Belfast Telegraph

Corporate rate cut stirs devolved powers debate

Chancellor tinkers with tax but firms want swifter action

By Clare Weir

The debate around Northern Ireland's corporation tax was reopened yesterday after the Chancellor announced a further 1% cut to the rate of tax UK businesses pay.

George Osborne said yesterday corporation tax will be cut to 24% next month from 26% currently, that's 1% more than originally planned. Future cuts of 1% will go ahead as planned with an estimated rate of 22% by 2014.

The Treasury is currently mulling plans to devolve tax-setting powers to Northern Ireland politicians with an announcement due to be made in the summer.

Advocates for a cut in corporation tax in the province say that dropping the rate closer to that of the Republic of Ireland, set at 12.5%, would make Northern Ireland more competitive, create jobs and promote inward investment.

Those against say a lower rate would encourage 'brass-plating' and 'tax tourism'.

Tax expert and anti-poverty campaigner Richard Murphy said that Northern Ireland was "not on the agenda" for the chancellor.

"The mild cut in the corporation tax rate reduces need for any further change in Northern Ireland," he said.

"There was nothing in there to promote job creation in Northern Ireland, this was not a budget for Northern Ireland, it is like he didn't know it was there, it was a disaster. When one asks if Northern Ireland was even on the agenda, the answer has to be 'no'."

Ann McGregor, chief executive of the Northern Ireland Chamber of Commerce said that the reduction in UK-wide corporation tax is not enough for Northern Ireland.

"Reducing this tax will increase foreign direct investment and stimulate greater investment by SMEs in particular in areas such as innovation and export development."

Grow NI, an umbrella group of Northern Ireland businesses established to support the devolution of corporation tax, said the move will mean less of an impact on the Northern Ireland block grant.

But spokesman Eamon Donaghy said that Northern Ireland still requires a significant economic intervention.

"Even at the new rate of 22%, we will be almost 10% more expensive than the Republic of Ireland," he said.

"The fact that the Treasury is tinkering with the UK rate demonstrates that corporation tax is regarded as a means of increasing economic activity. In Northern Ireland we want to travel the same direction - but at a faster rate."

Ulster Bank chief economist Richard Ramsey agreed that the reduction was welcome news for both the business community and the Executive in terms of lessening the impact on the block grant.

Wilfred Mitchell, policy chair of the Federation of Small Businesses, said the corporation tax cut "in no way" replaces the need for Northern Ireland to get powers to set its own, much lower rate.

Chartered Accountants Ulster Society chairman, Michael Black said the downward trend in corporation tax rates across the UK "vindicates" the ongoing campaign here for a reduced corporation tax rate.

Large inward investor

As the First and Deputy First Ministers conclude their St Patrick's Day charm offensive on potential North American investors, they might well consider sending the Chancellor a postcard saying 'thanks'.

With 765 overseas firms already here, a 2% Corporation Tax cut and a further fall to 22% in 2014 sends a message from George Osborne that more investment is welcome. And if the Assembly gets the chance to set a lower rate - 12.5% or even 10% - things look even better.

Add the reduction of the 50p top tax rate to 45p and multinationals looking to invest in the UK get a 9% saving for a typical expat package.

A Patent Box regime from April 2013, applying a 10% tax rate to patent-related profits, will provide an increased incentive to more foreign multinationals to invest in R-amp;D. Overseas investors will take this as a signal the Chancellor will continue to compare the UK tax rate with other G20 countries and the rate will continue to fall.

Privately-owned company

Northern Ireland's privately-owned businesses will welcome the Chancellor's opening statement that this is a Budget that rewards work and backs business. But will they feel he delivered that? There were a number of positives:

  • reduction in corporation tax rate to 24% from April 2012 (originally expected 25%) and further reduction to 23% then 22% in subsequent two years;
  • for those who have spent their working lives building their business and are now looking to save for retirement, no further tinkering yesterday with pensions reliefs;
  • a particular win for those companies who can use the Enterprise Management Incentive (EMI) - an increase in the limit per individual to £250,000 (subject to EU state aid approval);
  • and there is 10% tax rate to profits relating to patents - further good news for high technology businesses.

The budget has been fairly good news for larger local businesses.

Small business

Northern Ireland is home to around 122,000 businesses and about 69,500 of these are VAT-registered.

That means a remarkable 52,500 - over 40% - have annual sales of less than £77,000.

But only 165 of this 122,000 total employ more than 200 people. So the Chancellor's proposals for tax simplification - effectively letting companies with sales of less than £77,000 pay tax based on cash accounting - is good news.

Describing his proposals for simplifying business regulation as "... the biggest reduction of red tape in history", George Osborne certainly set out to make life easier for es.

Small firms will also welcome the reduction in corporation tax to 24% from April 2012 and a further reduction to 23% then 22% in the subsequent two years.