U-turn on Northern Ireland tax breaks

With the peace accord itself in jeopardy, Northern Ireland’s business community hit out at the government over the U-turn and accused it of retracting the breaks – which gave 100% first-year tax relief to small and medium-sized businesses on plant and machinery – ‘by the back door’.

In stark contrast to the blaze of publicity surrounding chancellor Gordon Brown’s initial announcement of the measures, details of their withdrawal last week were only included in the small print of an Inland Revenue press release.

The 100% capital allowances still exist in theory but they have been severely restricted, with the agricultural and transport industries hit hardest.

The retraction of the tax break has arisen as a result of a tussle between the UK government and the European Commission, which has successfully argued that the 100% allowances contravened its tax competition laws on state aid.

Accountants, business leaders and representatives of the freight industry in the province were unaware of the move when contacted by Accountancy Age this week. Eamonn Donaghy, tax director at KPMG in Belfast, said: ‘I think the government took the headlines introducing this back in May. Now, this has quietly come in through the back door.’

Brian Bloomfield, Northern Ireland representative of the Freight Transport Association, expressed surprise. He questioned what the government was going to do about those businesses that had already taken advantage of the 100% allowances.

Institute of Directors vice-chairman Eric Bell said he was very disappointed for the already hard-pressed agricultural sector in the province and called for further clarification.

The retraction of the tax break is a major embarrassment for the government at a time when it is attempting to keep the peace process moving.

Questions were asked in parliament this week about why the government announced the measure when it knew, or should have known, it would contravene European tax competition law, especially when Paymaster General Dawn Primarolo chairs the EU group which decides such issues.

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