Corporate tax: is the professional levy back on the table?

“Reducing the corporate tax rate in Northern Ireland to parity with the Republic of Ireland is probably the best thing that can be done to create long-term economic prosperity here,” says Michael Heinicke of Inspired Tax. Incentives.

whether or not we expect to have the political and financial stability to be at the adult table, and whether or not we actually see powers devolved to our Assembly or not, with increased taxation across the whole of the United Uni – rising to 25% in 2023 – was there any justification for reconsidering the introduction of our own lower rate?

“We could have already achieved a Northern Ireland rate for four years – we don’t want to look back 20 years and wonder what could have been,” says Michael Heinicke.

“However, with the UK corporation tax rate now dropping to 25% from April 2023, the gap with Ireland will again be significant, and the case for ‘activation’ of Northern Ireland’s rate setting powers and the reduction of the corporate tax rate in the north Ireland is becoming a must again Undoubtedly the impact would be more investment in Northern Ireland in the form new foreign direct investment (FDI), which in turn would lead to more high quality jobs.

A rate of 12.5% ​​for Northern Ireland has long been dragged – bringing it in line with our southern neighbours. But the Republic is set to raise its own rate below 15%, for large companies, which is in line with the new OECD agreement, imposing a minimum rate of 15% – mainly targeting the largest companies and The multinationals.

However, for us, the biggest challenge is the cost, says Michael. “It is likely that Northern Ireland will essentially have to pay for the decline in corporation tax revenue through a reduction in the block grant that Stormont receives from Westminster.

“And as this potential gap in tax rates is now larger, so are the potential costs of owning it. Even though the Republic of Ireland has announced a 15% tax rate for companies with a turnover of €750 million or more, the headline rate of 12.5% ​​is still what commands attention and will be the rate that the majority of businesses in Ireland will benefit from. least equal this rate of 12.5%”.

Reigniting the case for a lower rate for Northern Ireland, Chartered Accountants Ireland remains firmly behind. But it is also aware of the challenges that remain.

Part of that is the element of political stability and a balanced budget. At press time, we were unable to even pass a budget, following the DUP’s decision to remove Paul Givan from his role as Prime Minister, which meant the collapse of the sharing roles of the power and a full functioning Executive.

“The Institute recognizes that to be successful, the NI executive will need to develop succinct plans to demonstrate the viability of its finances and a clear and credible statement of purpose from the NI executive is also required, indicating how delegated authority would be used,” said Paul Henry, Chairman of Chartered Accountants Ireland.

“Meaningful engagement with Her Majesty’s Treasury on Block Grant and Borrowing Powers is another key element to get things done.

“This was also part of the recommendations in the Tax Commission’s interim report on fiscal decentralization for Northern Ireland, which recognized Northern Ireland’s unique and difficult situation.

“The commission clearly notes the benefits of a lower corporate tax rate for the region while recognizing the associated risks and complexities. However, these issues are not new, are well known and have been discussed at length by the NI Assembly in the run-up to the Corporation Tax (Northern Ireland) Act 2015 which received Royal Assent in 2015 This legislation has not been initiated but is ready for activation.”

And “the push for activating Northern Ireland’s devolved tax powers to set its own corporate tax rate is back in the spotlight”, according to Janette Burns, tax director at CavanaghKelly.

“Northern Ireland will become a less attractive place for entrepreneurs as funding that would normally be used for future investment and economic growth will be limited.

“Some argue that the biggest challenge to tax decentralization is tax avoidance, with the potential exploitation of NI corporate tax rates that are lower than the rest of the UK. Although anti-avoidance tax legislation existing in the UK is strong, these risks cannot be overlooked.

“Nevertheless, the success of Ireland’s 12.5% ​​corporate tax rate over the past 20 years suggests that these challenges and risks may be insignificant compared to the potential benefits generated in the wider economy.”

But Michael Heinicke also raises the question of whether Northern Ireland has the labor supply and infrastructure to support the hoped-for increase in FDI that could land on our doorstep due to the drop in the tax.

“But just because it’s hard doesn’t mean we shouldn’t do it,” he said. “In my opinion, reducing the corporate tax rate in Northern Ireland to parity with the Republic of Ireland is probably the best thing that can be done to create long-term economic prosperity here. Because of the costs , it will never be a risk-free strategy, but neither does.

“Reaching the Northern Ireland tax rate will require careful planning and there will need to be sufficient ‘race’ to ‘sell’ Northern Ireland and give new FDI time to mobilise. The timing and amount of block grant reduction will also require considerable consideration and negotiation. In addition, new investments in skills and infrastructure will be a prerequisite.

“Finally, it is impossible for this to happen without a constant commitment to the cause from all stakeholders. There is an opportunity to make Northern Ireland unique – a highly skilled and motivated workforce with the benefits of “a low tax rate. The UK won’t have a 25% corporate tax rate forever, so now is the time.”

And Paul Henry adds: ‘Northern Ireland has lower levels of income and investment than the rest of the UK and we believe that allowing the Assembly to set a lower rate would allow the region to attract more high-value FDI, to stimulate investment and expansion. by local businesses and allow Northern Ireland to further leverage its position under the Protocol with free access to EU and UK markets.

Luisa D. Fuller