The devolution of corporation tax to Northern Ireland would bring both challenges and opportunities, says the UK’s Chartered Institute of Taxation (CIOT).
The Chancellor announced in today’s Budget that a consultation paper will be published tomorrow which will include mechanisms for devolving the setting of the corporation tax rate in Northern Ireland to the Northern Ireland Executive. The aim would be to attract more businesses to locate there: the challenge would be to make up the shortfall in corporation tax revenues with additional taxes generated, without imposing additional administrative burdens on businesses.
Brendan Morris, chair of the CIOT’s Northern Ireland Branch said:
“If a corporation tax rate cut worked, that would mean more companies choosing to locate themselves in Northern Ireland, generating more income tax, national insurance, business rates and VAT. However there is no guarantee that the books would balance in the Executive’s favour.”
Brendan Morris also pointed to the risk of imposing additional administrative burdens on business at a time when burdens need easing. He continued:
“The profit of a company that only operates in Northern Ireland would clearly be subject to a new devolved rate. But how would a UK-wide trader derive its Northern Ireland profits figure? How would HMRC police the split? The risk is that new rules could generate significant admin burdens for businesses and for HMRC.
“As with the ongoing devolution of tax powers to Scotland, it is essential that our politicians making a decision on whether to vary from the UK rate understand all the technical and practical issues involved. The Chartered Institute of Taxation are keen to help in this important process in any way we can.”
He concluded:
“This could be a real boost to the Northern Irish economy but it would not be a one way bet.”
Technical Team
23 March 2011
