Corporation Tax in Northern Ireland - Northern Ireland Affairs Committee Contents

Supplementary written evidence from Capitus

In response to the Northern Ireland Affairs Committee investigating the possibility of establishing Northern Ireland as an Enterprise Zone, Capitus Limited follows up the initial evidence gathering process by outlining our view and opinion of the structure of such a Zone.


1.1  We feel that it is important to first of all set out the perspective from which we are commenting on this issue.

1.2  Capitus is an Investment Incentives Consultancy specialising in advising clients on the tax incentives available for specific areas of investment. We act for major institutional and listed plc investors, owner-managed businesses, banks, hoteliers, care home operators and retailers, to name but a few, throughout the UK. Our core activities are focused on the incentives available for investment in commercial property, including development and refurbishment in all sectors.

1.3  We offer clients advice with respect to the following key tax incentives for investment and facilitate the claiming of these reliefs to encourage and stimulate growth:

  • The various capital allowances available for investment in plant and machinery.
  • The Enhanced Capital Allowances scheme available for investment in energy and water efficient technologies.
  • The R&D tax credit scheme.
  • The provisions of the Business Premises Renovation Allowances scheme which encourages investment in disadvantaged areas (for example, all of Northern Ireland qualifies).
  • The Land Remediation Relief scheme aimed at encouraging investment and regeneration of Brownfield and Long Term Derelict land.
  • The use of Enterprise Zones to stimulate economic growth in specifically targeted areas.

1.4  It is our specific and in-depth knowledge of these areas that allows us to offer our considered opinion on the possibility of establishing Northern Ireland as an Enterprise Zone.


2.1  We understand that the Coalition Government, in conjunction with the Northern Ireland Executive wish to evaluate methods to "rebalance" the Northern Ireland economy. In particular, to stimulate growth in the private sector and reduce the reliance upon public sector expenditure.

2.2  It is therefore imperative that the UK Government encourages increased private sector productivity, investment and job creation in the short to medium term within the Northern Ireland economy.

2.3  An Enterprise Zone will achieve these desires by providing a competitive commercial environment for private investment. Traditionally, an Enterprise Zone would incentivise investment and innovation by offering tax allowances or reliefs, financial assistance or non-monetary benefits to potential investors in excess of those currently available in other areas.

2.4  Prior experience of Enterprise Zones, particularly within the North East and North West of England, Clyde Bank in Scotland and the Lower Swansea Valley in Wales were relatively successful. These original Enterprise Zones offered investors an exemption from Land Duty and Commercial Property Rates, 100% capital allowances for expenditure and a simplified planning regime.

2.5  Ideally, a 21st Century Enterprise Zone should operate by targeting quality investment from job-creating private companies and individuals. Therefore, it is important to not only incentivise the investor to develop high quality premises but also the tenants who bring employment to the region.


3.1  We believe that the NI Executive should concentrate on improving the quality and quantity of the taxpayers in Northern Ireland, not increase the level of taxes imposed as previously intimated by Executive members.

3.2  We believe that ingrained socio-political issues have led to a reduced focus on the NI economy. Whilst previous reviews have produced similar economic proposals, these ideas have not been enacted in a timely, co-ordinated fashion.

3.3  We feel a mix of fiscal stimuli, policy measures and coherent management from Stormont and Westminster can ensure the prosperous economic future of Northern Ireland.


4.1  If the Government is to achieve its stated desire of moving NI away from the over-reliance on the public sector, a package of stimulus measures must be introduced to encourage private sector investment generally and foreign direct investment.

4.2  The factors that lead us to this conclusion are as follows:

  • The negative impact of 30 years of conflict
  • Apart from the obvious lack of private sector investment during that period and the economic consequences of that, we believe that "The Troubles" have led to a whole generation which is mentally reliant on the State for their economic well-being. This, in turn, has led to a culture which is not conducive to nurturing entrepreneurial spirit.
  • The geographical proximity to the Republic of Ireland
  • We believe that this is a huge mitigating factor against inward investment to Northern Ireland. The ROI has a CT rate of 12.5%, multiple Enterprise Zones and tax incentives aimed at encouraging investment in specific sectors and as such ROI is still an attractive environment for a company to invest in.
  • We are surprised that Northern Ireland attracts any inward investment at all and feel Northern Ireland is in a unique, disadvantageous position in the EU - sharing a border with another EU country without language barriers which operates a highly competitive taxation system.
  • The brain drain
  • The loss of human capital throughout the course of "The Troubles" has been well documented, however, to encourage some of these people to return to NI and lead "home grown" private sector growth, it has to become a more attractive, cosmopolitan and safe place to live free of conflict. It is our opinion that if all the economic and taxation conditions exist to encourage both UK private sector investment and foreign direct investment throughout Northern Ireland that other social and cultural developments will follow, keeping local talent here and encouraging exiled talent to return.
  • Excessive Reliance on Public Sector
  • Northern Ireland's economy has long been reliant upon public sector expenditure subsidised from the central UK government. The public sector is responsible for over 30% of the total employment and 70% of the total GDP of the Northern Irish economy. The NI balance of payments suffers because the NI economy exports very little, hence the flow of investment into the Province is limited.


5.1  Although previous Enterprise Zones have been relatively successful, we feel a fresh approach should be undertaken to achieve the necessary results.

5.2  We feel very strongly that the whole of Northern Ireland should be granted EZ status. These proposals are not aimed at encouraging investment in deprived areas or rural areas within Northern Ireland in preference to say, Belfast for example. They are designed to take NI away from a culture of reliance on State and replace that with private sector job creation and growth. Giving EZ status to specific areas within the Province would not achieve this and would, we believe have a detrimental impact overall. If the whole of NI achieved EZ status, inward investors would focus investment strategies upon the merits of the location under consideration (access to workforce, infrastructure and transport links, property costs etc).

5.3  We believe it is imperative that Northern Ireland attracts investment from job-creating industries which will benefit from the region's competitive advantages—the excellent education system, relatively low wages and relatively low property costs. Northern Ireland is not blessed with natural resources or raw materials which may be exploited for export, therefore the economy must utilise all advantages available.

We believe high-technology sectors including bio-sciences, high-technology engineering, pharmaceuticals and particularly information and communications technology would benefit from the availability of educated graduates. We also believe entities operating within the "green economy" would benefit from location within the Province and the energy sector provides significant growth potential.

However, if employment would be expected to shift from the public sector to private sectors, we believe it will be important to attract appropriate jobs for these displaced individuals.

Tertiary sectors such as financial services, banking and retail would not require initial targeting as we expect entities operating within these industries to flow into Northern Ireland as the economy grows. We would not envisage Belfast being able to compete as a primary financial hub, however, certain "back-office" and supportive functions from within these sectors should not be over-looked.

In line with the Coalition Government's desire for an export-led, knowledge-based economy, we feel it is important to attract the right entities willing to make a long-term commitment to Northern Ireland.


6.1  Our fiscal proposals aim to develop an innovative economy which incentivises businesses to invest in R&D and capital expenditure projects.

6.2  We feel it is important to incentivise property investors to build, develop and regenerate in order to provide the quality premises for occupation. An increased capital allowances scheme for investors would benefit those wishing to incur expenditure.

6.3  Capital Investment Incentives:

  • Capital allowances of 50% available to ordinary property investors.
  • Capital allowances of 150% for specific industries (to include ICT, bio-sciences, nano-technology, pharmaceutical, green industries).
  • Capital allowances of 100% for investors with buildings achieving "excellent" BREEAM rating.

We would suggest these allowances are made available to indigenous entities and in-bound investors alike. The allowances should be available on all buildings expenditure (excluding land) and should be available for a period of not less than ten years. Entities availing of the relief would be subject to "claw-back" provisions, should the investment be removed during a certain period of time.

6.4  Whilst the above allowances will benefit those undertaking capital investment, we feel specific R&D relief should be increased to raise the level of R&D within NI businesses:

6.5  Enhanced R&D Investment Incentives:

  • R&D tax relief for SMEs increased to 250%.
  • R&D tax relief for Large Companies increased from 130% to 150%.
  • "Double" R&D uplift available for companies employing new staff members (inc. apprentices, graduates and interns) engaged on R&D projects.
  • "Double" R&D uplift available for payments made to local Universities for R&D assistance.
  • Confirmation that the 10% Patent Box applies to all income from intellectual property commercialised from November 2010.

6.6  Targeted infrastructure investment (including public transport networks, roads, airports, harbours and communications) should continue to support a wider business network and the increased activity as a result of the aforementioned incentives.


7.1  It is necessary to provide financial incentives to private investors but it is also imperative that other policies are employed to enhance the effectiveness of the Enterprise Zone. We would welcome:

  • Introduction of a simplified planning regime to ease the administrative burden on property investors. This may include "pre-packaged" planning regimes within certain industrialised areas to enable swift investment.
  • Liaison with universities and education authorities to provide relevant technical qualifications. The Republic of Ireland had great success in providing tailor-made graduates for high-tech industries and Northern Ireland should seek to provide the talent to attract entities in growing sectors.
  • Programmes to provide students and existing workers with language skills which may be utilised by exporters and inbound investors alike.
  • Creation of an Entrepreneurial Business College providing specialist one year diploma courses to those wishing to commence entrepreneurial and innovative activity.
  • Invest NI to step back from larger scale financial support and re-focus on supporting inward investors and indigenous companies. Invest NI should market Northern Ireland as a suitable location for investment and assist existing businesses with export, marketing, skills development, business generation etc.
  • Creation of an oversight body with board members from Invest NI, local business, academia and Government which will oversee the NI Enterprise Zone. This body will take responsibility for reviewing strategy, managing programmes and should report directly to Stormont.


8.1  We feel the fiscal incentives associated with the Enterprise Zone would increase investment within Northern Ireland, leading to significant socio-economic benefits.

8.2  Our proposals are based upon the premise that an investor will only receive reduced taxation and support after an investment is made. Therefore, a greater investment will provide greater rewards.

8.3  Increased economic activity following the Enterprise Zone will lead to higher employment and higher direct and indirect taxation.


9.1  Unlike the problem of "profit-shifting" included lower corporation tax proposals, an Enterprise Zone would not invite entities to move head offices just to avail of a universally lower CT rate. The level of tax relief is directly proportional to the level of investment incurred.

9.2  The administrative burden upon taxation authorities and businesses would be lower than the creation of a lower corporation tax rate for income generated within NI.

9.2  Periodically as the NI economy is mentioned, the traditional argument related to other areas within the UK has arisen. Not only do we believe Northern Ireland represents a "special case" in comparison to other underdeveloped economic regions, we also feel a more self-sufficient Province would benefit the UK as a whole.

As the Chancellor intimated in a speech to the Conservative Party Spring conference, Enterprise Zone status will become available for regions throughout Britain.


10.1  We consider that a comprehensive series of measures all included under the banner of an Enterprise Zone would be a tremendously positive incentive for inward investors. From our own client base, we are aware of many companies and institutional investors that would find such a series of measures highly attractive and would put Northern Ireland on their list of targeted geographic areas to invest in.

10.2  We believe that there are enough individuals in Northern Ireland who want to see it flourish and who have the entrepreneurial leadership to grasp this opportunity to move away from a society being propped up by the public sector and towards one where a culture of private sector led economic growth becomes the norm. We strongly recommend that serious consideration is given to making sure that Northern Ireland gains Enterprise Zone status as soon as possible to both kick start this project and ensure that the cost to the Treasury is kept to a minimum.

10.3  Previous consultations (specifically the 1999 Economic Development Strategy Review Steering Group, published post Good Friday Agreement) have highlighted the issues raised within our proposals. The issues and proposals are not new, but without collaboration and focus from political and business leaders, the strategy will never succeed. The ideas exist, but the desire to act does not.

3 May 2011

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Prepared 9 June 2011