Budget 2018: Self-employed to pay €200 less in tax a year

Earned-income credit rises to €1,150 but no relief on USC surcharge for those earning more than €100,000

The self-employed will pay €200 less a year in tax from 2018 following the Government’s decision to extend the earned-income tax credit to €1,150. This move will cost the exchequer €17 million in 2018.

The credit, which was first introduced in 2015 at a rate of €550, applies to so-called “earned income”, and does not apply to rental or investment income.

The Government had previously said its intention was to bring this credit up to the same level enjoyed by PAYE workers at €1,650. You are not allowed to claim both the PAYE tax credit and the earned-income credit if you earn money under both regimes.

Sarah Connellan, tax partner at EY Ireland, said it was “disappointing” that the discrepancy between the taxation treatment of those who were self-employed and employed was to continue.

“Whilst it is welcome that the earned-income credit has been increased to €1,150 it is still behind the PAYE credit of €1,650, which represents an annual net benefit of €500 to the employed individual.”

However, there was no change on the USC front as the self-employed earning more than €100,000 a year will continue to pay a surcharge of 3 per cent on their income.

Responding to the announcement, David FitzGerald, director, international and projects at CPA Ireland, said: “The ongoing tax discrimination against the self-employed is very regrettable, and we have consistently called on the Government to address this.”

Mr Fitzgerald described the increase of €200 in the earned-income tax credit as “derisory”, and said it was a disincentive to entrepreneurs. “As the Government had previously committed to ending this imbalance, it is now long overdue. The Government needs to clarify its timeframe in this regard.”

Inheritance tax

Separately, it was all quiet on the inheritance tax front despite expectations that the Government would move to increase the tax-free threshold for children inheriting from a parent.

The Government had previously committed to increasing the threshold on inheritance or capital acquisitions tax, currently levied at a rate of 33 per cent, from a parent to a child to €500,000.

Last year it raised it to € 310,000, and, given that the yield from the tax has increased despite the rise in the ceiling, it had been expected that it might shorten the distance again this year, with a further increase on the cards.

However, the only change it announced was related to the treatment of solar farms. It means that for the purpose of CAT agricultural relief and CGT retirement relief, agricultural land placed under solar infrastructure will continue to be classified as agricultural land, but with a condition restricting the amount of the farmland that can be used for solar infrastructure to 50 per cent of the total farm acreage. Formerly it would no longer have been deemed agricultural land.