NEGOTIATIONS ON HOW to give a tax break or cash boost to people working from home are set to continue in the coming days as Budget 22 is finalised.
Tánaiste and business minister Leo Varadkar has flagged in recent weeks that workers can expect some kind of announcement on Tuesday on how the government intends to promote remote working.
“There will be a tax package in the budget of roughly €500 million, most of that will be used to index tax credits and bands making sure that if people do a get a pay increase in the coming year they will be able to keep most of it and not lose most of it to tax and that is important at a time of high inflation,” the Fine Gael leader said on a recent trip to the US.
What we’d like to do is to have a system whereby if someone is working from home and they incur costs, particularly utility costs, they’d be able to defray that in some way against the tax they pay. That exists already but it hasn’t been updated in many years.
The options now being considered were among a suite of potential measures published in a Department of Finance document last month.
It’s understood the final negotiations are now focused on two options, either:
Under the current rules, Revenue allows those working remotely to claim tax relief on the additional costs of working from home, including electricity and heat.
The rate you can currently claim is 10% of the total amount of utility bills against your taxes.
You can also claim 30% of broadband costs for the tax year. This was introduced as a Covid-19 measure and was due to last for the duration of the pandemic. No end date was given and it’s understood there are considerations underway to make this a permanent fixture.
As regards Option B, it’s understood the Government is considering increasing the €3.20 rate currently paid by many companies to cover costs incurred by their employees working from home.
While it’s probable hundreds of thousands of workers receive this payment there’s no data available on the exact amount as companies aren’t required to inform Revenue if they’re doing so. Employers are not legally obliged to pay it.
There are pros and cons surrounding either option.
Some officials are understood to have raised concerns that increasing the percentage someone can claim back on their bills might encourage people to be less careful about their household energy consumption.
Unions have also argued that the system is cumbersome as the timing of the tax break does not necessarily coincide with when utility bills arrive – instead workers have to wait until the end of the financial year to claim.
The argument for increasing the €3.20 daily amount is that it would eliminate the need for workers to keep track of their energy and broadband costs.
It’s proposed they could self-assess and keep track of the number of days they work at home, as many businesses switch to a so-called hybrid model with some periods of the working week spent in the office.
If the government opts for boosting the employer payment, it is not envisaged that it would be mandatory for businesses, unless perhaps if they mandate their employees to work solely from home.
A Tax Strategy Group paper from the Department of Enterprise, Trade and Employment found that increasing the tax relief on energy bills from 10% to 30% would cost in the order of €8.6 million.
This is based on 400,000 people claiming the relief for two days every week over 46 weeks each year.
Of course, this is just one area we can expect announcements on next Tuesday.
Here’s a rundown of what else you’re likely to see in the Budget:
There will be minimal changes to income tax in Budget 2022.
Leo Varadkar has said there is a need to protect middle income earners from inflation and the rising cost of living. Inflation expected to peak above 4% in the final quarter of the year, before falling back below 2% in the third quarter of 2022.
This will be done by indexing tax credits and tax bands. This could involve increasing the cut-off point at which the higher rate of income tax is applied, and increasing the entry point for the USC.
The carbon tax will be increased by another €7.50 this year to €41 per tonne.
This will push up the cost of petrol, diesel and home heating fuels. Despite calls for this to be deferred this year due to the rising cost of energy, with the Green Party in government this is very unlikely.
The government aims to tackle the problem in the budget by increasing the fuel allowance by an expected €5.
Due to the immense difficulties experienced by the pub and restaurant trade over the last year, it is not expected that the price of alcohol will rise this year.
Typically, the price of cigarettes has risen year-on-year, and this could be the case again.
Social Protection Minister Heather Humphreys said she will focus on the vulnerable, and hopes to improve the situation for those reliant on social welfare payments in this year’s Budget.
There have been indications that there could be an increase in Jobseekers Allowance, given the rise in the cost of living, and also due to the tapering off of the Pandemic Unemployment Payment (PUP) which was paid at a higher rate than Jobseekers over the last year.
Varadkar told the Dáil recently that an increase to the current minimum wage is needed as the cost of living rises.
It is currently €10.20 but there is no indication as to what it might rise to.
There has been no pension increase in the last two years.
Again due to the rise in the cost of living it is expected it will rise by at least €5.
The government wants to do something in this Budget for parents who are paying for childcare. Speaking to reporters yesterday in Leitrim, Varadkar said:
“What I can say is one of the things we are of course going to examine in the context of the Budget is the cost of childcare.
“It’s still the case for many people [that] childcare is like paying two mortgages or having to pay the rent twice every week and it’s also, from an enterprise and employment point of view, a barrier to people returning to the workplace. We’ve skill shortages across the economy.
“Many parents, particularly women but not exclusively women, can’t get back into the workplace because of the cost of childcare. So I think it is something that you’ll see the Government focus on in the years ahead.”
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