The announcement that Northern Ireland businesses will soon pay considerably less corporation tax than their counterparts elsewhere in the UK is expected to bring an economic boost and jobs.
As always, the devil’s in the detail – here are some of the most important questions you may want answered about the change.
How much will the new corporation tax rate differ from Northern Ireland’s neighbours?
Businesses in Northern Ireland will pay 12.5% corporation tax on their profits – at present, they pay 20%, like the rest of the UK. Chancellor George Osborne has pledged to cut UK corporation tax too, but only to 18%, by 2020. The 12.5% rate will match the present corporation tax level in the Republic of Ireland.
When will the change take place?
The tariff reduction will take place in April 2018.
Who will qualify for the reduced rate?
The rate will apply to small and medium-sized companies, in which at least 75% of staff time and costs relate to work carried out in Northern Ireland. If you run a limited company in Northern Ireland, the change is almost certainly good news for you.
What about bigger firms?
Multinationals and other large operators will require a ‘Northern Ireland Regional Establishment’ – a fixed place of business, such as an office or factory. Business income arising from this base will be taxed at the reduced rate.
What is the reason for the cut?
Politicians at Stormont believe that letting companies keep more of their profits will encourage a huge burst of investment, jobs and growth. In practice, it is also likely to encourage anyone involved in company formation in the UK or the Republic of Ireland to consider carefully the benefits of setting up shop in Northern Ireland.
How much will it cost?
Stormont officials are reported to have estimated the scheme will cost £80 million in lost taxes in the first full year of operation, £160 million the second year, then settle at a ‘steady state’ level of £240 million.
How will the scheme be financed?
Lower corporation tax means less revenue collected in Northern Ireland for the Treasury. Under European rules, the Northern Ireland Executive must make up this shortfall through a cut in its block grant – the annual amount the Treasury determines Northern Ireland should get from the UK total income. In effect, Stormont politicians will have less to spend.
Why has the change not happened before if it’s such a good idea?
A bill was passed at Westminster earlier in 2015 giving the Stormont executive powers to set the rate, as long as it could demonstrate sound finances.