Isle of Man Budget 2010

On 16th February 2010 the Budget speech presented by the Minister for the Treasury, the Hon A R Bell MHK, announced various measures affecting tax rates, allowances, credits and compliance for the 2010/2011 financial year, the main features of which are as follows:

Income Tax Allowances and Rates of Tax (previous year in brackets)

Personal Allowances

£

£

Single person

9,300

(9,200)

Married couple (combined)

18,600

(18,400)

Single parent addition

6,400

(6,300)

Blind person

2,900

(2,850)

Disabled person

2,900

(2,850)

Co-habiting couples max addition

6,400

(6,300)

Age

2,000

(n/a)

 

Income Tax Rates

 

 

Individuals

%

%

Resident

 

 

Single: Standard rate on first 10%

10

(10)

Married couple, jointly assessed:

 

 

Higher rate on balance

20

(18)

Non-resident rate on all income

20

(18)

Companies

 

 

Banking business

10

(10)

Land & property income in Isle of Man

10

(10)

All other companies

0

(0)

Other Non-corporates

 

 

Trusts

20

(18)

10% rate band for resident individuals

£

£

Single person

10,500

(10,500)

Married couple, jointly assessed

21,000

(21,000)

Class 4 National Insurance Contribtions

The rate of Class 4 National Insurance Contributions remains at 8% and is charged on profits between the lower and upper limits. The limits will remain as follows (the previous limits are shown in brackets):-

 

£

£

Lower limit

5,715

(5,715)

Upper limit

37,960

(37,960)

An additional Class 4 contribution of 1% charge on the profits or gains of self employed earners above the annual upper profits limit has been introduced with effect from 6 April 2010.

Personal Allowance Credit

The PAC is paid to resident individuals who do not fully utilise their single or married couple's personal allowance. The amount of the credit will be increased by 18% to £650 in respect of payments made for the tax year commencing 6 April 2009 which are paid after 6 April 2010. The current upper income limit is £9,200.

All amounts and limits are doubled for jointly assessed married couples.

For payments made in respect of the tax year commencing 6 April 2009, the deduction of pension scheme contributions in determining eligibility for the payment is removed.

From the tax year commencing 6 April 2010, individuals who are in full-time education, individuals serving a custodial sentence for the whole of the year and individuals whose spouse has their income tax liability capped, will no longer be eligible to receive a PAC. 

Non-Resident Personal Allowance

The non-resident personal allowance has been withdrawn with effect from 6 April 2010.

Tax Cap

The cap of £100,000 on an individual's income tax liability will be increased to £115,000 for the tax year commencing on 6 April 2010.

The tax cap of £115,000 will be doubled for a married couple where they choose to be jointly assessed. 

Mortgage & Loan Interest

The maximum amount of mortgage and loan interest to be granted in an individual's assessment is to be £10,000. This limit will be doubled for a jointly assessed married couple, regardless of which spouse is responsible for paying the interest.

Commutation of Trivial Pension Funds

Treasury has increased the trivial commutation limit for pension funds to £18,000 for years of assessment commencing on or after 6 April 2010, in line with the limit set in the United Kingdom.

Employer Compliance

Legislative changes have been made in order to improve employer compliance that introduce three new penalties for employers; a penalty for ITIP paid late, a late return penalty and a failure to comply penalty including any payment or part payment of ITIP made later than the 19th day of each month will be liable to a 5% penalty. Any amount which remains outstanding after a further 6 months will then be liable to a 5% additional penalty.

The legislation also states that an employer's annual return which is submitted late will be subject to a civil penalty. Any return submitted later than 30 days from the end of the tax year or 30 days from the date of cessation as an employer will be liable to a £250 penalty, together with a penalty of £50 per day that the return continues to remain outstanding. The legislation also introduces a criminal offence if the return remains outstanding for more than six months.

Any instance of non-compliance with the above legislation will be liable to a £250 penalty. This includes the failure to notify the Division that an employer has commenced or ceased to act as an employer.

Disclosure Amnesty

Treasury has announced that a disclosure amnesty will take place for three months during the tax year commencing 6 April 2010. By concession, the Assessor will waive the imposition of penalties in respect of any voluntary disclosures of previously omitted income made by taxpayers during the period. Interest charges will still apply.

Government Spending, Revenue and Summary

Faced with the ramifications of the review of the VAT sharing arrangement which has resulted in fall of £85 million in indirect taxation for 2010/2011 and £140 million for 2011/2012, the Treasury Minister has announced a package of measures to reduce the impact of the shortfall.  The main features see increases in personal taxation rates and employee national insurance contributions (as mentioned above), a reduction of net government spending by 6.5% or £37.1 million, a £15 million transfer from government reserves, a reduction in capital spending by £11 million, a freeze on salary budgets and the loss of 99 government employees through non-replacement.

Whilst the balancing of treasury books in this budget has proven the most difficult for many years, a balanced approach has enabled government spending to be maintained without too much painful cutbacks.  The following financial year will of course prove even more difficult as the additional reduction in the VAT sharing arrangement will come into play.  The next six months though will see a new UK government and the likelihood of a VAT rise to 20% thereby boosting government revenue and reducing the impact of the amendments to the sharing arrangement.

For more information please feel free to contact Lee or Michelle or call 00 44 (0)1624 612888.

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