Money Times - 3 Feb 2010

Posted by Jill Kerby on February 03 2011 @ 09:00


Politicians should prepare for Universal Social Charge anger


Here’s something to ask the next politician who comes seeking your vote in the upcoming general election: what are they going to do about the detested Universal Social Charge?

Everyone is reeling from the drop in their incomes.  After last week’s Finance Bill amendment medical card holders may be a little happier, their rate came down to 4%, but it has gone up to 10% for self-employed people whose businesses generate more than €100,000.

So what is the universal social charge?  First, it is neither universal nor a ‘social’ charge.  It doesn’t apply to all income and it is not earmarked for any existing or additional social benefit. The USC is just another tax, but because the government insisted it would not raise income tax rates in the four year National Recovery Plan or the 2011 budget, that was got around by replacing – and extending the reach of the health and income levies of 2010 by this new ‘charge’.

Zero rated income below €4,004 it starts at 2% on income up to €10,036; 4% on income between €10,037 and €16,015 and 7% on income over €16,016. The USC, in effect, is the new income tax rate for people who were once outside the income tax net.

Whatever about the ‘fairness’ of the USC, it is in keeping with the general inconsistency, complexity and sheer stupidity of the Irish tax system, and is rife with anomalies.

It exempts entirely or in part many different groups of people or different sources of incomes – mostly paid by the state as pensions, expenses and allowances.  The income or benefits of the low paid is now caught by USC, but income that is paid in the form of expenses or allowances to some very high earners, like the Judiciary and Foreign Service, is USC exempt. (For example, allowances like private school fees paid by the taxpayer for the children of Irish embassy staff is USC exempt. In some case these fees are over €20,000 per year, per child.)

All over 70s, for example, are automatically entitled to the lower 4% USC rate, regardless of their total income. After last week’s amendment, all 1.6 million medical card holders will only pay 4%. This group already include over 70s with individual earnings up to €36,400 or €72,800 for a married couple – one of the most striking anomalies of the medical card system.

When you eliminate one anomaly another inevitably pops up. 

The people who must pay the €80 million USC revenue lost because medical card holders’ were given a concession, are the self-employed with earnings over €100,000. They will now pay a 3% surcharge on top of the 7% rate on all their earnings in excess of €16,016, while all other people with such earnings (including politicians) will pay only the 7% rate.

The arbitrariness of this decision is shocking. If everyone earning over €100,000 were forced to share that €80 million shortfall, instead of just the self-employed,  the surcharge may have only had to rise fractionally.

Readers who hold the inexplicable view (in my opinion) that anyone who earns over €100,000 is a despicable capitalist-running-dog should at least keep in mind that the money that a self employed person generates from their work or trade pays their income tax, PRSI and 10% USC liability, as well as all their business expenses AND finally, their personal expenses. 

Depending on what work they do, the personal reward for most self employed people in this country is not particularly extravagant. There’s no paid overtime or holidays and no entitlement, despite paying 4% PRSI contributions, to state unemployment benefits, invalidity or carer’s benefits or any free dental/optical treatments. (The self-employed are entitled to the state pension and, if female, maternity benefit.)

Most people know the extent of the USC damage by now.  Many have discovered the charge applies to all income paid from January 1st, 2011 even if it was earned in December. Unfortunately, this also means that commissions or bonuses that were earned in 2010 but still not paid, will now be liable to the charge.

Sandra Gannon, my co-author of the TAB Guide to Money Pensions & Tax in the Recession 2011, and a tax advisor, says that anyone who is unsure of the amount of USC that has been deducted from their wages should have it double checked. 

“Mistakes can be made. PRSI is also now payable on all income and not just income up to €75,000, and you may be confusing that increase as USC.  Because income tax credits and bands have changed from January 1, you should have those checked too.”

You can also check your general tax deductions on the following on-line 2011 Budget calculator: http://www.thejournal.ie/budget-calculator-2011/#basic-calculator .  It won’t necessarily account for all deductions (like health insurance if it comes off your salary directly) but it does break down income, PRSI and USC liabilities.


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Meanwhile, Aviva Healthcare members need to review their policies before March 1st when their premiums will rise by 14%.  You should do what VHI members hopefully did last month: cancel existing policies and renew immediately on the cheaper, but equivalent corporate plan at the pre-rise price.

Before you do anything, shop around. You can check Quinn and VHI’s prices at www.bonkers.ie and www.compare4me.ie and the Health Insurance Authority website, www.hia.ie. Or contact the fee-based health advisor Dermot Goode at www.healthinsurancesavings.ie .



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