Corporation Tax (Northern Ireland) Bill

Written evidence submitted by ACCA (CT 02)

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Comments on the Corporation Tax ( Northern Ireland) Bill

1. ACCA has considered the Bill from a technical and practical perspective, taking into account in particular the likely impact on our members and their clients in Northern Ireland and the rest of the UK . While we do not seek to comment on the wider political aspects of the Bill, it is inevitable that we consider the wider legislative context within which the Bill must sit, including the interaction with European legislation and specifically the State Aid provisions.

2. In order for the Bill to achieve its intention of enabling a differential tax rate to apply to profits chargeable to UK income tax which arise in Northern Ireland it must provide for identification of those profits. In order to comply with EU rules, the rate must apply in non-discriminatory fashion. The interaction of those rules will mean that even if the NI rate remains the same as the rUK rate, large businesses will be required to identify the split between the two regions.

3. The measure will inevitably add to the costs of business administration for those affected. Such costs will affect profitability, and it is therefore of course vital to the success of the measure that the benefit outweighs the costs.

4. Take the example of a large business operating with comparatively low margin activities in Northern Ireland. The quantum of tax payable on the small amount of profit arising will be low. The benefit of the differential rate may very well be more than offset by the cost of complying with the regulations. The business may respond by attempting to increase the profitability of the NIRE, or if it is already confident that it is operating at maximum efficiency in NI it may simply decide that the effect of the additional administrative burden is to render the operation unprofitable.

5. The administration of capital allowance pools may prove compl icated for certain sectors. NI construction companies may well find it more attractive to take contracts in the Republic of Ireland than elsewhere in the UK, as any item of plant which is used in both NI and rUK will in theory need to be "depooled" and tracked individually. Larger businesses, and contracts, may well operate through separate corporate bodies for each project, which may simplify matters to some extent.

6. The creation of separate corporate bodies for each contract is already a feature of the UK construction industry. We note that proposals currently before t h e European Parliament for the creation of the SUP single member company would provide a simple model for businesses elsewhere in Europe, or indeed investing into Europe from elsewhere, to set up separate trading companies as appropriate.

7. The potential difficulties around capital allowance pools are mitigated by the lack of land border between NI and rUK . Comparatively few businesses operate across the Irish Sea, although courier, haulage and transportation firms which operate sea or air transport between the two parts of the UK tax territory will need to assess the position of vehicles used on both sides of the water.

8. The mechanism for carving out "back office" functions of otherwise excluded reinsurance etc operations and bringing them within the NI rate is simple enough in concept, although it will doubtless pose practical difficulties, especially in defining "back office" as distinct from front or middle office function. That having been said, it seems likely that comparatively few businesses will be affected, and for those who are, the carving out of back office into a separate legal entity would in any event bypass the need for the election.

9. The SME regime, including the "stickiness" rule to prevent companies alternating in or out of the regime on an annual basis, follow s recognised models for establishing size and applying t h e appropriate regime. While not every SME will have in-house experience of the existing rules, we would expect those affected to be taking appropriate professional advice. A qualified chartered accountant would be able to assist with compliance.

10. We note that the rules for apportioning loss relief are predicated on the NI rate being lower than the rUK rate, but not higher. While this may be a practical likelihood (or even certainty), such asymmetric drafting does beg the question what would happen if the position were to be reversed. More significantly, in the event of further corporation tax devolution, there may well be a situation in which losses may need to be apportioned to regimes with both higher and lower rates. While the Bill clauses will in all likelihood function effectively for the foreseeable future, subsequent further devolution of corporation tax rate setting powers could require a revisit.

11. Overall, the problems posed by the Bill look set to be those of practical administration rather than difficulties with the principles set out in the clauses. Perhaps the most significant of these will be the requirement for all large businesses with both NIRE and rUK taxable operations to maintain two sets of records for tax purposes (and tax purposes alone), a burden which will be regarded as particularly onerous if the NIA does not in fact set a different rate.

February 2015

Prepared 10th February 2015