ACCA Income Tax General Update Date 10 May 2007

Taxation Update  Income Tax (Amendment) Bill Paul Martin  A New Income Tax Regime for Pensions - Richard Carter  A View on the New Pension Regime from the Industry - Jon McGowan  2007/08 and future changes - Alice Martin  Tax Credits - Paul Martin  Questions

Introduction Income Tax (Amendment) Bill 2007  A number of amendments to the Income Tax Act  Confirms three Temporary Taxation Orders.

1. Expenditure Involving Crime  Expenditure incurred in making a payment if the making of the payment constitutes a criminal offence no deduction will be allowed for Income tax purposes.

2. Duty to Keep and Preserve Tax Records  New Section 80A into the 1970 Income Tax Act.  Currently there is no income tax legislation that requires tax records to be kept.  Corporate Taxpayers – 4 years from end of the accounting period.

2. Duty to Keep and Preserve Tax Records  Non-Corporate Taxpayers –6 years if trading or receives rental income. –2 years if no trade or rental income.  Records include –Trading records/accounts. –Receipts and expenses documents.

2. Duty to Keep and Preserve Tax Records  Time limit is extended if returns are submitted late.  A Penalty not exceeding £10,000 will apply for non-compliance on summary conviction.

3. Documents Relating to taxpayers  Amends the Assessor’s powers under Section 105E with regard to information gathering.  Currently, in all cases, the taxpayer must be informed if information from a third party is requested together with the reason for the request.  This amendment will allow the Assessor not to inform the taxpayer of the enquiry where he suspects fraud.

3. Documents Relating to taxpayers  Must have the approval of 2 Income Tax Commissioners.  Indemnity for Commissioners.  Neither Commissioner may hear an appeal against assessments arising from the request.  Penalties for third party advising the taxpayer of request.

4. Tax Treatment of VAT Penalties, etc.  Minor amendment to realign statutory references.  Maintain long established position.  No income tax relief will be granted for VAT penalties, surcharges or interest charges.  No income tax charge will be made for VAT repayment supplements.

5. Abolition of the Corporate Charge  Following representation the collection and administration of the corporate charge moved to the FSC from April  Reduce administration.  Corporate Charge will be included within increased filing fees £70 to £320.  FSC to maintain certain exemptions granted by the Income Tax Division.

5. Abolition of the Corporate Charge  Clause 5 repeals all Income Tax legislation relating to the corporate charge.  A deduction for the corporate charge will be introduced for companies that pay income tax at 10%.

6. Deductions in respect of Interest Payments  Deals with interest payments in rental cases.  Currently allowable if assessable to Manx tax on the lender.  From April 2007 loaning company must have a place of business on the Island.  Bona Fide purposes not reduction or avoidance of income tax.

7. Corporate Taxpayers TTO  Clause 7 confirms the Income Tax (Corporate Taxpayers) (Temporary Taxation) Order  Approved by Tynwald on 18 October  Takes account of changes to the Income Tax legislation following the passing of the Companies Act 2006.

7. Corporate Taxpayers TTO  Makes a 2006 Act Company Manx resident for income tax purposes.  Gives the Assessor the Power to request accounts where appropriate.  Confirms the end of an accounting period for merging companies.

7. Corporate Taxpayers TTO  Definition of income distribution. –Deals with dividends paid in specie. –Situations where a company purchases it’s own shares resulting in a distribution of income reserves. –Only charged where income is distributed. –Avoidance of tax leakage.

8. Netherlands TTO  Order was approved by Tynwald in May  Agreement is in effect a transfer pricing agreement.  The Isle of Man and the Netherlands will work together to ensure certainty of treatment, where companies have operations in both territories and goods and services are moved between them.

9. European Union Savings Directive TTO  Order was approved by Tynwald in January  European Union Savings Directive Order –To include Bulgaria and Romania within our commitment to the EUSD. –All future members will be included.

The Taxation of Pensions in the Isle of Man Richard Carter

Taxation of Pensions in the Isle of Man  Current Position in the Isle of Man: –Income Tax (RBS) Act 1978 –Income Tax Act 1989 (Pt 1 & Sch 5) –Income Tax Act 1970: Section 49 Retirement Annuities Section 50B International Schemes

Taxation of Pensions in the Isle of Man  Current Position in the UK: –FA 2004: Pension Simplification –A-Day (6 April 2006) Annual and Lifetime Allowances Scheme Pensions, Income Withdrawal, Annuities Different rules for 75 years –QROPS: Qualifying Recognised Overseas Pension Scheme

Taxation of Pensions in the Isle of Man  Consultation in the Isle of Man –Autumn 2006, closed 17 November –Response published on Budget Day.  Consultation still ‘open’.

Taxation of Pensions in the Isle of Man  Consultation Response: –Zero rate tax – what incentives? –Amend Current Statute. –Annual Allowance. –No Lifetime Allowance. –Non-Earners. –Triviality & Concurrency.

Taxation of Pensions in the Isle of Man  Consultation Response: –Tax Free Lump Sum. –Annuity / Income Withdrawal. –Retirement Age. –Flexible Retirement. –Investments.

Taxation of Pensions in the Isle of Man  Next Steps –2 Concessions to Tynwald. –Bill to House of Keys Autumn 07. –Switch on 6 April 08.  Consultation –Continues throughout Summer 07.

ACCA SEMINAR: May 10th 2007 Jon McGowan Pensions – are they still relevant?

MAC FINANCIAL MBO from AON Financial Services 1 st Jan 2004 Acquired Marsh Financial Services 2005 Acquired Anglo Irish Bank’s IFA division years experience IOM Largest Corporate IFA on Isle of Man 250+ schemes, 3,500 employees + 5,000 personal customers Pension; Death in Service, Long Term Disability, Healthcare, Flexible Benefits Private Client – Wealth Management (Financial Planning, SIPPs etc)

Pensions – still relevant? Why do we need them?

Why plan for retirement?

Limits on total contributions Age at beginning of tax year % of earnings which can be paid each tax year* 35 or under 36 to to to to to % 20.0% 25.0% 30.0% 35.0% 40.0% NB - Moving to Annual Allowance April 2008

What comes out at ‘retirement’? Benefits available between ages 50 – 75 Choice of pension type e.g. level or rising

Providers Norwich Union – closing to new business, why? What does this mean - –No new Personal Pensions –OK for existing PPs and Group PP’s (incl adding new entrants) No new insurers have so far announced they are coming into market 3 or 4 “considering” it – including local H.O. of offshore life companies Competitiveness of their offering v Norwich Union

Self Invested Personal Pensions (SIPPs) – the next Big Thing? More flexibility No insurer Greater choice of investments Annuity flexibility Greater personal control Money not “lost” to insurer

Budget changes annual allowance not directly linked to earnings no Lifetime limit (as was brought in by the UK last year) contributions into pensions from non-workers tax free lump sum increased to 30% triviality limit increased to £15,000 concurrency to be allowed i.e. dual membership of corporate and personal pensions remove the requirement to purchase an annuity and more flexibility over how the benefits can be taken to increase the minimum retirement age to 55 from 2010 (as the UK have done)

Any Questions?

THANK YOU

2007/08 and Future Changes Alice Martin

2007/08 & Future Changes  Budget Day announcements –Interest ‘cap’ for 2008/09 –Benefit in Kind Review  On-line services  Corporate Transition –Pay & File –Transitional payment arrangements –Interest –New Return Form

Budget 2007 – Interest Paid  ‘Cap’ on amount an individual can claim under Prescribed Deductions Order w.e.f. 6 th Apr 08  Total loan or mortgage interest claimed  £15,000 per person  £30,000 per jointly assessed married couple –Regardless of who pays  Does not affect –Business expense under S 31 or –rental ‘costs’ under S 58 Bona fide loan –to acquire the land or –to pay for maintenance, repair, insurance or management

Budget 2007 – Interest Paid  Delay allows time for ‘re-arrangement’  E.g. clear separation of private /professional / business loans  ITD will write to all those who appear to be affected by this measure

Budget 2007 – Benefit in Kind  BIK Car & Fuel Review – towards a ‘green’ approach  BIK home to work travel –Scheduled licensed transport –Employer directly pays the transport provider –No charge to a BIK  BIK electric cars now nil charge for 2007/08

Tesla Roadster Electric Vehicle

On-line Services  Phase 1 - End May 2007 –Launch of on-line payments Credit and debit card transactions Online remittance cards Quick facility for Nil remittance cards Enquiry facility  Phase 2 - End July 2007 –On-line R/F for Pay and File –On-line payments for other taxpayers

2007/08 Corporate Transition  Old system, most companies –Accounting period ending in 2006/07 will be used to raise the 2007/08 PY assessment –Due and payable  Pay & File –First accounting period ending after –File by 12 months and 1 day later –Pay at the same time –This first accounting period under P & F may be due a transitional payment arrangement

2007/08 Corporate Transition  Transitional Payment Arrangements PN 139/06 Company Accounting period end A Ltd31 March B Ltd30 April /128/12 C Ltd31 May /127/12

2007/08 Corporate Transition  Late payment of second instalment –Interest runs from new statutory due date –12 months and one day from end of accounting period  New Return form for Pay and File –One type, but two ‘routes’

Tax Credits Paul Martin

Tax Credits  Prior to April 2007 –Distribution allowed as a deduction. –No Tax Credit. –No/less differential in individual and corporate rates.

Tax Credits  The New Regime –No Deduction for a Distribution.  As a result of zero/10, tax credit introduced to prevent double taxation of profits.  3 Types of Tax Credit –Concessional Tax Credit. –DPC Credit. –Tax Credit from 6 April 2007.

Concessional Tax Credits  Permission for capital distributions replaced by concessional tax credits for distributions from reserves from before 6 April  Reserves taxed for 2001 or earlier at 14% or more treated as capital.  Other taxed reserves distributed with a non refundable tax credit. –2001/0212% –2002/03 to 2005/0610%

Concessional Tax Credits  Distributions from reserves charged to income tax during opening years. –Where due to basis of assessment profits have been brought into charge more than once, those profits can be distributed as capital

Concessional Tax Credits  Reserves distributed through holding company. –Distribution received charged at zero –Tax credit not utilised –Further distribution to resident individual tax credit zero.  Assessor on application will look through holding company. –Written application signed by company and recipient prior to payment. –Distribution should be paid to individual within 30 days of being received

DPC Tax Credits  DPC Regime commenced 6 April  Details GN 36.  Any dividend from profits that have suffered DPC will carry a DPC credit.  DPC credits can only be given to Isle of Man resident individuals.  Fully credited to individual and refundable.

DPC Charge Example 2006/2007 Profit10,000 Less: Dividend (50%)(5,000) Taxable Profit 5,000 0%0 The dividend paid is not sufficient, so the following DPC will be payable: £10,000X 55%X 18%X 100%= £990 A trading company owned by Mr Resident

DPC Credits Example The dividend paid is grossed up : NetX 100/100-DPC RateGross 5,000 x 100/90.15,549 The DPC credit is calculated like this: GrossX Tax RateTax Credit 5,549 x 55% x 18%549 The £5000 dividend paid will carry a DPC credit that can be claimed by the resident shareholder.

DPC Credits Example  The share holder will declare a gross dividend of £5,549 and claim a DPC credit of £549 by submitting a DPC credit voucher.

10% Tax Credits  The Deduction from taxable profits of dividends paid ceased on 5 April  2007/2008 assessments onwards company paying 10% will pay tax on the amount that it will distribute.  Tax Credits refundable to Isle of Man resident non-corporate taxpayers.

Tax Credits Example 2006/ /2008 Profit10,000Profit10,000 Less: Dividend (5,000)-- Taxable Profit5,000Taxable Profit10, %1,000 In both years a dividend of £5000 was paid and is fully taxable on the shareholder. In 2006/2007 the £5000 is paid gross, in 2007/2008 it is paid net with a tax credit.

Tax Credits Example (2) The net dividend paid is grossed up like this: NetX 100/100-Tax RateGross 5000 x 100/ The tax credit is calculated like this: GrossX Tax RateTax Credit 5556 x 10%556 The shareholder declares a gross dividend of £5556 and claims the tax credit of £556 by submitting a tax credit voucher.

QUESTIONS?