Northern Ireland tax forecasts

Legislation and background

In November 2015, the Northern Ireland Executive (NIE) and the UK Government reached agreement over the implementation of the Stormont House Agreement of December 2014, including the devolution of corporation tax (CT) rates to the Northern Ireland Assembly from April 2018. The Corporation Tax (Northern Ireland) Act 2015 was given Royal Assent in March 2015. The NIE announced its intention to set a 12.5 per cent rate, to match that in the Republic of Ireland. While legislation has been passed, the final devolution is subject to agreement between the UK Government and the NIE, which has not yet been reached.

We plan to work with analysts in HMRC and the NIE to incorporate an estimate of the effect of this policy change on UK-wide receipts once agreement has been reached between the NIE and the UK Government. The NIE estimated that £768 million of UK CT receipts in 2013-14 could be attributed to Northern Ireland, which was higher than HMRC’s estimate of £485 million for the same year. HMRC put the amount at £762 million in 2017-18.[1]

The UK CT rate is 19 per cent, 6.5 percentage points higher than the proposed rate in Northern Ireland, but with a further cut to 17 per cent due in April 2020. We would anticipate there being important behavioural effects that would need to be taken into account in order to estimate how much our UK-wide receipts forecast would be affected by a reduction in the rate in Northern Ireland. But the pre-behavioural effect on CT receipts would simply reflect the difference in the rates, so around a third of what Northern Ireland CT receipts would have been in the absence of a rate cut.

Air passenger duty on direct long-haul flights departing from airports in Northern Ireland was devolved to the NIE from January 2013, and has been set to zero.

[1] The differences are likely to be explained by differences in methodology. The NIE’s estimates are based on the levels of economic activity reported in Office for National Statistics regional accounts data. The HMRC approach matches company tax records with location and employment data to establish the location of taxable profits. Details can be found in their respective publications ‘Northern Ireland net fiscal balance report 2012-13 and 2013-14’ and ‘A disaggregation of HMRC tax receipts between England, Wales, Scotland & Northern Ireland’. HMRC’s methodology has been used by the ONS in its ‘Country and regional public sector finances’ publication.

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