Further information for employers
Types of payment that fall within the ITIP scheme
The scheme covers everyone who receives remuneration and includes employees, office holders such as directors, and pensioners. Any remuneration is subject to ITIP and tax should be deducted in accordance with the individual’s tax code.
For the purposes of ITIP, 'remuneration' means any payment of salary, wages, fees, pensions or annuities.
Examples of remuneration include the following:
- advances of pay;
- back pay;
- bonus, including Christmas bonus;
- cash payments;
- expenses (unless dispensation granted);
- fees (including some director’s fees);
- holiday pay;
- pay in lieu of notice;
- payments after cessation of employment;
- pensions and annuities;
- prizes, cash incentive;
- round sum expenses;
- sick pay;
- termination payments over £30,000 (balance only);
If an employer is not sure whether a payment should be subject to ITIP, they should contact the Income Tax Division for clarification as failure to deduct ITIP when required will result in the employer being liable for that deduction.
Notifying the Division of your intention to become an employer
Every person who employs one or more individuals must notify the Income Tax Division of their intention to become an employer no later than 14 days from beginning to pay remuneration to their employee(s). This notification is required in all cases, irrespective of the number of employees or the amount of remuneration paid.
The notification should be made by submission of the Employer’s Registration Form T30i for private employers and sole traders, T30x for partnerships, T30c for Limited Companies or T30p for pension providers. Notification is also a requirement in cases where the employee is a director of the company.
The Division will require the names and addresses of both the employer and the business or, if the employer is a Limited Company, the registered office address together with details of the directors. The employer will also need to supply the date they engaged or intend to engage their first employee(s) and the approximate number, if they are not already engaged.
If employees are already engaged, the employer must, at the same time, supply the full name and address of each employee, the employee’s tax reference number, National Insurance number, payroll number and the date their employment commenced using form T20 Employee Commencing. This information should be supplied with the notification form. Details of employees engaged after the notification form has been submitted should be sent to the Division within 14 days of the date of their engagement.
Once the notification form has been received by the Division, an information pack including all the necessary documentation will be issued.
Failure to notify the Division within the specified period will result in a penalty of £250.
Notifying the Division of your employees details
Details of employees engaged at the time of commencing as an employer must be sent to the Income Tax Division with the Employer’s Registration Form. Details of employees engaged after commencing as an employer must be submitted within 14 days of the date of their engagement while details of those who are no longer employed must be submitted within 14 days of the date on which their employment ends.
In all cases, details of new employees should be submitted on form T20 Employee Commencing and details of those leaving should be submitted on form T21 Employee’s Leaving Certificate.
By enrolling for Online Tax Services for Employers, these forms can be completed and submitted online. For more information about these services, please see Online Tax Services for Employers.
It is vital that the Division knows when a person begins work for a new employer in order that the correct tax code can be issued to that employer. It is equally important that the Division knows when they leave an employment as otherwise it could believe that a person has two employments and therefore issue a code of reduced allowances to the new employer.
An employer should complete form T20 for each employee on each separate occasion that they employ them as well as completing form T21 each time they leave. An employer must submit forms T20 and T21 for all employees, irrespective of age.
If an employee dies then the employer should complete form T21 and send all three parts of the form to the Division stating the date of death.
If an employee marries, their employer should complete form T21 and send all three parts to the Division stating the date of the marriage. The employer should continue using the existing tax code until they receive a form T6 advising them of the new code to be used.
At the end of the tax year only one T14 Isle of Man ITIP and National Insurance Deduction Card covering the full tax year should be completed and a copy given to the employee in the normal way.
If an employee retires, then unless the employee is going to start receiving an occupational pension, the employer should send all three parts of the form to the Division stating the date of retirement. However, if the employee is going to start receive an occupational pension, the employer should send in Part 1 stating the date of retirement, together with Part 3 giving the employer’s pension reference number. The employer should continue to use the code on Part 2. Employers should note that if the occupational pension is going to be administered by an insurance company, then Parts 2 and 3 should either be given to the employee when they retire or forwarded direct to the insurance company.
Failure to submit fully completed starting and leaving forms within the specified period could result in a penalty of £250.
Keeping payroll records
Every employer must complete and retain all records and supporting documents required to enable them to submit a true and complete return form and to comply with the regulations.
Supporting documents include accounts, books, deeds, contracts, vouchers and receipts.
These records must be kept for three years after the end of the tax year to which the return relates and must be produced to the Division upon request.
Failure to maintain, retain or produce these documents on request may result in a penalty of £250.
Operating a payroll
Employers are required to operate a payroll in order to ensure that both ITIP and National Insurance deductions are correctly calculated and accounted for.
An employer will need to ensure that their payroll can record all of the following:
- each employee’s tax code for easy reference at each pay day;
- the gross remuneration paid to each employee;
- each stage of calculating the ITIP to be deducted at each pay day;
- the amount of any approved superannuation to be deducted from gross pay;
- calculations of National Insurance at each pay day, including total contributions, employee’s contributions and employee’s contracted-out contributions;
- totals of the above payments and deductions at the end of the year to enable completion of form T14 Isle of Man ITIP and National Insurance Deduction Card.
To do this an employer is required to make and retain records which will enable them to do the following:
- deduct or adjust ITIP and deduct National Insurance in accordance with the relevant legislation (this will include the issue of a payslip to the employee for each pay period);
- complete their T37 Employer’s Annual Return.
An employer is also required to record and retain the following personal details regarding each of their employees:
- their full name and address;
- their tax reference number and National Insurance number;
- their date of birth and their marital and residential status.
There is no such category as a 'casual' employee. An employer must maintain records of payments made to every employee. Form T20 should be sent to the Division when any new employee starts which will result in a tax code being issued by the Division. In addition form T14 must also be completed for each employee including students and schoolchildren (under 16 years of age) and non-residents. The T14s should then be submitted with the T37 annual return.
The employer should ask the employee to complete form T10. If the employer has any difficulty in obtaining the information from the employee, the same details can be obtained from the form T21 Employee’s Leaving Certificate supplied by the previous employer. Income tax reference numbers and National Insurance numbers can also be obtained from the Income Tax Division. These details are required by the employer in order to complete form T20 Employee Commencing and form T21 when the employee leaves. They are also needed at the end of the tax year for completing form T14 and form T9 Return of Expenses Payments and Benefits, if applicable.
When an employee’s circumstances change, the employer should tell the employee to contact the Division with the information. The employee should provide their tax reference number and details of their change of circumstances as this could affect their tax liability, for example:
- death of spouse;
- starting to receive State Retirement Pension or any other pension;
- taking on a second job or starting part-time self-employment.
It is important that these records are maintained as under income tax legislation the Division has the power to request and inspect payroll records at any time. Whilst inspections of these records will normally take place in the Division’s offices, a Compliance Officer will, if required, visit the employer at their place of work to review and possibly retain the records for further inspection. An employer is legally required to keep all payroll records and supporting documents for three years. For example, records for the tax year ended 5 April 2010 (2009/2010 tax year) should be retained until at least 5 April 2013.
The Division will automatically send some items of stationery required to the employer. Other items may be downloaded from the forms page or can be requested using form T31 Stationery Request.
Alternatively, enrolling for Online Tax Services for Employers will mean that forms can be completed and submitted online. For more information, please see Online Tax Services for Employers.
If an employer is not using a computerised system and would prefer not to use an ordinary wage book, they can contact the Division for a form T11 Deductions Working Sheet, which should assist in calculating wages or salaries.
Each T11 should be used to record the details of one employee’s earnings and deductions for a year and is designed to make it easier to calculate the totals at the year end.
Employees' tax codes
An employee's tax code is used by the employer to calculate how much ITIP to deduct from the employee’s remuneration.
The code, which will be shown on form T6 Listing of Employees' Codes issued by the Income Tax Division, consists of one, two, three or four numbers followed by a suffix letter: F, M or S.
There are also three non-numeric codes as follows:
- NT – no tax deducted;
- SB – no allowances, and tax to be deducted at the lower rate (10%) using Table D, with any excess taxed at the higher rate (20%) using Table C;
- HR – no allowances, and tax to be deducted at the higher rate (20%) using Table C.
The purpose of the suffix letters F, M and S is to enable code numbers to be altered without the Division having to issue individual revised codes for each employee when changes to the levels of personal allowances are announced in the Budget.
Employees' codes can change during the tax year. Once an employer has received a new code for an employee, they should operate the new code for all payments made to that employee after the effective date shown on the notice. They should not recalculate the tax due in respect of previous payments.
Before the commencement of a new tax year a form T6 will be issued by the Division in mid-March, giving details of the codes to be used for each employee. These codes should be used with effect from the first pay day on or after 6 April. If, by the end of March, an employer has not been notified of the code to be used for any of their employees, they should contact the Division who will arrange for a code to be issued. In the meantime, if a code was issued for the previous year, the employer should continue to use the previous year’s code for any resident employee. However, if no code has been issued for the year in respect of a non-resident employee, the employer should not use any previous code, but should instead ensure that code HR is applied.
If an employer has not received notification of the code to be used for an employee by 5 April and has not completed form T20 Employee Commencing for that employee, they should complete and submit the form to the Division immediately. Until the code has been issued by the Division the employer should operate the emergency code applicable to the employee, including students and school children.
If the employer has not received a code for the student or school child they are employing, they must use the appropriate emergency code. If the remuneration is going to be greater than the free pay available under the emergency code, the employee should be asked to complete form R104 Resident Student Declaration. This will enable the Division to establish whether the total income for the year is going to be less than the single person’s allowance, in which case code NT will be authorised.
The emergency codes to be applied in cases where no previous code has been issued in respect of an employee are shown below.
|For Resident employees||Code||%|
|person in subsidiary employment||SB||10/20|
|person receiving state retirement pension||SB||10/20|
|all other cases||1325S||10/20|
|For Non-resident employees||Code||%|
ITIP and National Insurance deductions
Employers have an obligation to calculate and deduct both ITIP and National Insurance from remuneration paid to employees.
To arrive at the taxable pay, an employer should first deduct from the gross remuneration:
- allowable superannuation contributions for the period;
- the free pay shown in the weekly or monthly Free Pay Tables for the employee’s tax code.
They should then look up the taxable pay figure in the Standard Band Tax Tables (Table D), which will show the amount of ITIP to be deducted. The employer should note, however, that if the amount of taxable pay exceeds the current threshold for the standard band, the balance should be taxed using the Higher Rate Tax Tables (Table C).
The free pay tables do not contain all the code numbers. Therefore, if the code is greater than the maximum shown in the tables, the free pay can be established as follows:
- example 1 - code 1600 (an even number) – double the free pay allowances for 800;
- example 2 - code 1601 (an odd number) – add together the free pay figures for adjacent codes 800 and 801.
If an employer fails to deduct ITIP from any remuneration when required to do so by the employee’s tax code, they will be liable for any ITIP that should have been deducted. They may also be liable to a penalty of £250 for failure to comply with the regulations. It is therefore important to verify the employee’s code prior to any payment of remuneration being made. If in doubt, the employer should contact the Division to clarify whether a payment should be subject to ITIP deductions.
Remittance of ITIP an National Insurance deductions
Employers are required to submit their T35 Remittance Card for Deductions of Income Tax Instalment Payments and National Insurance Contributions together with any payment of ITIP and National Insurance deducted from employees to the Income Tax Division on a monthly basis. The submission of the remittance card and payment is due on or before the 19th of the month within which the payment period ends.
The term 'payment period' for the purposes of this guide refers to an income tax month, being the period from the 6th day of any calendar month and ending on the 5th day of the following calendar month. For example, a period commencing on 6th April will end on 5th May, with the payment of any ITIP and National Insurance deducted during that payment period being due on or before 19th May.
Before submitting the remittance card, the employer should add up all the ITIP and National Insurance deducted (both employee’s and employer’s) for all their employees from payments made between the 6th day of the previous month and the 5th day of the current month. The ITIP and National Insurance totals should be entered on the remittance card which should then be sent together with any payment to the Division.
The remittance card should still be submitted if no tax has been deducted during the payment period. In this case, the remittance card should be completed showing '0.00' for the relevant payment period.
Employers should note that by enrolling for Online Tax Services for Employers their monthly remittance can be made online, (including a nil remittance), therefore removing the need for the remittance card to be sent to the Division each month. Payments can be made by BACS credit transfer, credit card or debit card. For more information, please see Online Tax Services for Employers.
It is important to understand that the employer is deducting ITIP and National Insurance from the payments made to employees on behalf of the Division. The deductions do not belong to the employer and must not be used to assist with cash flow within their business. The ITIP and National Insurance deducted belong to the employee and will be used to offset any future income tax liability belonging to that employee as well as being taken into account for National Insurance purposes if appropriate.
Late payment of the monthly ITIP remittance will be subject to a penalty of 5% of the amount due. An additional penalty will be due if all or part of the ITIP outstanding remains unpaid six months after the due date. The additional penalty will be 5% of the amount unpaid.
Penalties for late payment of the monthly remittance will also be due:
- if investigations or payroll inspections identify that an underpayment has arisen for any payment period;
- on outstanding remittances for which an arrangement is in place allowing the employer to make payments over an agreed period of time;
- if the 19th of the month falls on a non-working day and the payment is made after the next working day. The payments are due on or before the 19th of the month within which the payment period ends.
In addition, a Notice of Determination, estimating the amount of ITIP that should have been paid, will be issued in cases where payment is not made by the due date. The penalty will equal 5% of the amount of the Notice of Determination.
It is therefore important that all payments are made on time.
Where payment is made late, any subsequent payments will, unless otherwise specified by the employer, be offset against the earliest outstanding amount first.
Submitting employer's annual returns
Each employer is required to submit a T37 Employer’s Annual Return within 30 days of the end of the tax year to which the return relates or within 30 days from ceasing to be an employer, whichever is the earlier.
The return should be completed fully and accurately. It should also be accompanied by a complete and accurate T14 Isle of Man ITIP and National Insurance Deduction Card for each employee employed during the tax year. A T14 must be completed for an employee even if no ITIP or National Insurance was deducted from payments of remuneration made to them during the tax year.
In addition, where benefits in kind are provided to employees, a complete and accurate T9 Return of Expenses Payments and Benefits must be completed for each employee employed during the tax year who received benefits in kind.
The employer’s annual return summarises the following:
- the number of T14s enclosed with the return;
- the total amount of ITIP deducted from employees during the year;
- the total amount of National Insurance paid during the year;
- the total payments made to employees during the year;
- the number of employees in receipt of benefits for whom T9s are required.
Failure to complete the return fully and accurately may result in it being deemed to be unacceptable and returned to the employer to be fully completed. The Income Tax Division will treat such returns in the same manner as other outstanding employer returns.
Practice Note P.N. 169/11 contains examples of returns which will not be considered as complete, as follows;
- Unsigned annual return - if an annual return has not been signed, it will be returned to the employer for signature. Where the original unsigned return was received by the due date, no penalty will be charged, if the form was otherwise complete and accurate.
- No annual return received - if the required forms T14 and, where appropriate, T9, are received without the annual return (for example, via email or on disc), the employer will be contacted and, if the return is not submitted by the due date, penalties will be charged.
- Annual return received but not all required forms T14 and T9 received - if an annual return is received by the due date but some of the required documentation is missing, the employer will be asked to provide the missing items. If the documentation requested is not received by the due date, late return penalties will be charged.
- Annual return not fully completed - if the annual return is not fully completed, it will be returned to the employer for amendment. If the completed return is not received by the due date, penalties will be charged.
- Forms T14 not fully completed - if the forms T14 are not fully completed, the employer will be contacted and asked for the missing information. If the information is not received by the due date, penalties will be charged.
- Forms T9 not fully completed - if any forms T9 are not fully completed, the employer will be contacted and asked for the missing information. If the information is not received by the due date, penalties will be charged.
In each of examples 2 - 6 above, if the employer does not provide the required documentation by the due date, a penalty of £250 will be charged. Further penalties of £50 per day will be charged, commencing from the day after that on which the £250 penalty is charged, until everything required has been submitted. The level of penalty charged is not linked to how many documents remain outstanding
Information omitted from a return
If an employer completes a return to the best of their knowledge which is accepted by the Assessor but an omission is subsequently identified (e.g. an officer discovers that a taxable benefit-in-kind should have been on the return), no penalty will be charged if the relevant forms are submitted, and any payment due is made, within 30 days of the employer being notified of the omission.
If the return is still outstanding six months after the due date, the case will be referred for prosecution action to be taken in respect of the outstanding return and the employer will be liable, on summary conviction, to custody of up to six months or to a fine not exceeding £5,000, or to both.
If an employer ceases during a tax year, they should contact the Division in order for a part year return to be issued for the period from the start of the tax year (6 April) to the date of cessation. The employer is required to submit this return within 30 days of cessation. If a full and accurate return has not been received by the due date, the same penalties and action will be taken as for a late annual return.
Employers should note that, by enrolling for Online Tax Services for Employers, they can complete and submit their annual return and associated T14s and T9s online. For more information, please see Online Tax Services for Employers.
Form T14 is a two-part certificate of earnings in respect of each employee which includes details of gross remuneration, ITIP deductions, National Insurance deductions, etc. The forms can be downloaded from the Forms page or obtained from the Division at any time during the tax year.
If the totals on the T37 and T35 do not agree, then the employer should first check through their records to see if they can find the error. If the error cannot be found, they should send the T37 to the Division with as many details of the discrepancy as possible. Further advice can be obtained by contacting the Division.
This section provides guidance on how to treat any employees who are not resident at the time of employment.
There are some differences in the way resident and non-resident employees are treated. An employee who is not resident in the Isle of Man for tax purposes will not be entitled to any personal allowance. The employer should therefore apply the HR code (20%) to any remuneration made to the employee.
This can be very difficult to determine if an employee is resident or non-resident, therefore if the employer has any doubt, they should contact the Income Tax Division for advice.
As a basic guide it can be assumed that a person is resident if:
- they own a property in the Isle of Man or have a lease on a property which is going to last for more than six months; or
- the period to be spent in the Isle of Man in any one tax year (together or separately) is going to exceed 182 days; or
- they have been a regular visitor to the Island over the last four consecutive years and the average time spent in the Island per year in that period was 91 days or more.
An employee who does not fall within any of the above criteria should be treated by an employer as being non-resident.
The current year’s code for non-residents should be implemented, which for the tax year 2017/18 is code HR (20%).
Where employees perform all of their duties off Island they may not require any tax to be deducted from their remuneration. However, prior clearance from the Division must be obtained in all such cases, otherwise the remuneration should be subject to the non-resident code HR (20%). In addition, where only part of the duties are performed in the Isle of Man, tax must be deducted from the whole of the remuneration. An employer should apply code HR (20%) to this income.
However, director's fees paid to a non-resident director will not be subject to ITIP deductions provided that the payment of fees falls within the conditions detailed in the “Directors' Fees” section of the Employer's Guide.
Employers should include ITIP deducted from non-resident employees and from resident employees in the same way on the T35 Remittance Card for Deductions of Income Tax Instalment Payments and National Insurance Contributions and submit it on a monthly basis (see “Remittance of ITIP and National Insurance deductions”).
Form T14 Isle of Man ITIP and National Insurance Deduction Card must be completed for any non-resident employee and submitted as normal with the employer’s annual return. All the personal details for a non-resident employee should be completed in the same way as for a resident employee and should include the following:
- the full name and address of the employee;
- their tax reference number;
- their National Insurance number;
- their payroll number.
Full details of remuneration, together with any ITIP or National Insurance deductions should also be included.
Employees no longer engaged
When an employer ceases to engage an employee, they must advise the Income Tax Division of the date that the employee ceased to be employed by completing and submitting a T21 Employee’s Leaving Certificate. This form should be submitted within 14 days of the employment ceasing. By enrolling for Online Tax Services for Employers, these forms can be completed and submitted online. For more information about these services, please see Online Tax Services for Employers.
Failure to submit the form within the specified period could result in a penalty of £250.
Obligations to your employees
An employer has certain obligations in respect of any employees they engage. These obligations are there to assist both the employer and the employee to comply with their income tax requirements.
An employer must ensure that they:
- notify the Income Tax Division of any new employees using form T20 Employee Commencing within 14 days of their employment commencing;
- confirm the code to be applied for each employee and deduct ITIP and National Insurance from any payments of remuneration in accordance with the tax and National Insurance tables;
- pay any ITIP and National Insurance deducted to the Division by the due date;
- issue a payslip to the employee each time a payment of remuneration is made;
- complete a T14 Isle of Man ITIP and National Insurance Deduction Card at the end of the tax year and give a copy to the employee for their records;
- notify the Division within 14 days of ceasing to engage an employee using form T21 Employee’s Leaving Certificate.
An employer should complete the T14 and give the bottom copy of it to the employee at the end of the tax year. However, if the employee leaves or retires during the year, the employer should complete the T14 and give a copy of it to the employee at that time. The top copy should be retained by the employer until the end of the tax year for submission with the T37 Employer’s Annual Return.
If an employer operates a computerised payroll and cannot produce a T14 during the year, they may instead complete and issue a form T13 Certificate of Tax and Pay Deducted which is available from the Division. When the T14 is printed at the year end a copy can then be forwarded to the employee.
If an employee dies, their copy of the T14/T13 should be forwarded to their executors.
In addition, the Employment Act 1991 stipulates that an employer must provide an itemised pay statement to all employees, whether full or part-time, 'at or before any payment of wage or salary'.
The pay statement must show the following:
- the gross amount of the wages or salary;
- the amount of any fixed deductions, i.e. tax and National Insurance;
- the tax code applied by the employer;
- the amounts of any variable deductions and the purposes for which they were made;
- the net amount of wages or salary after deductions; and
- the amount and payment method of each payment made when different parts of the net amount are paid in different ways e.g. the separate figures for a cash payment and a balance credited to a bank account.
Failure to provide a form T14 or payslip to an employee could result in a £250 penalty for non-compliance.
General compliance and penalties
Failure to comply with the Income Tax Instalment Payments Scheme under the provisions of the Income Tax (Instalment Payments) Act 1974 and the regulations made under that Act may result in penalties being imposed These penalties could be imposed in respect of each instance of non-compliance. These are detailed below.
Late return penalties
If an employer fails to submit their employer’s annual return form T37 within 30 days from the end of the tax year or 30 days from date of ceasing to be an employer they will be liable to a £250 late return penalty, together with a further penalty of £50 per day that the return form remains outstanding.
It is therefore important that you ensure that the return form is fully and accurately completed and submitted by the due date, together with all appropriate supporting documentation in order to avoid such penalties being imposed.
If you engage an agent to complete and submit the return form, you will need to ensure that the agent completes and submits the return form by the due date, otherwise you will remain liable to penalties as you are legally responsible for ensuring that the return form is submitted by the due date.
If the return form is incomplete or not completed accurately, then the return form may be deemed to be unacceptable. In this case the return form will be returned to you for amendment. If the amended return form is not submitted by the due date, then again, you will be liable to penalties for the late submission of a complete return form.
Late payment penalties
If an employer fails to make payment of any monthly remittance of ITIP deductions by the 19th day of each month, they will be liable to a penalty of 5% of the amount due for payment. Any amount which remains outstanding after a further 6 months will be liable to an additional 5% penalty. This penalty will not be charged where the amount of the penalty is less than £25.
It is therefore important that you make timely payment of the full amount of ITIP deductions due for each payment month in order to avoid the imposition of a penalty.
Failure to comply penalties
From 6 April 2010, any failure to comply with the legislation will be subject to a penalty of £250, provided that a penalty does not already exist.
This includes the following requirements for employers:
- To notify the Assessor within 14 days of making their first payment as an employer to an employee
- To retain payroll records and other supporting documents i.e. accounts, deeds, receipts, vouchers and contracts for 3 years
- To provide employees with payslips
- To notify the Assessor of new employee details within 14 days of taking on an employee
- To notify the Assessor of the employee details within 14 days of a person ceasing to be an employee
- Any other failure to comply with the Income Tax (Instalment Payments) Act 1974 or associated regulations