Corporation Tax (Northern Ireland) Act 2015 | KPMG | IE

UK Finance Bill: Amending the NI tax regime

Amending the NI tax regime

As announced at Autumn Statement 2016, several minor changes are to be made to the existing Corporation Tax (Northern Ireland) Act 2015 to allow more small and medium sized companies (SMEs) the potential to qualify for the lower corporation tax rate than previously.

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As announced at Autumn Statement 2016, several minor changes are to be made to the existing Corporation Tax (Northern Ireland) Act 2015 to allow more small and medium sized companies (SMEs) the potential to qualify for the lower corporation tax rate than previously. 

Broadly, under the existing legislation, SMEs needed to meet a 'Northern Ireland employer' test which required that 75% or more of employees working time in the UK, and their related expenses, needed to be spent in Northern Ireland.  Concerns were raised by smaller NI businesses that some companies which spent a lot of time in the Great Britain market may not qualify under this test. In response to these concerns, the Government is now proposing that such SMEs trading in Northern Ireland, but which fail to meet the 'NI employer' test, can make an optional election (known as the 'SME election') to effectively apply the 'large companies' rules for each accounting period (i.e. for the lower NI rate to apply to profits attributable to their 'Northern Ireland Regional Establishment' 'NIRE'). This annual election must be made within 12 months of the end of the relevant accounting period.

To protect against possible abuse of this relaxation, the Government are proposing to introduce the concept of a 'disqualified close company'. Such companies will be prevented from availing of the SME election if the company is 'close' in the period, the company has a NIRE as a result of tax avoidance arrangements , and 50% or more of the company's working time in the UK , or related expenses, is 'spent by participators' otherwise than in Northern Ireland'.  The main aim here appears to be to ensure that the key entrepreneurs in the business are spending the majority of their time working in Northern Ireland.  Similar clauses are to be introduced for partnerships (called 'disqualified firms').

While SME's opting to apply the 'large companies' rules should benefit from the reduced tax rate, it will be necessary to weigh up the increased administrative cost and burden in complying with the more complex rules for identification of NIRE profits.

Commencement of the Northern Ireland tax regime will apply to trading profits arising on or after 1 April 2018, subject to the Northern Ireland Executive demonstrating its finances are on a sustainable footing.

 

Commencement of the Northern Ireland tax regime will apply to trading profits arising on or after 1 April 2018, subject to the Northern Ireland Executive demonstrating its finances are on a sustainable footing.$
Commencement of the Northern Ireland tax regime will apply to trading profits arising on or after 1 April 2018, subject to the Northern Ireland Executive demonstrating its finances are on a sustainable footing.$

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