HMRC has published a draft manual containing guidance on the Corporation Tax (Northern Ireland) Act 2015, which will devolve powers to set a corporation tax rate in Northern Ireland. HM Treasury has yet to confirm the commencement date, although the Northern Ireland Executive has committed to setting a rate of 12.5% in April 2018. This guidance, when finalised, will form a new HMRC manual (see here).
The Act received Royal Assent in March 2015. The UK government will give effect to the new powers through secondary legislation once it is satisfied that Northern Ireland’s finances are on a ‘sustainable footing’.
Under the new regime, the Northern Ireland Assembly will have the power to set the Northern Ireland rate of CT in relation to ‘Northern Ireland profits or losses’ (as distinct from ‘mainstream profits or losses’). Most trading activity is included within the category of ‘qualifying trades’, but there are exclusions applying to the oil and gas ring fence trade, and also to most financial activities, including lending and investment, investment management and long-term insurance business. General insurance will qualify, but all re-insurance activity is excluded. Businesses falling within the financial categories may elect for ‘back office’ activities to be treated as a qualifying trade. The amount of the profits attributable to these activities will be calculated by applying a ‘relevant percentage’ (initially 5%) to the ‘back office deduction’, which means the costs related to these activities.
How the Northern Ireland rate is applied to profits will depend on whether a company falls into the category encompassing micro-businesses and SMEs, or is a large company.
Micro-businesses and SMEs: The Northern Ireland rate will apply to all qualifying profits where the company is a ‘Northern Ireland employer’ which satisfies the Northern Ireland workforce conditions, namely that 75% or more of their employee time and costs fall in Northern Ireland. The Northern Ireland rate will also apply to corporate partners on their share of a partnership trade, if both the company and the partnership meet the SME criteria and the Northern Ireland workforce conditions.
Large companies: The Northern Ireland rate will apply only to profits attributable to a Northern Ireland permanent establishment and, in the case of corporate partners not falling within the SME rules, on their share of partnership profits attributable to a Northern Ireland PE.
Special rules are necessary in relation to capital allowances to take account of ‘Northern Ireland rate activity’, and in relation to losses, including ‘sideways’ loss relief, carried forward losses and group relief. The general rule for losses is that a Northern Ireland loss should be relieved first against Northern Ireland profits, before relief is given against mainstream profits. A ‘restricted deductions’ rule will apply in circumstances where a Northern Ireland loss is to be set against mainstream profits, to take account of the mismatch between the Northern Ireland and main rates.
The guidance is structured in eleven main parts:
introduction;
main rules and key concepts;
SMEs;
large companies;
capital allowances;
intangible fixed assets;
R&D relief;
remediation of contaminated or derelict land;
creative industries reliefs;
patent box; and
partnerships.
HMRC asks for comments on the draft guidance to be sent by 1 January 2017.
HMRC has published a draft manual containing guidance on the Corporation Tax (Northern Ireland) Act 2015, which will devolve powers to set a corporation tax rate in Northern Ireland. HM Treasury has yet to confirm the commencement date, although the Northern Ireland Executive has committed to setting a rate of 12.5% in April 2018. This guidance, when finalised, will form a new HMRC manual (see here).
The Act received Royal Assent in March 2015. The UK government will give effect to the new powers through secondary legislation once it is satisfied that Northern Ireland’s finances are on a ‘sustainable footing’.
Under the new regime, the Northern Ireland Assembly will have the power to set the Northern Ireland rate of CT in relation to ‘Northern Ireland profits or losses’ (as distinct from ‘mainstream profits or losses’). Most trading activity is included within the category of ‘qualifying trades’, but there are exclusions applying to the oil and gas ring fence trade, and also to most financial activities, including lending and investment, investment management and long-term insurance business. General insurance will qualify, but all re-insurance activity is excluded. Businesses falling within the financial categories may elect for ‘back office’ activities to be treated as a qualifying trade. The amount of the profits attributable to these activities will be calculated by applying a ‘relevant percentage’ (initially 5%) to the ‘back office deduction’, which means the costs related to these activities.
How the Northern Ireland rate is applied to profits will depend on whether a company falls into the category encompassing micro-businesses and SMEs, or is a large company.
Micro-businesses and SMEs: The Northern Ireland rate will apply to all qualifying profits where the company is a ‘Northern Ireland employer’ which satisfies the Northern Ireland workforce conditions, namely that 75% or more of their employee time and costs fall in Northern Ireland. The Northern Ireland rate will also apply to corporate partners on their share of a partnership trade, if both the company and the partnership meet the SME criteria and the Northern Ireland workforce conditions.
Large companies: The Northern Ireland rate will apply only to profits attributable to a Northern Ireland permanent establishment and, in the case of corporate partners not falling within the SME rules, on their share of partnership profits attributable to a Northern Ireland PE.
Special rules are necessary in relation to capital allowances to take account of ‘Northern Ireland rate activity’, and in relation to losses, including ‘sideways’ loss relief, carried forward losses and group relief. The general rule for losses is that a Northern Ireland loss should be relieved first against Northern Ireland profits, before relief is given against mainstream profits. A ‘restricted deductions’ rule will apply in circumstances where a Northern Ireland loss is to be set against mainstream profits, to take account of the mismatch between the Northern Ireland and main rates.
The guidance is structured in eleven main parts:
introduction;
main rules and key concepts;
SMEs;
large companies;
capital allowances;
intangible fixed assets;
R&D relief;
remediation of contaminated or derelict land;
creative industries reliefs;
patent box; and
partnerships.
HMRC asks for comments on the draft guidance to be sent by 1 January 2017.
