Corporation Tax: The ins and outs of new era for NI businesses explained
Q. What is corporation tax and why do many want it lowered? A. Corporation tax is a business levy imposed on profits made by companies.
The UK rate is currently 21% (soon to be dropped to 20% in April) while the rate in the Republic is just 12.5%.
Business leaders and politicians have long been seeking a lower tax rate for Northern Ireland, to bring it in line with tax paid in the Republic. Some have suggested bringing the rate down as far as 10%.
Q. What is the Corporation Tax (Northern Ireland) Bill and when will it come into effect?
A. The Bill is UK legislation which was introduced yesterday and would allow the Northern Ireland Assembly to set its own rate of corporation tax.
It will come into effect in April 2017, on the assumption it is passed by Westminster - with plans to bring the legislation forward before the cessation of Parliament in March.
It also includes a clause, which states the powers will only be 'switched on' if the Northern Ireland Executive has sorted out its finances.
Q. Who will benefit from a rate reduction?
A. According to Secretary of State Theresa Villiers, trading profits from most business sectors - such as manufacturing and retail - will be eligible for the Northern Ireland corporation tax rate, including large corporations and small and medium firms.
It means that larger companies such as the big supermarkets, will only be taxed at the Northern Ireland rate on profits made here - with the rest charged at the UK rate.
It will affect some 34,000 businesses, the majority of which operate wholly in Northern Ireland.
Small and medium business will have an 'in or out' test to determine whether their profits will be chargeable at the Northern Ireland or UK tax rate.
Q. Which businesses will be excluded?
A. Certain 'highly mobile' business, including banking and insurance, may not be eligible for a new Northern Ireland rate of corporation tax.
Profits from areas such as property, lending and leasing, will be also excluded.
Q. So, what is expected to happen next?
A. The Executive needs to agree a final draft budget for 2015/16 by the end of January and bring welfare reform back into Assembly discussions, before the Bill is voted on by the House of Commons before the end of March.
In theory, the tax powers will be handed over to Stormont in April 2017.