Our reactions from an Isle of Man perspective
Of interest locally were:
The launch of a consultation around importing (more formally re-Domiciling) foreign companies into the UK;
An increase in the minimum wage to £9.50 which compares with £8.25 on the Island; and
Another reference to a forthcoming review of the VAT treatment of fund management services.
It will be interesting to see how these measures roll out and impact Isle of Man businesses and individuals.
We've shared below our reactions and some of the tax announcements of most relevance to Isle of Man businesses.
As previously announced, the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19%, and there will be taper relief for businesses with profits between £50,000 and £250,000, so that their average rate is less than the main rate.
In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31% from April 2023 and the rate of the Banking Surcharge will be set at 3% from April 2023 (the annual allowance for groups will also be raised to £100 million).
A number of measures were announced providing relief in respect of business rates, including:
The temporary Capital Allowances Annual Investment Allowance (AIA) of £1 million will be extended to 31 March 2023.
R&D tax relief schemes
Following a recent consultation, R&D tax reliefs will be amended to expand qualifying expenditure to include data and cloud costs, make sure that the R&D regimes are focused on encouraging investment in UK based R&D, and to target abuse and improve compliance. These changes will take effect from April 2023.
English Freeport tax site designation
Some of the English Freeport tax sites have been designated. Businesses within these tax sites can benefit from the various tax incentives for these areas. The first tax sites will be in Humber, Teesside and Thames, and those Freeports will be able to begin initial operations from November.
Residential Property Developer Tax (RPDT)
This new tax will apply from April 2022 on the profits from UK residential property development. RPDT will apply to companies and corporate groups which hold, or have held, interests in land/property as trading stock, and which are subject to corporation tax on trading profits from residential property development activity. This will include non-UK tax resident companies, regardless of whether they are carrying on those activities through a UK permanent establishment or not.
The tax will be charged at 4% on profits of companies and corporate groups which exceed an annual allowance of £25m. The calculation of the profits subject to the tax will follow the corporation tax principles, but will exclude interest and other financing costs, and the availability of group relief and other losses will be restricted.
Qualifying Asset Holding Companies (QAHC) Tax Regime and Real Estate Investment Trusts (REITs)
With effect from 1 April 2022, a new framework for the taxation of holding companies that are used by funds and certain other qualifying investors will apply. These new rules, which cover the taxation of AHCs as well as payments made by AHCs, are intended to make the UK a more attractive location for such investors.
Targeted changes are also being made to the tax rules for UK REITs, including the removal of the listing requirement where at least 70% of the investors are “institutional investors”.
Of interest locally is the announcement of a consultation around importing (more formally re-Domiciling) foreign companies into the UK. This is a move designed to encourage such entities to settle within the UK corporation tax regime and which may well be of relevance in future for Isle of Man incorporated companies holding UK property assets.
Online Sales Tax
The government will continue its review into an OST. It will launch a consultation shortly.
As announced, legislation will be introduced in the Finance Bill 2021-22 to increase the rates of income tax applicable to dividend income by 1.25%.
Capital Gains Tax (CGT) payment on UK property disposals - time limit extension
The deadline for UK residents subject to capital gains tax (CGT) - e.g. individuals and trusts - to report and pay CGT payment after selling UK residential property will increase from 30 days after completion to 60 days. For non-UK residents within the charge to CGT on direct and certain indirect disposals of UK land - e.g. individuals and trusts (not deemed to be companies) - the deadline will also increase from 30 days to 60 days.
Basis period reform
Legislation in Finance Bill 2021-22 will reform income tax basis periods so businesses’ profit or loss for a tax year will be the profit or loss arising in the tax year itself, rather than the profit or loss of the accounting period ending in that tax year, regardless of its accounting date. The transition to the new rules will take place in 2023-24 and the new rules will come into force from 6 April 2024.
Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA)
As previously announced, the rules will now be introduced from 6 April 2024. General partnerships will not be required to join MTD for ITSA until 6 April 2025. In line with this one year delay, the new regime of penalties for the late filing and late payment of tax for ITSA will now come into effect on 6 April 2024 for those taxpayers required to submit digital quarterly updates through MTD, and 6 April 2025 for all other ITSA taxpayers.
New penalties on promoters of tax avoidance, including on offshore promoters was announced. This will allow HMRC to freeze a promoter’s assets and provide for the closing down of companies and partnerships that promote tax avoidance schemes.
Notification of uncertain tax treatment by large businesses
As announced on 20 July 2021, the government will legislate to introduce a new requirement for large businesses to notify HMRC when they take a tax position in their returns for VAT, corporation tax, or income tax (including PAYE) that is uncertain.
There are no changes to the rates of VAT and the VAT registration and deregistration thresholds.
Vehicle Fuel Duty
Amid record fuel prices at the pumps, fuel duty remains frozen for 2022-23.
Air Passenger Duty (APD)
From 1 April 2023 a new lower domestic band (£6.50) for APD covering flights within the UK will be introduced. Also, a new higher rate ultra-long-haul band (£91), covering destinations with capitals located more than 5,500 miles from London will be introduced to align APD more closely with the government’s environmental objectives.
The duty regime is to be reformed so all beverages will be taxed in direct proportion to their alcohol content. To simplify the regime, the number of main rates will be reduced from 15 to 6. Reduced rates for products below 3.5% ABV will be introduced. A common small producer relief will be introduced, for smaller producers of wine, cider, spirits and wine below 8.5% ABV. In addition, a new relief will be introduced, with duty rates on draft beer and cider being cut by 5%. A consultation on these changes is to be published. The current alcohol duties will continue to be frozen.
Investment Management Services
There was another reference to a forthcoming review of the VAT treatment of fund management services, which has been delayed. The budget refers to a consultation upon options to simplify the VAT rules in this area. This appears to be a shift from the previously stated objectives of this review, which were to ensure that the UK was a competitive jurisdiction for locating funds, and the importance of VAT not being an inhibiting factor for the UK fund industry. This point is very relevant to the Isle of Man fund industry and so we hope that this opportunity to reform is not missed.