Why current employment tax policy can be a barrier to Investors in Northern Ireland?

Instead, President Biden, The Clintons and Joe Kennedy III chose to address our business leaders in our two universities with promises of renewed US support and investment in Northern Ireland. The appointment of Joe Kennedy III, as special US economic envoy to Northern Ireland, is a message of the US’s strong commitment to deliver this support to business. I cannot help but wonder whether the move to by-pass Stormont was a graceful but loud message to an absent Executive, that Northern Ireland business must now come first.

There has been ongoing focus on investment in business in Northern Ireland since the Good Friday Agreement, with US funds contributing to the establishment of some large employers such as Allstate and Citi. The agreement itself established a new North/South Ministerial Council to develop “consultation, co-operation and action” within the island of Ireland.  The New Decade New Approach document in January 2020 sets out commitments by the Irish, UK Governments and the NI Executive to support increased cooperation and connectivity and opportunity on the island.

There is significant opportunity for Northern Ireland, given its unique relationship with the UK, the EU and Ireland and the current UK Government has pledged its support for realising this opportunity.

However, as an employment tax advisor to businesses on this island I am yet to see renewed commitment to address increasingly complex employment tax policy as part of the Government’s commitment to supporting Northern Ireland realise its full potential.

In recent years, I have spent much of my time working with employers as they try to keep up with the increasing burden as their role of tax collector and enforcer. Employers who have responded to workers requests for schemes such as workplace saving schemes, businesses who have tried to expand on the Island of Ireland or adopt hybrid-working policies have faced many barriers arising from the complexities and costs under current employment tax policy.

One such example concerns National Minimum Wage legislation. The legislation was designed to help protect workers from being exploited, however, the approach by HM Revenue and Customs (“HMRC”) and its unwavering narrow interpretation of the legislation, results in well-meaning employers unwittingly falling foul of the rules. It is well-discussed amongst employment tax advisers that the National Minimum Wage team at HMRC are relentless in their pursuit of employers who fall into this category of accidental non-compliance when they were simply trying to do the right thing.

In recent weeks, HMRC announced a focus on Northern Ireland under its National Minimum Wage policy. Northern Ireland has the third highest proportion of low paid jobs in 12 UK regions and ranks third lowest in earnings. This is not necessarily a sign of an increased proportion of employers deliberately attempting to exploit workers but rather a result of the historical structure of the economy and the skillset within the labour market.  This history of lower wages makes Northern Ireland a potentially easy target for HMRC. However, surely the use of National Minimum Wage legislation to take advantage of economic and labour market legacy, is in conflict with the legislation’s original intention?

As trade increases between the North and the South, obligations for employers with employees across the island of Ireland are simply painful as both jurisdictions have differing rules that do not align. I have had many conversations with business that step back from trading and hiring across the border as a direct result of the complex rules for workers in the two different tax jurisdictions and the hidden additional costs of employment such as pensions auto-enrolment obligations.

Foreign business visitors to the UK are subject to strict employment tax obligations from day one. Although there is relief provided through Short Term Business Visitors arrangements, the relief is limited.

For me, this type of tax policy and the absence of mutual cross-border tax agreements with Ireland, only serve as obstacles to investment in the region and conflicts with the UK and Irish Governments’ announcements on their commitment to supporting Northern Ireland. It detracts from the many incentives and grants available to foreign business to set up in Northern Ireland (such as those offered by Invest NI) and undermines agencies that encourage increased North/South economic relationships.

In her April 2023 article “View from the Chair”, Northern Ireland Chamber of Commerce and Industry President, Gillian McAuley, wrote that the Presidential visit is “an opportunity to show the eyes of the world that Northern Ireland is open for business; to tell a captive, international audience about the unique benefits of investing here thanks to dual market access, our skilled and youthful workforce and our propensity for innovation”.

Under the Good Friday Agreement, the Executive and the UK and Irish Governments not only have the autonomy, but are obliged to foster, “the adoption of common policies, in areas where there is a mutual cross-border and all island benefit”. Employment Tax policy is one such area that needs addressed if Northern Ireland is to fulfil its true potential and indeed demonstrate that it is “open for business”. With a refreshed relationship with the US and indeed with the EU under the Windsor Framework, business leaders in Northern Ireland must now use their voice to encourage political leaders on the island and in the UK, to address some of these barriers.