Planned UK corporation tax hike poses unique opportunity for Northern Ireland 

Northern Ireland has the opportunity to stand out from the crowd in the race for international investment if it is able to lower its corporation tax rate from 2023, KPMG in Northern Ireland has said.

The firm said the combination of a reduction in corporation tax here to 12.5% – on a par with that levied in the Republic – and the unique position Northern Ireland finds itself in post Brexit, with access to both Europe and GB markets, would significantly enhance its attractiveness as an investment location.

However, the Executive should only be able to reduce corporation tax if there is a “compelling cost-benefit basis”, one likely involving devolution of further fiscal powers and requiring a “dynamic modelling approach whereby the overall benefit of increased economic activity and employment is taken into account in the determination”.

The firm’s comments come in the wake of plans laid out in last week’s Budget to increase UK corporation tax to 25% in 2023 from 19% currently for companies with profits above £50,000 a year or over.

Johnny Hanna, Partner-in-Charge of KPMG in Northern Ireland, said: “There is no doubt that a 12.5% corporation tax rate on trading activities in Northern Ireland from 2023 (by then half the UK tax rate and on a par with that in Ireland), if it could be delivered and justified on a compelling cost-benefit basis, would significantly enhance the attractiveness of Northern Ireland as an investment location when coupled together with its unique position as a gateway to both the GB and the EU markets.”

The Northern Ireland Executive was granted the power by Westminster to set its own corporation tax rate in 2015 but, as a result of a gradual slide in the headline UK business tax rate and the fact any cut will lower the Block Grant, that power has not been enacted since.

Johnny Hanna said the planned tax hike in 2023 gives credence to the the case for an independent corporation tax cut by the Executive.

“While an increase in the corporation tax rate from 19% to 25% (a sudden reversal of UK policy) feels counter-intuitive given the strong desire post Brexit to ensure continued attractiveness of the UK for foreign direct investment, it has been justified as a necessary first step towards more sustainable public finances. And it is entirely possible that this approach could be replicated by other governments later this year for similar reasons.

“This provides Northern Ireland with an opportunity. Leveraging the power to set corporation tax would give this region a competitive edge over the rest of the UK and many other major economies and would also level the business tax playing field on the island.

“Add to that the unique position – as a gateway to both GB and Europe – which Northern Ireland currently enjoys post Brexit, and the draw for international investment becomes compelling.”

Chancellor Rishi Sunak announced corporation tax would rise to 25% in 2023 for companies with taxable profits over £250,000 in last week’s Budget, a move which was widely flagged but at the top end of expectations.

To try to prevent stifling business activity, the rate for companies with taxable profits of £50,000 or less will remain at 19%. Companies with taxable profits of between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief. The Chancellor expects this to mean that the majority of companies will not be affected by the increase but we will have to see how it applies in a group context.

The increase in the corporation tax rate will follow an unprecedented level of support for business investment through a 130% upfront capital allowances super-deduction for investment in certain plant and machinery over the next two years.