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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
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
introduction
Introduction

Income Tax (Amendment) Bill 2007

  • A number of amendments to the Income Tax Act 1970.
  • Confirms three Temporary Taxation Orders.
1 expenditure involving crime
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
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 records6
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 records7
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
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 taxpayers9
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
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
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.
5 abolition of the corporate charge12
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
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
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.
7 corporate taxpayers tto15
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 tto16
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
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.
9 european union savings directive tto
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.
taxation of pensions in the isle of man
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 man21
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
taxation of pensions in the isle of man22
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’.
taxation of pensions in the isle of man23
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 man24
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 man25
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.
mac financial
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)
pensions still relevant

Pensions – still relevant?

Why do we need them?

limits on total contributions

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

slide31

What comes out at ‘retirement’?

Benefits available between ages 50 – 75

Choice of pension type e.g. level or rising

providers
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
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
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)
2007 08 future changes
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
Budget 2007 – Interest Paid
  • ‘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
budget 2007 interest paid39
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
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
on line services
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
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 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
2007 08 corporate transition44
2007/08 Corporate Transition
  • Transitional Payment Arrangements PN 139/06
2007 08 corporate transition45
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

Tax Credits

Paul Martin

tax credits47
Tax Credits
  • Prior to April 2007
    • Distribution allowed as a deduction.
    • No Tax Credit.
    • No/less differential in individual and corporate rates.
tax credits48
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
Concessional Tax Credits
  • 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%
concessional tax credits50
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 credits51
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 Tax Credits
  • 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.
dpc charge example
DPC Charge Example

A trading company owned by Mr Resident

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

dpc credits example
DPC Credits Example

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:

dpc credits example55
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
10% Tax Credits
  • 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.
tax credits example
Tax Credits Example

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
Tax Credits Example (2)

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.