Northern Ireland

Stormont deal: Lower corporation tax rate to 'cost £240m'

Stormont Image copyright Getty Images
Image caption The figures show the cost of reducing the corporation tax in Northern Ireland

The BBC understands that the latest official estimate for the cost of reducing corporation tax in Northern Ireland is £240m a year.

A cut in corporation tax will mean less revenue is collected for the Treasury.

Under European rules, the Northern Ireland Executive will have to make up the shortfall through a cut in its block grant.

The political deal on Tuesday revealed the corporation tax rate in Northern Ireland will be cut to 12.5% in 2018.

The UK rate is currently 20% though is due to be cut to 19% in 2017 and then to 18% in 2020.

It's understood that Stormont officials believe that the first full year of the 12.5% rate will knock £80m off the block grant.

That cost will rise to £160m in the second year before reaching a 'steady state' of £240m.

The major parties at Stormont believe that cutting the tax will help tackle long-term problems in the Northern Ireland economy.

They think that if companies can keep more of their profits, it will unleash an unprecedented wave of investment and growth.

A bill passed at Westminster earlier this year gives the Stormont executive the power to set the rate, so long is it can demonstrate sound finances.

Small and medium sized companies, in which at least 75% of staff time and costs relate to work carried out in Northern Ireland, will qualify.

If this test is not met, the company will continue to be taxed at the main UK rate.

Large firms, such as multinationals, will need to have a "Northern Ireland Regional Establishment" (NIRE) - a fixed place of business, such as an office or factory, where it carries out its business.

Trading income arising from the NIRE will be taxed at the Northern Ireland rate.

Related Topics

More on this story