Isle of Man Budget 2019 | Tax Talk

Overview

The Treasury Minister Alfred Cannan’s Budget Speech on 19th February 2019 was badged as a “Budget of confidence to build on solid foundations”. It provided a generally positive outlook on the Island’s finances and economic future, whilst at the same time acknowledging the external and internal pressures that are likely to impact the Island in the short to medium term.

Mounting uncertainty has been created by Brexit and certain international tax initiatives loom in the short term, and indeed domestically there are issues to resolve, in healthcare and public sector pensions for example, but overall it was quietly optimistic.

Domestically, the focus was on job creation and retention and a loosening of the ‘squeeze’ on taxpayers. Perhaps the more favourable expectation of the 2017/18 budget surplus, increasing from the forecast surplus of £10m to an expected surplus of £28m, has helped.

External pressures will inevitably impact upon any budget forecasts, albeit it is difficult to fully anticipate the overall impact at this stage. The Brexit uncertainty and a further tax initiative - economic substance matters for Isle of Man companies, introduced with effect from January 2019 - would be the two more immediate issues to highlight, although against this is a backdrop of global economic uncertainty and the impact it has on world markets.

Unless something other than a no-deal Brexit is reached, the likelihood is that there will be a temporary shock to the UK economy and a knock-on effect that we would feel in the Isle of Man. Precisely what impact it will have is difficult to fully perceive, but with uncertainty over international business looking to UK shores in the short term, or indeed established international businesses considering a move away from UK shores, there are obvious risks for the UK’s near neighbours.

With Brexit in mind, the Business Improvement Scheme will provide support to those who incur the cost of transitioning under Brexit, albeit a maximum of only £5,000 would be available.

Overall, it was a quietly positive Budget, with an emphasis on job creation and increasing disposable income, but with some caution given in respect of the more uncontrollable, international matters that are on the horizon.

Rates & Allowances

Income tax rates for individuals remained unchanged at 10% and 20%, but there was an uplift in the personal allowance from £13,250 to £14,000. The cumulative increases in the personal allowance over the past three years, which have amounted to hike of around 33%, are expected to remove approximately 6,500 workers from the charge to income tax whilst providing some benefit to all taxpayers.

View Isle of Man Tax Rates 2019/20

National Insurance Contributions (‘NIC’)

To help in encouraging employment and attracting workers to the Island, a 12 month NIC holiday scheme is to be introduced for:

(i) new residents who arrive on the Island on or after 6th April 2019 and take up employment within 12 months, and

(ii) returning students.

In respect of new residents, the scheme will be open to anyone who has not been tax resident at any time in the previous five tax years and who takes up both residence and full time, permanent employment with a gross salary of £21,000 or more. Eligible residents will apply for a refund on the NIC for their first year of living or returning to the Isle of Man, with refunds capped at £4,000.

For returning students, the holiday will apply if they have successfully completed a full-time education (a degree, postgraduate degree, Higher National Diploma or similar) outside the Island and return to live and work here.

More generally, the NIC rates remain the same, there are marginal increases in the bandings and Class 2 NICs for the self-employed (which was due to be abolished this year) will continue for the foreseeable future.

The VAT Revenue Sharing Arrangement

In his speech, the Treasury Minister once again referenced a series of VAT surveys that will be carried out over the course of 2018/19, stressing the importance of a broad engagement from the Island’s population. The aim of the surveys is to obtain comprehensive and reliable VAT data for use when the government next discusses the VAT Revenue Sharing Arrangement with the UK Government.

The Final Expenditure Revenue Sharing Arrangement (or ‘FERSA’) that the Island has with the UK, which is the mechanism used to determine the Island’s share of VAT receipts and other common duties, in general terms is based upon the irrecoverable VAT relating to local spending, and the results of these surveys will be used to both rebase the Island’s share of VAT and other common duties for the years 2014/15 to 2016/17 and determine the Island’s provisional share of indirect taxes for the years 2018/19 to 2022/23.

The outcome of these surveys is therefore significant to the Island’s finances. Providing some context, the 2019/20 Pink Book provides that the budgeted income receipts from Customs & Excise will be just over £369 million for financial year 2018/19; total treasury income (i.e. external receipts) for the period is budgeted to be £852 million. In other words, over 40% of the Island’s total income comprises indirect tax receipts.

We would therefore strongly encourage people and businesses to actively engage with these surveys and “do their bit” for the Island.

Capital Investment

On the theme of building firm foundations, there is a five-year capital investment programme of £479 million, which includes a Douglas Promenade Walkway, facilitation works to develop the Isle of Man Ferry Terminal in Liverpool, an initiative to support the development of Jurby, a new telecoms strategy and a new landfill facility for problematic waste.

More specifically, funds of £2m have been set aside from the Economic Development Fund to develop the Airport Technology Gateway, which will see the creation of a high quality, landscaped business park at the airport. Let’s hope that this helps businesses to bloom and that this is not a scheme that gets kicked into the long grass.

To help support innovation and technology, provision has been made to allow government to invest in the Island’s telecommunications network, with £2m allocated in the year to improving fibre-optic connectivity. This is welcome and perhaps long overdue.

Pensions

The new state pension to be introduced on 1st April will be worth a little more than its equivalent in the UK, although the pension supplement will be frozen and phased out over a 20 year period.

And finally…

Despite recent changes, the Enterprise Development Scheme continues to offer loan and equity financing to start-up businesses and those businesses looking to expand, whether already domestically based or looking to relocate here.

The banks can breathe a sigh of relief as it has been confirmed that there will be no extension to the scope of corporate tax charges on their income, which was to include other profits arising on non-deposit-taking activities.

And finally, to discourage those with a sweet tooth, the introduction of the new sugar tax with effect from 1st April, in line with the UK, which is expected to generate income receipts of around £300,000 per annum.