HMRC signs agreement on devolved Northern Ireland corporation tax

HMRC has signed a Memorandum of Understanding (MoU) with the Northern Ireland Executive’s Department of Finance and Personnel, Northern Ireland (DFPNI) setting out the arrangements for implementing a devolved corporation tax (CT) rate

The MoU includes provisions on developing IT and administrative systems and on recharging to DFPNI costs incurred by HMRC on implementation.

From April 2018, CT in Northern Ireland is set to be reduced to 12.5%, the same rate as in the Republic of Ireland. Northern Ireland’s major parties have long campaigned for CT to be devolved, maintaining that cutting the tax would encourage business investment and help the economy.

However, while there was agreement in principle to this, the move fell victim to a prolonged disagreement between the British and Northern Ireland executive several issues, which was only settled in November with a set of actions contained in the document  ‘A Fresh Start: the Stormont Agreement and Implementation Plan’.

The MoU notes that transfer to the Northern Ireland Assembly (NIA) of the power to set a CT rate over certain trading profits remains contingent on the Northern Ireland Executive demonstrating that its finances are on a sustainable footing, including successfully implementing measures in the Stormont House Agreement and subsequent reforms.

The Northern Ireland Corporation Tax (NICT) regime allows the NIA to set a rate of CT to be applied to certain trading profits arising in Northern Ireland. The NICT rate may be set by the NIA prior to the financial year to which the rate is to apply. Where no rate is set for a particular financial year the rate will be that which applied in the previous financial year. Where no rate is ever set by the NIA, the default rate is the main rate of UK CT applicable to the relevant financial year.

The MoU says DFPNI and HMRC will hold discussions to share and agree best practices for setting the rate, including for example, how far in advance the Northern Ireland rate will be set and communicated to HMRC. DFPNI and HMRC will also agree a process for communicating rate changes.

The MoU makes clear that NICT rules and policy form part of the UK CT system and will be administered along with the rest of the CT system by HMRC. Interaction with companies liable to pay NICT, including the provision of information, collection and compliance, will be matters for HMRC. Any matters of dispute about assessment or collection of tax or a company’s tax affairs will be matters between the relevant company and HMRC.

The NIA will be responsible for setting the NICT rate but not for any other element of the tax nor for its administration. However, the NI Executive’s budget will bear the costs of setting up and operating NICT and benefit from the revenue collected.

As regards the rate at which CT will be charged, the MoU says the NIA may set the NICT rate to be zero, or any whole number or fraction of pence in the pound.

The MoU says HMRC will identify companies who must pay NICT from information on its systems and by interaction with the companies themselves. Companies paying NICT will be identifiable from their CT returns as having paid at the NICT rate.

Under current legislation, larger companies will pay NICT on qualifying trading profits if they have a permanent place of business (or a dependent agent acting on their behalf) in Northern Ireland. They must allocate profits to be chargeable at the Northern Ireland rate using rules based on international profit allocation principles.

SMEs which have at least 75% of their employment costs and time arising in NI will pay NICT on all their UK trading profits (other than profits from excluded trades or activities).

HMRC will amend the CT600 return and create a new supplementary page to administer the NICT regime. Companies will indicate on the CT600 the amount of CT payable at the NICT rate. The return process will therefore form part of the existing CT returns process, and so be subject to online filing.

The MoU is here

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Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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