Self employed set to be winners from tax credit change

In all the coming and going over calculating who gets most from the budget, one group may stand out. The self-employed look set to gain comfortably more than their PAYE brethren. No taxpayers, as Minister for Finance Michael Noonan said, will be throwing their hats in the air after budget day. But in the land of small gains, one concession looks set to leave the self-employed ahead.

It appears a nailed-on certainty that the so-called earned income tax credit, introduced this year at a rate of €550 for the self-employed, will be doubled to €1,100 for 2017. This is the second year of a three-year process which is designed to bring the self-employed into line with PAYE employees, who benefit from the annual PAYE credit of €1,650.

In a year of slim budgetary concessions, this is a significant sum for those who benefit. Consider the arithmetic. If the Minister for Finance cuts the three bottom Universal Social Charge (USC) rates by 0.5 of a point each, it would deliver €200 a year to someone on around €40,000, or around €350 to someone on €70,000. And we have yet to see whether a cut in the main 5.5 per cent USC rate can even be afforded and whether the Minister may tweak with higher USC rates and bands.

Gains of €900 a year

Other tweaks may add or subtract a bit from these sums. But you see the point. In the content of the overall sums, the earned income tax credit suddenly looks quite significant in the overall calculation of winners and losers. And of course the self-employed pay USC, too, and will also benefit from any cut here. There could conceivably be gains of €900 a year for some in this group.

Of course there is another perspective here. The self-employed have argued for years that they were discriminated against in the tax system, by not benefiting from the PAYE tax credit.

They may have a point. But in the context of a very tight budget package, there is going to be a lot of debate over who got what after the package is presented on October 11th. Unless Minister Noonan rows back on the earned income tax credit plan, the self-employed look certain to be one group of significant winners.