Our Island Plan

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:

  • marriage;
  • separation;
  • 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.

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