Budget corporation tax increase heaps further pain on already struggling companies – Chartered Accountants Ireland

Mar 03, 2021

Setting of regional corporation tax rate by the NI Executive could put Northern Ireland in unique position to attract foreign direct investment

Extension of stamp duty land tax a welcome practical measure

Wednesday 3 March 2021 - The decision of the Chancellor of the Exchequer to increase corporation tax from its current rate of 19 percent to 25 percent in 2023 is disappointing for many companies impacted by the pandemic and the effects of the UK’s exit from the EU, according to Chartered Accountants Ireland, commenting in the wake of today’s Budget speech. 
Companies were expecting corporation tax to be reduced to 17 percent in April 2020.  Today’s increase to 25 percent by April 2023 will mean large companies will be paying 6 percent more in tax in the space of a few years while smaller companies will not see the promised rate reduction of 17 percent materialise. 
The Institute noted that the Northern Ireland Executive should  now consider leveraging its devolved power to set its own regional corporation tax rate, which was originally planned to be 12.5 percent. The Northern Ireland corporation tax rate legislation is now almost six years old but was put on the back burner whilst the region worked to get public finances on a sustainable footing. 

Commenting Norah Collender, Professional Tax Leader with Chartered Accountants Ireland said

“A lower rate of corporation tax in the region coupled with the dual benefit of having access to both the UK and the EU’s single market for goods could put Northern Ireland in a unique position to attract foreign direct investment into the region, particularly in the manufacturing and distribution sectors.” 

Stamp duty land tax

The Budget Day extension of the stamp duty land tax zero per cent rate on residential properties in Northern Ireland costing less than £500,000 to the end of June is a welcome practical measure.

This will help clear the backlog of property conveyances currently in the pipeline which have been delayed due to the current lockdown. It also puts at least an extra £1,500 in the pocket of anyone buying a house costing £200,000 when they buy this by 30 June.

5 percent VAT for the hospitality sector

There can be no doubting the severe impact the pandemic has had on the once thriving hospitality sector in NI. The sector really only benefited from the reduced 5 percent VAT rate for a very short period of time from July until early October 2020. Since then, a series of lockdowns and closures affecting the sector and full lockdown from Christmas has rendered the reduced rate to be of little benefit.

The announcement that the 5 percent VAT rate for the hospitality sector will continue until 30 September 2021 means that businesses like restaurants, café and hotels will have a tangible means of enticing reluctant customers back through their doors as life begins to return to normal over the next few months. Taking a typical hotel room costing £150 per night, the reduced VAT rate saves £22.50 per night, meaning the hotel guest has an extra £22.50 to spend during their visit.

Today's Budget gives many businesses the financial support and certainty needed as the Government begins to lift public health restrictions. The continuation of the coronavirus job retention scheme to September will give businesses a fighting chance of a viable comeback and will ultimately help protect jobs.

Commenting on the coronavirus job retention scheme, Maeve Hunt, Chair of Chartered Accountants Ulster Society said

“The job retention scheme has been a lifeline for many Northern Ireland businesses over the last year with almost 110,000 jobs in Northern Ireland currently protected by the scheme. Extending the scheme until 30 September 2021 and keeping the scheme flexible is vitally important and gives employers and employees certainty over the coming months as businesses begin the tentative steps of reopening and bringing employees back into the workplace.”