IOM Tax Solutions
Specialising in tax and accounting services for small businesses, companies and individuals on the Isle of Man. We have a wide spectrum of clients from small trading businesses to tax capped individuals. 20 years of offshore experience working with the Big 4 Tax and accountancy firms. Offering a free initial meeting during which we will discuss all aspects of your personal and business affairs, and explain in simple terms the best options available. Specialist knowlegde of taxation is where most savings are made and our expertise in this area differentiates us from other small firms. IOM Tax Solutions will manage your income tax affairs and prepare accounts to a timeline convenient for you concentrating on minimising your tax liabilities and completing your work in a timeframe to suit you. We agree our fees with you from the start so there's no surprises in store. Email firstname.lastname@example.org or call 01624 616217: 07624 400743 Isle of Man Tax Solutions
IOM Tax Solutions 07624400743 / 01624616217
Isle of Man tax Solutions offers a dedicated Tax and accounting service, is entirely focused on our customers requirements. We deal with UK and IOM personal and company tax returns and accounts preparation for a wide client selection from manufacturing companies, investment companies to sole traders.
Self Employed to Company IOM accountant
Considerable savings can be achieved by restructuring your business in an Isle of Man company. This is really viable if your net profit is £25K+. You will not notice any real change in how the business is run. There are significant tax and National Insurance savings available.
Annual savings after costs are for profit of £25K a minimum of £1,300 and for a profit of £35K a minimum of £1,900. With specialist knowledge of capital allowances and revenue expenses further savings may be available.
Trading Accounts and expenses
It is important that you correctly record all of your expenses and carry a petty cash book for detailing small cash transactions. The tax office have a mission to add back over claimed expenses as well as checking ratios and disclosure. A simple profit and loss account can be prepared for a small business which the tax office will accept.
isle of man accountants
You are entitled to claim all expenses wholly and exclusively incurred in running your business.
eg insurance, rental, phone, vehicle (fuel, insurance, servicing), staff wages,
Vehicle Where you use a vehicle, unless it is used entirely in the business you will need to record your business mileage. The vehicle expenses claimed (petrol, servicing, insurance) are then allocated in the proportion business/total mileage. This ratio also applies to capital allowances
The same approach is used in respect of calculating the capital allowance available on the vehicle. A reducing balance basis is used
Home as office: If you have set aside a room for use alone as an office then you are entitled to claim a proportion of your household expenses (rates. insurance, heating)
Phone and internet You should make adjustment and deduct any personal use from the expense claimed. You should establish the percentage use eg 75% business and adjust the expense accordingly. This figure will be used year on year unless there is a change.
Capital allowances isle of man tax Iom
Items of equipment are claimed separately as a capital allowance which is deducted off the net profit. You can claim 0 -100% of the value in the first year. In the second and later years you can claim 0-25% of the available balance. Cars are treated slightly differently. The maximum claim in any year is 25% and cannot exceed £3000.
Example: Starting trade - tool purchased £2,000 and van £13,000 (10% personal use)
Year 1 open value £2,000 £13,000
Claim (0-100) 75% (£1,500) Note - only 75% claimed
Claim (0-25) 25% (£3,000) Note - maximum allowed is £3,000
Balance wdv £500 £10,000 Note - these are the opening values for year 2.
isle of man accountants
If an item is sold the sale proceeds need to be deducted from the opening value (written down value wdv). If the sale proceeds are a lower value then a ballancing allowance arises
e.g. equipment sold for £200 in year 2. open value £500 - sale proceeds £200 = £300. (£300 is claimed as capital allowance)
Conversely if the sale proceeds are of greater value than the opening value this means an overclaim has ocurred which results in an amount being added back which increases the profit.
eg equipment sold for £650 in year 2 open value £500 - sale proceeds £650 = (£150). (£150 is added back increasing the profit)
For the tax year during which you got married, you will be assessed individually. You will then have the option to elect for joint taxation in the next tax year. This will mean that you will both be jointly and severally liable for all your joint tax affairs. In the absence of any election, you will continue to be assessed individually.
You have the choice to be either jointly or independently taxed. In the absence of any election, you will be assessed independently. In most instances it is preferable to be taxed jointly as allowances and rate bands are freely transferable. These can easily be wasted if you are independently assessed. Any unused allowances, deductions or 10% band of tax may not be transferred to the other partner. The restriction on the transfer of unused amounts could result in an increased combined liability.
Jointly assessed, you will receive the married couples allowance, which is equal to twice the single persons allowance and in addition deductions and 10% band of tax will be automatically off-set against the joint income of both persons when being assessed. If employed, during the year, it is possible to offset unused allowances etc. from one spouse to another by adjusting each person's tax codes preventing too much tax from being deducted.
A claim needs to be made no later than 31 December during the first year of assessment that you wish the election for joint taxation to apply for.
Should you wish to choose independent assessment If you are newly married or a new resident, you do not need to do anything as the default position is independent taxation. If you are currently jointly assessed, either you or your spouse must revoke your claim. Both persons each receive the single persons allowance (time apportioned for new residents). Both partners also receive the full benefit of the 10% band of tax. Relief for any allowable deductions is given to the person who made the payment. Joint payments are allocated on an equal basis unless shown that the allocation should be different.
If you were previously jointly taxed up to the date that you separated, you will each need to complete separate income tax return forms, making claims for deductions and paying your own tax.
The treatment for the income tax year in which you separate is as follows:-
If you were jointly assessed
With effect from the year of assessment in which the permanent separation has taken place, both spouses are treated as single persons.
For later tax years:-
The husband is treated as a single person and assessed only on his income.
The wife continues to be treated as a single person, and assessed only on her income.
If you are independently assessed
As both partners are treated as single individuals throughout, only one assessment is required on each partner and only one single allowance is granted to each partner in the year of separation.
Relief for deductions ie mortgage interest
Tax relief is granted to the person or persons paying the interest and owning the property. However, following separation, you may be able to claim relief even if you do not own the home that you shared before the separation. To make a claim you must be able to show that you have paid the interest. If husband and wife each pay part of the interest, the relief is divided between them.
Maintenance payments - NO LONGER TAXABLE
Only the type of maintenance payment which is legally enforceable i.e. ( made under an Order of Court or other legally binding written agreement ) is allowable for income tax purposes. If payments are allowable, the payer will be allowed a deduction from income on the amount paid in the year in which they are made.
In order to be allowable, the payments must be by one of the parties to either the other party for their general maintenance or for the benefit of a child of the family for its general maintenance and/or education, or to a child of the family for its general maintenance and/or education.
There are certain conditions the payments must satisfy:
a)The agreement or Order must be made in the Isle of Man or if there is an Order made under a competent jurisdiction outside the Isle of Man both parties to the Order must be resident in the Island
b)The person making the payment must be resident in the Island
c)The payment must be regarded as income in the hands of the recipient who, in turn, must be assessable to Manx income tax on it, i.e. resident or non-resident tax
d)The two parties concerned must not be living together as man and wife at the time any of the payments are made. .
Voluntary arrangements are not usually assessed on the recipient or allowed as a deduction by the payer.
Please note that payments made to a non-resident under a Manx order or agreement, are considered to be the Manx source income of the recipient and therefore subject to Manx non-resident tax at source. Tax is required to be deducted from the payments.
Tax on maintenance payments
Maintenance payments (except for voluntary payments) are part of your income. They will be taxed if your total income is large enough for you to pay income tax. How you pay the tax depends on your personal circumstances.
If you are working, your maintenance payments may be incorporated in your tax code, and income tax paid through deductions from your pay. You should show maintenance payments in any tax return you are asked to fill in. If you should have received payments, but they have not been paid ( or only partially paid ) to you, you will need to inform the Division so that your tax position can be reconsidered.
Maintenance of a child
If the payments for maintenance of a child under a legally binding agreement or Court Order are payable to you, then they are treated as your income.
But if under the terms of the Court order, they have to be paid directly to the child, then they become the income of the child. In this case, there will only be tax to pay if the total of the payments and other income is more than the allowances that the child is entitled to, and an assessment will be raised on the child.
Overseas Court Orders
If the Court Order is made outside the Isle of Man and the maintenance recipient is not resident in the Isle of Man, the payments made are not deductible from the payers income arising in the Isle of Man.
Concessionally, payments will be allowed as a deduction from any income the payer receives from the country in which the Order has been taken out, up to the level of that income only.
It is pointless throwing tax relief away. You can draw up an agreement yourselves which you can both revoke at a later date. Please note that the person who the payment is made to is taxable on the payment. It is therefore preferable to make payments to children rather than to the spouse. If you have any doubt you should take advice. This agreement will enable you to obtain tax relief until such time as formalities are properly agreed and professional legal advice should be obtained in respect of this.
Example of a legal agreement
This agreement dated “enter date it is to take effect” between “names and addresses of the parties separating” .Whereby “enter names of the parties separating again” have entered into a permanent separation, their marriage having broken down:
It is hereby agreed that “Name of payer” shall pay “name of payee(s)( spouse or children)” the sum of “££££’s” “ [each or otherwise, please specify]” per calendar month until “ (enter a certain date) or the occasion of an event for example a child attaining 16 years)”.
In the presence of:
In the presence of
Attribution Regime for Individuals “ARI”
This new regime replaces the Distributable Profits Charge “DPC” which the EU Code group found distasteful as resident/non resident companies were treated unequally with different tax rates being applied to resident and non resident companies. ARI fixes this by transferring the tax charge to individuals by attributing profits. Resident individuals are taxed whereas non resident individuals are not. (Except income liable to tax at 10% on the company ie from IOM property). As the differential treatment now occurs to individuals and personal tax it is thought that ARI is compliant with the EU code. The legislation is currently empowered through a temporary taxation order and will be fully written into the Tax act.
ARI is effective for all companies whose accounting period begins on or after 6 April 2008.
Individual is responsible for tax payment
The fundamental point of ARI is that individuals are responsible for paying tax on profits. One of the key differences is that under ARI if the qualifying level of distribution is missed (55%) then 100% of the profits are attributed. Under DPC a charge was raised based on 55% so there is a significant difference here.
Risk of adjustment to Tax computation
It may be all very well that your accountant provides details of the distribution required and you pay a dividend equal to 55% of the profits. However if the Income Tax Division successfully dispute a deduction the computation may be revised resulting in full attribution. It is possible if 12 months have elapsed that this may not be rectified due to the time period for paying a “corrective dividend” having elapsed.
Which Companies fall within ARI
The legislation refers to the companies within the Scope of ARI as “Relevant Companies” which are any of the following: One resident on the Island for tax purposes, one incorporated on the Island or one managed and controlled on the Island.
Certain Companies are exempt from the charge
Agricultural Societies and Agricultural Marketing Society
Public Board and Authority
Approved pension Scheme
Licensed Bank or Building Society
Company Limited by Guarantee or club whose members cannot benefit
Company that pays Manx Income Tax at more than the Standard Rate (10% Companies)
Companies Listed on a recognised Foreign Stock exchange
Investment Income in Companies (Trading Company)
A further significant change has been to introduce a relaxation of rules in connection with the treatment of investment income. Where the income source of the company is greater than 50% of its turnover, the whole of the company’s income will be treated as trading income. The old DPC regime only allowed a maximum of £1.000. There will be a full attribution of profits to members of the company. Dividends paid out of the profits in the year or any future date are not chargeable to income tax.
Calculation of Distibutable profit – Investment company
The amount of attribution is calculated in a likewise manner to that of a trading company with the following rules continuing to apply for investment companies. Whilst there is no statutory basis for the deduction of expenses from income derived from investments, this view having been upheld by the Income Tax Commissioners, the Assessor does by concession allow reasonable expenditure to be claimed.
Expenditure will be viewed in two distinct parts
1. Standard Expenses
These are those expenses incurred in maintaining the corporate entity and will be allowed in full. These will comprise;
Filing fees ,Audit fees, Accounts preparation work, Registered office fees, Directors fees.
2. Other Expenses
These are expenses other than standard expenses and non-allowable expenses directly attributable to capital transactions. Other expenses will therefore include;
"Other" accountancy fees, Administration fees, Book-keeping / secretarial fees, Investment management / advisory fees, Professional fees, Telephone, Journals, Stationery, Bank charges, Sundry
Where the company concerned is also in receipt of rental income, qualifying costs under Sections 58 and 59 of the Income Tax Act 1970 will be allowed in full. (Expenses in acquiring the income) By concession, reasonable costs incurred by landlords personally collecting rents will also be allowed in full as management costs, as will costs of up to £300 for one visit to the Island, each year of assessment, made by a non-resident landlord.
Restriction Of 'Other' Expenses
Other expenses will be allowed, but restricted to the lower of
5% of the "gross" income, i.e. before expenses, but excluding income against which no expenditure will be concessionally allowed or income against which expenditure may already have been allowed, e.g. bank and loan interest, trust income and dividends from connected companies (connected companies for this purpose is as defined in Section 119C of the Income Tax Act 1970).
the "other" expenses apportioned by :-
"gross" income + capital gains / losses on investment realisations
Capital gains and losses on realisations will be added together for the purposes of this calculation.
Capital gains or losses on currency conversions will be excluded from the calculation.
Where rental income is received, a £1,000 deminimis will continue to apply to investment income and total company profits will be charged at 10% up to this limit. Where the investment income exceeds this amount, this component of the company income, alone will be fully attributed.
Calculation of profit – Trading Company
To determine the amount of distributable profit , the profits of the company may be reduced by:
Relief and allowances for trading losses and capital expenditure
Income liable to IOM tax @ 10%
Income subject to foreign tax at a rate of 18% or more
Deduction of the foreign tax paid if less than 18%
Personal Allowances for Non-resident Individuals
An individual receiving Manx income but who is not resident in the Isle of Man will be entitled to a personal allowance . This allowance will be deducted from an individual’s total income from all Manx sources when calculating their taxable income for a year of assessment. Individuals who become resident or who cease residence in a year of assessment will have their resident and non-resident personal allowances apportioned appropriately.
Married couples who are resident in the Island have the option of joint or independent taxation; that option does not apply to married couples who are non-resident. If a non-resident married couple receive income jointly from a source in the Isle of Man, each is liable to tax on their share of the income and each is entitled to the non-resident personal allowance.
Non-residents receiving Manx source income, e.g. rent or pension payments, will be required to complete an income tax return form, which will be issued on 6 April each year and will cover the tax year ending on the previous 5 April.
Details of all IOM source income received must be included on the return, and the return form must be submitted to the Income Tax Division by the following 6 October or a £50 penalty will be applied.
Limit on Income Tax Chargeable
Non-resident income tax is due only on Manx source income. Some types of income are subject to deduction of tax at source, whereas others are paid gross, without deduction of tax at source. For example: Manx rents are subject to withholding tax at 18%, whilst bank interest from approved institutions in the Isle of Man is paid gross without deduction of tax.
Tax charged on the Manx income of a non-resident individual is subject to a limit defined as the sum of (in both cases ignoring the personal allowance):
• the tax that would be due on Manx income reduced by any excluded income, and
• tax deducted at source from any excluded income.
A list of excluded income sources is shown below. The effect of applying this limit will be that a non-resident individual will pay no more income tax on excluded income sources than that deducted at source before the income is received. Taking dividends as an example, in 2006/2007 the amount of tax withheld by the paying company will correspond with the rate of tax charged on the company’s profit.
Excluded income sources are as follows:-
• Dividends – paid by a company incorporated under the Companies Acts 1931 to 2004 or registered under Part XI of the Companies Act 1931.
• Deposit interest- paid by a banking institution within the meaning of the Banking Act 1998.
• Interest or dividends paid by a building society- authorised under section 2 or 4A of the Building Societies Act 1986.
• Interest or dividends paid by the Isle of Man Government in respect of bonds – issued under the Isle of Man Loans Act 1974.
• Interest or dividends paid by a local authority – in respect of securities issued under section 50 of the Local Government Act 1985.
• Income from social security benefits – that are chargeable to income tax under section 48.
• National insurance retirement pension – paid by the Department of Health and Social Security.
• Other interest payments – paid by a company incorporated under the Companies Acts 1931 to 2004 or registered under Part XI of the Companies Act 1931.
• Other Remuneration – paid by a company incorporated under the Isle of Man Companies Acts or registered under part XI of the Companies Act 1931, to a company director for services performed outside the Isle of Man, or in order to carry out statutory functions or attend board meetings within the Island shall be excluded for the purpose of section 11A (2) of the Act.
• Income included in a Treasury order that is approved by Tynwald.
European Union Savings Directive (EUSD)
On 1 July 2005 the Island introduced measures equivalent to those adopted by European Union Member States dealing with the Taxation of Savings Income. To support the adoption of equivalent measures the Assessor has issued a separate Practice Note, PN118/05, giving guidance on the application of the measures in the Isle of Man.
Whilst the income subject to the Savings Directive is Manx income, the way in which it is taxed in the Isle of Man does not affect the application of the Directive. Retention tax may be deducted from interest even where the recipient has no liability to income tax in the Isle of Man.
Payments to Non-residents
If an individual or company is making payments (e.g rent or interest payments) to an individual or company which is resident outside the Isle of Man, then the payer is required to deduct non-resident tax from the payment. For payments of rent made to a company, the tax applied is 10%, for payments to all other persons, the rate is 18%. When the Division first becomes aware that a person is making payments to a non-resident, they will be issued with the following:
· N15 – Notice to Deduct Tax. This is an instruction to deduct tax from all future payments.
· N13 – Certificate of Non-Resident Tax Deducted. This is for the payer to record the gross payment, i.e. rent, the amount of tax deducted and the total amount paid. This is sent to the recipient along with the balance of funds, as evidence of tax deducted.
· N35 – Remittance Card. This is sent to the tax office, along with the tax payment, within 14 days of payment being made.
· N37 - Annual return. This is to be completed at the tax year end detailing all payments made in the year.
Treated as a non-resident individual providing that:
· the period spent in the Isle of Man is not expected to exceed six months in total
· Visits have not exceeded three months in each of the last four tax years
· No form of permanent home is available for your use
· you agree to ask your employer to submit a form T20 as soon as your period(s) of employment extends beyond six months. If your period of employment does extend beyond six months, you will then be classed as a resident individual and will pay Manx income tax accordingly.
Tax on Earnings
As a non-resident you will have a personal allowance so you can earn up to this amount without paying income tax; the balance of your earnings will be subject to tax at the rate of 18%.
Non-resident workers who are married are not entitled to opt for joint taxation with their spouse. If a non-resident married couple are both employed in the Isle of Man, then both parties are entitled to a non-resident personal allowance and will be liable to pay tax on the balance of their earnings. Your employer should keep a record of all wages paid and all benefits received during your time in employment. These details will then be declared when they submit their tax return at the end of the tax year. Non-resident individuals will also be required to complete a non-resident return form when leaving the island.