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ACCA Income Tax General Update. Date 10 May 2007. Taxation Update. Income Tax (Amendment) Bill 2007 - 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

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Taxation Update

  • Income Tax (Amendment) Bill 2007 - 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


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Introduction

Income Tax (Amendment) Bill 2007

  • A number of amendments to the Income Tax Act 1970.

  • Confirms three Temporary Taxation Orders.


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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.


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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.


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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.


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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.


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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.


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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.


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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.


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5. Abolition of the Corporate Charge

  • Following representation the collection and administration of the corporate charge moved to the FSC from April 2007.

  • 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.


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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%.


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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.


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7. Corporate Taxpayers TTO

  • Clause 7 confirms the Income Tax (Corporate Taxpayers) (Temporary Taxation) Order 2006.

  • Approved by Tynwald on 18 October 2006.

  • Takes account of changes to the Income Tax legislation following the passing of the Companies Act 2006.


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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.


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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.


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8. Netherlands TTO

  • Order was approved by Tynwald in May 2006.

  • 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.


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9. European Union Savings Directive TTO

  • Order was approved by Tynwald in January 2007.

  • European Union Savings Directive Order

    • To include Bulgaria and Romania within our commitment to the EUSD.

    • All future members will be included.



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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


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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 and >75 years

    • QROPS:

      • Qualifying Recognised Overseas Pension Scheme


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Taxation of Pensions in the Isle of Man

  • Consultation in the Isle of Man

    • Autumn 2006, closed 17 November 2006.

    • Response published on Budget Day.

  • Consultation still ‘open’.


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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.


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Taxation of Pensions in the Isle of Man

  • Consultation Response:

    • Tax Free Lump Sum.

    • Annuity / Income Withdrawal.

    • Retirement Age.

    • Flexible Retirement.

    • Investments.


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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.


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ACCASEMINAR: May 10th 2007Jon McGowanPensions – are they still relevant?


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MAC FINANCIAL

  • MBO from AON Financial Services 1st Jan 2004

  • Acquired Marsh Financial Services 2005

  • Acquired Anglo Irish Bank’s IFA division 2006

  • 25 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)


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Pensions – still relevant?

Why do we need them?



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Age at beginning

of tax year

% of earnings which can

be paid each tax year*

17.5%

20.0%

25.0%

30.0%

35.0%

40.0%

35 or under

36 to 45

46 to 50

51 to 55

56 to 60

61 to 74

Limits on total contributions

NB - Moving to Annual Allowance April 2008


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What comes out at ‘retirement’?

Benefits available between ages 50 – 75

Choice of pension type e.g. level or rising


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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


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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


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Budget changes Thing?

  • 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)


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THANK YOU Thing?www.mac-financial.comwww.freesipp.com


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2007/08 and Future Changes Thing?

Alice Martin


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2007/08 & Future Changes Thing?

  • 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


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Budget 2007 – Interest Paid Thing?

  • ‘Cap’ on amount an individual can claim under Prescribed Deductions Order w.e.f. 6th 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


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Budget 2007 – Interest Paid Thing?

  • 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


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Budget 2007 – Benefit in Kind Thing?

  • 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



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On-line Services Thing?

  • 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


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2007/08 Corporate Transition Thing?

  • Old system, most companies

    • Accounting period ending in 2006/07 will be used to raise the 2007/08 PY assessment

    • Due and payable 1.1.08

  • Pay & File

    • First accounting period ending after 6.4.07

    • 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


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2007/08 Corporate Transition Thing?

  • Transitional Payment Arrangements PN 139/06


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2007/08 Corporate Transition Thing?

  • 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’


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Tax Credits Thing?

Paul Martin


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Tax Credits Thing?

  • Prior to April 2007

    • Distribution allowed as a deduction.

    • No Tax Credit.

    • No/less differential in individual and corporate rates.


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Tax Credits Thing?

  • 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.


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Concessional Tax Credits Thing?

  • Permission for capital distributions replaced by concessional tax credits for distributions from reserves from before 6 April 2006.

  • Reserves taxed for 2001 or earlier at 14% or more treated as capital.

  • Other taxed reserves distributed with a non refundable tax credit.

    • 2001/02 12%

    • 2002/03 to 2005/06 10%


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Concessional Tax Credits Thing?

  • 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


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Concessional Tax Credits Thing?

  • 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


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DPC Tax Credits Thing?

  • DPC Regime commenced 6 April 2006.

  • 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.


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DPC Charge Example Thing?

A trading company owned by Mr Resident

The dividend paid is not sufficient, so the following DPC will be payable:


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DPC Credits Example Thing?

The £5000 dividend paid will carry a DPC credit that can be claimed by the resident shareholder.

The dividend paid is grossed up :

The DPC credit is calculated like this:


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DPC Credits Example Thing?

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


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10% Tax Credits Thing?

  • The Deduction from taxable profits of dividends paid ceased on 5 April 2007.

  • 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.


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Tax Credits Example Thing?

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.


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Tax Credits Example (2) Thing?

The net dividend paid is grossed up like this:

The tax credit is calculated like this:

The shareholder declares a gross dividend of £5556 and claims the tax credit of £556 by submitting a tax credit voucher.


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QUESTIONS? Thing?