Performance of the economy
Following a year of uncertainty and economic disruptions both locally and globally, the island’s resilience has been put to the test. The continued conflict in Ukraine has asserted pressure on the cost of raw materials and while inflation rates have started to fall, they remain at levels higher than previous years affecting individuals, businesses and the Government.
Despite the struggle of cost pressures through the year the island’s economy has performed strongly. The reserves have returned to market value in excess of £1.76 billion which can only assist the Government in keeping on track of the Economic Strategy (approved November 2022). With an emphasis set on maintaining tight budgetary controls and retaining reserves will mark the start of a 10-to-15-year strategy aiming to make the island's economy vibrant for its residents, with a tax strategy showing in 2026 an estimated return on the reserves higher than the structural deficit.
“This Island’s ongoing ability to thrive in a tough economic climate and to have sufficient strength to respond to shocks is of vital long-term importance and why [...], now perhaps more than ever, it is essential that we have a financially sustainable budget for our future.”
Corporate Taxes
OECD’s Global Minimum Tax initiative
In May 2023 the Government responded to the OECD’s Pillar Two framework confirming their intent to introduce the global minimum corporate tax rate of 15% for multinational enterprises. The first move closer to Pillar 2, sees an increase in the commercial tax rate from 10% to 15% for banks and large retailers (profits above £500,000). Applicable from tax year 24/25 it will only apply to those banks and retailers whose profits would otherwise be subject to a top-up tax outside the island under a Pillar 2 income inclusion rule in 2024. There is no impact to banks and large retailers who are not part of groups that are in scope of Pillar 2 from 2024, this also includes other businesses that are in scope and taxed at the standard 0% rate.
Petroleum Extraction Tax
A government aim is to broaden the tax base and increase the Government income so reducing the reliance on personal tax sees an increase in the taxation of petroleum extractions. This increase from 0% to 20% is now in line with land and property.
Benefit in kind employer charges
A move aligned to the Climate Change Plan 2022 to 2027 will encourage employers to consider lower based emission vehicles; the benefit in kind car charges will primarily be based on CO2 emissions and the list price of the car. Alongside this the benefit in kind calculation for fuel will also be aligned with the car’s CO2 emissions.
Zero/Ten regime
There will be a review over the scope of positive rates of Corporate taxpayers, however, the 0/10% rates are here to stay and will be pivotal in maintaining the island’s competitive tax position moving forward.
Personal Taxes
A reluctant decision was made to increase the higher rate of income tax from 20% to 22% which will impact resident and non-resident tax payers. The 2% addition will be ring fenced for the island’s National Health Service.
A commitment was made to review the income tax and child benefit thresholds in the following year's budget considering the living pressures that individuals are currently experiencing and that the 2% increase is a temporary measure before a NHS levy is introduced. The levy will be a new revenue source hopefully introduced for 2025/26 and will aim to achieve a fair system meaning less reliance on reserves.
National Insurance and State Pension
The impacts of triple lock on the State Pension were stated as being unsustainable without putting further pressures on businesses and individuals. This has led to a postponement to the changes in National Insurance (NI) while a review is performed to balance the livelihoods of those in need while maintaining intergenerational fairness and promoting economic development. It is said that further increases to the state pension will no longer be linked to the UK for those who are in receipt of a Manx pension from 6 April 2019.
However, due to the annual increases to the State Pension, NI thresholds and limits increases will be continued to be applied as normal, saving someone on minimum wage £85.80; however, for earners in excess of £45,786 the upper earnings limit increase to £938 meaning more National Insurance will be paid up to a maximum of £299.
Class 2 will not be abolished as it has been seen by the UK but this will be reviewed subject to the outcome of the changes in the UK becoming clearer.
Safeguarded the Island’s Reputation
With the anticipated upcoming assessments from Moneyval in 2026, additional budget allocations have been made so that the island is prepared to safeguard its international reputation. This is a demonstration of commitment to ensure the island’s policies and regulations towards tackling financial crime, and the effectiveness of the application of the AML/CFT code are adhered to.
The future
With the introduction of a new Tax Strategy, identifying seven priority actions, on the register of business for the next Tynwald sitting in March 2024 there will be further debate on the island’s taxes. It is the first review of the island’s strategy in relation to taxation since 2016 and seeks to contribute to balancing public sector income and expenditure.
Contact our Tax team
