% drop in turnover so that it is operating at no more than 70% of its turnover or has no more than 70% of customer orders looking at the period from July to December 2020 compared with the same period in 2019. Where a business commenced after 1 November 2019, the reduction in turnover or orders should be by reference to the projected turnover or orders. The EWSS is expected to continue until 31 March 2021.
Both the EWSS and the TWSS will run in parallel until the TWSS ceases at the end of August 2020. Employers operating the TWSS currently for existing employees can claim for new hires under the new EWSS from 31 July. Employers who have not availed of the TWSS will only be in a position to apply for the EWSS. Employers who are operating the TWSS continue to be able to rehire eligible employees and to operate TWSS to 31 August 2020.
Turnover and order levels should be reviewed on the last day of every month to ensure the business continues to meet the eligibility criteria. Where a business no longer qualifies, they should de-register from the following day – the first day of the following month.
The new scheme will cost approx. €2.5bn will be hugely important in the efforts of employers to retain employees on their payroll in these uncertain times.
The government also announced a subsidy of €7,500 over two years, under the JobsPlus scheme, where an employer who takes on a new hire who has been on the unemployment register.
The stimulus plan contains a reduction in the VAT rate from 23% to 21% for six months from the 1st September 2020 and will have an overall cost of close to €0.5bn. Some questions have been raised as to whether it would be preferable to have targeted reductions in VAT for sectors impact the most, akin to what has happened in the UK, rather than a general rate reduction (similar to Germany). It is questionable as to whether a reduction in VAT is needed on, for example, alcohol and other luxury items whereas a rate reduction of to say 5% in certain sectors would perhaps have had a greater overall impact. The hospitality sector will certainly be looking across the border at their Northern Ireland counterparties with a little bit of envy where the VAT rate was reduced to 5%, and a Stg£10 voucher scheme is in place for eating out.
On the business taxation side, there were two main announcements. First, a scheme was announced for companies and individuals where losses can be carried back from 2020 to 2019 on an estimated basis, and tax refunds sought earlier than otherwise would be the case. Secondly, the Government has introduced a tax warehouse scheme where certain tax debts can be parked for a 12 month period, and the ultimate payment of these liabilities will give rise to a reduced interest rate of 3% where payment is made after the 12 months. The restart grant for SME businesses has been increased to €25,000 with a total funding package of €550m, and all relevant businesses should seek to avail of this grant.
An important part of the stimulus package, at a cost of €600m, is the waiver of rents for the vast majority of businesses for the six months to the end of September 2020. This waiver will provide a much-needed boost and certainty to those that have not been able to pay these rates. Much lobbying was done for this to happen as a lot of business had been forced to close down or work from home and their business premises were not being used, and it was important that the Government listened to the concerns expressed and came up with the appropriate support.
The Government announced an immediate additional capital spend for this year of €500m and an increase of €1bn in the projected capital spend for next year.
The main areas of focus in this spend include:
- Enhanced expenditure on cycling and pedestrian infrastructure
- A fund of €100m on an Energy Efficiency National retrofit Programme
The Government is looking to accelerate and support labour-intensive shovel ready projects. Also, it is likely that the major spend next year will be in the much-needed areas of housing, health and supporting the green environmentally economy.
The stimulus package contains a €2 billion Credit Guarantee Scheme will see Government provide an 80% guarantee for a broader range of credit products from €10,000 to €1 million up to a maximum term of 6 years. This is a welcome step, should ensure cash flow is improved and help to stimulate a more rapid pickup in activity in those sectors and supply chains hardest hit as the economy gradually reopens. To qualify for the Scheme, the borrower will have to declare an adverse impact of minimum 15% of actual or projected turnover or profit because of COVID-19. It will be available to all SME sectors, including Primary Producers and Small Mid-Caps (defined as businesses with up to 499 employees).
The proposed buy to let scheme was perhaps a surprise element of the stimulus plan. The scheme allows first-time buyers purchasing a newly-built home to claim back up to €30,000 in income tax paid over the last four years. That is a substantial increase on the current scheme that permits home purchasers to claim back a maximum of €20,000.
In addition, the Government has doubled the amount of the purchase price that the scheme can cover. Until now, the maximum one could claim was 5 per cent of the purchase price. Now new homeowners can claim up to 10 per cent of the price on houses priced up to €300,000 and €30,000 on more expensive properties up to a maximum value of €500,000.
Due to significant hit on the hospitality sector the government has brought in a tax incentive where an individual spends over €625 on accommodation, food and non-alcoholic drinks in the period October 2020 to April 2021. Under the scheme, an individual will receive a tax credit of €125. This should give a boost to the badly hit home tourism sector for vacations in that period.
In addition to the more significant items outlined above the government also announced a number of other measures to support business and assist employees:
- Pandemic Unemployment Payment is being extended to 1st April 2021
- €200m investment in training and education, skills development, work placement etc
- €25m investment in COVID Life Sciences Product Scheme
- 19,000 places on Government’s Skills to Compete programme
- An increase of €10m in funding for the Seed and Venture Capital Sector
- €10m to support the IDA’s efforts on targeting jobs-rich FDI opportunities
- Additional €20m under the online trading voucher scheme and €5.5m under the online retail scheme
- €20m Brexit fund to help SME’s to help SMEs involved in exporting and importing with the UK
- An expansion of the Enterprise Ireland €180-m Sustaining Enterprise Fund to include direct grant support to business, in addition to equity and repayable advances