13.01 TAX YEAR
Manx income tax is payable for years commencing on 6 April and ending on the following
5 April -- known as years of assessment.
In general, a taxpayer's income tax liability for a particular year of assessment is calculated on a preceding-year basis. For example, the liability for the year of assessment 1999-2000 would be based on income arising in the year ended 5 April 1999.
In theory, income must be determined for years of assessment from 6 April to the following 5 April. In practice, the Assessor is normally prepared to base assessments on financial statements made up to a date within the year on which the assessment is based (that is, normally, the preceding year) provided the financial statements are for a 12-month period, are the only financial statements prepared in the year, and commence on the day after the previous accounting date. For example, financial statements for the year to 31 December 1998 would form the basis for the assessment for 1999-2000.
On commencement of a trade or other business, however, actual income for the year in question (arrived at by apportioning the income of the taxpayer's accounting year on a time basis) is assessed until the year of assessment in which the preceding year basis first applies, as explained below. From that year onwards, the assessments are based on the profits shown in the financial statements ending within the year on which the assessment is based.
The rules applying on commencement or cessation are summarised below.
Commencement Rules. When a company commences a new trade or other business, the normal preceding year basis of assessment is varied as follows:
- First year of assessment: tax is assessed on income arising from the commencement of the new activity to the following 5 April.
- Second year of assessment: tax is assessed on income arising within the year of assessment; that is, the income shown in the company's successive financial statements is apportioned on a time basis.
- Third and subsequent years of assessment: tax is assessed on income arising in the year ended 5 April preceding the year of assessment.
The company may, however, elect to be assessed for the third year of assessment, or for the third and fourth years of assessment, on the actual income arising in those years of assessment.
Cessation Rules. When a trade or other business ceases, the assessment for the final year will be on the income from the preceding 6 April to the date of cessation. Additionally, if the actual income for the penultimate year of assessment is greater than that assessed on the preceding-year basis, the actual income for the penultimate year will be assessed.
Where a source of income ceases, an election can be made to limit the assessments to the amount of income actually received throughout the period the source existed.
13.02 RETURNS AND ASSESSMENTS
A company liable to Manx income tax for any year must file a return of income with the Assessor, whether or not a return form has been issued to it. Additionally, the Assessor may require any company to submit a return for a particular year whether or not it has income liable to Manx tax for that year. The return must include all information needed by the
Assessor to determine the tax liability of the company properly. A company normally submits a copy of its audited financial statements with its return.
Tax return forms are normally issued during April and must be completed and submitted to the Assessor by 30 June. Returns issued on or after 10 June must be completed and submitted within 21 days of issue. If the Assessor is not satisfied of the accuracy of the return, he is entitled to assess to tax such amount as he considers ought to be charged.
13.03 TAX AUDITS
There is no formal system of tax audit in the Isle of Man. However, the Assessor has extensive powers to require companies to submit information concerning their tax affairs.
13.04 PAYMENT OF TAX
Income tax due for a year of assessment is payable on or before 1 January in that year, eg the tax due date for the year of assessment 1999/2000 is 1 January 2000. However, if the Assessor does not issue the assessment until after 1 January, the tax is payable within 7 days after the issue of the assessment.
Interest is charged on unpaid tax from the 31st day after the date on which the tax becomes payable.
13.05 DISPUTES AND APPEALS
If a company is dissatisfied with an assessment, other than a default assessment (see below) it may appeal within 30 days of the issue of the assessment. Any appeal that cannot be resolved by agreement between the company and the Assessor will be heard by the Income Tax Commissioners. The Commissioners' decision on questions of fact is final, but on questions of law a further appeal may be made to the Staff of Government Division, the highest court of appeal in the Isle of Man. From there an appeal may be made to the Judicial Committee of the Privy Council in the United Kingdom.
If a company fails to file a return, the Assessor may either prosecute it or issue a default assessment. There is no right of appeal against a default assessment, however, a company will be given a six month extension of time to file a return. The default assessment will become final after the six months has elapsed if no return is filed.
The information given is not exhaustive and is based on conditions existing at 5 May 1999. Readers are advised to consult with professionals, such as independent accountants, legal counsel, and investment bankers, before taking any formal action. Deloitte & Touche would be pleased to discuss specific problems.