ITIP and coding
What is ITIP?
ITIP stands for Income Tax Instalment Payments.
Every person who is employed in the Isle of Man is subject to the ITIP system. As the name suggests it is a way of paying your tax, either weekly or monthly in instalments, directly from your wages.
The system is operated by employers, who are given their instructions through a tax code for each of their workers. Every person's code is calculated by the Income Tax Division to try to predict how much tax they need to pay for that tax year.
Your tax code should reflect your personal circumstances, for example your marital status, and it tells your employer how much you can earn before they must start to deduct tax. If your pay goes up and down, you will find that a different amount of ITIP is deducted each time, which is correct.
The tax year runs from 6 April of one year to 5 April of the following year. You will be given an annual statement by your employer of your earnings and how much ITIP you have paid. This information may be included on a form called a T14 or be included on your final payslip for the year and should be included on your tax return.
Once you have submitted your completed return to the Income Tax Division, your annual assessment can be calculated to check if you have either overpaid or underpaid your ITIP.
I am about to start my first job, what information will my employer need?
- Your Tax Reference Number. this number is allocated to you by the Income Tax Division and is unlikely to change. If you are uncertain of your number please contact the Division as you may need to register as a new client.
- Your National Insurance Number. this number is allocated to you by the Department of Social Care. If you are uncertain of your number please contact the National Insurance section on +44 1624 685177.
- Your Tax Code. Your new employer will need to apply for a tax code for you as you have not recently worked on the Isle of Man. Your tax code will usually be issued within a few weeks. This means that you may have an emergency code operated, particularly if you are paid weekly.
How are Codes calculated?
Your tax code is made up of your personal allowances and any deductions that you have claimed, such as relief for mortgage interest paid. Your code may also take account of small amounts of other income, such as interest from savings accounts. When all your personal circumstances are taken into account, the amount of income that you can earn from your employment per year before you pay any tax, is known. This is then converted into a code which will be issued both to you and your employer.
Your employer is only told the final code value and not how the code is made up.
Your coding notice shows full calculations and there are some guidance notes on the reverse.
What happens when I am paid?
When your employer pays you, they must take account of the most recent code that has been issued for you.
The annual amount that you can earn before paying tax will be divided into either 12 monthly or 52 weekly amounts depending on how frequently you are paid. This is called 'Free Pay'. Your pay is then calculated as follows:-
|Example: Code 770F (£7,700 per year before paying tax )|
|Less Free Pay||£148.08|
Your code tells your employer how much they can pay you 'tax free'. Your employer must then operate the tax rates in force against the balance of your earnings. In the example above £101.92 would suffer tax at 10% which would be £10.19. Your employer must also deduct any National Insurance contributions that you are due to pay.
What are the Tax Rates and Thresholds?
The tax rates and threshold in force are set for each year.
See Rates and allowances.
I am leaving my job, what must I do?
When you leave a job, it is important to get a form T21 from your employer. This is a Leaving Certificate which has three parts. Part 1 is sent to the IncomeTax Division to inform us that you have ceased employment, parts 2 and 3 are given to you to hand to your new employer to inform them of your current tax code. Your new employer should retain part 2, and complete and return part 3 to the Income Tax Division. This informs us that you have started a new job.
If you do not get a form T21 or lose it, you will not have details of your current ITIP code.
I am starting a new job, what must I do?
If you are starting work for the first time, you should then be asked to complete a form T10, so that an emergency code can be operated for you. This is based on the personal allowance if you have no other employment. Your employer should then send a Commencement Form T20 to the division to inform us that you have started work. You and your employer will then be issued with new coding notices.
I have more than one job, how will this affect my tax?
If you have more than one job, the Income Tax Division will decide what your codes should be. Meanwhile, the emergency code for a subsidiary employment is HR (Higher Rate), which means that all your pay from that employment will be taxed at 20%. The Income Tax Division will review and amend the code if necessary. If you are receiving a state pension, or are a jointly assessed couple, the emergency code SB (Standard Band) will be applied. This means that all income will be taxed at 10% up to the threshold of £8,500 per year, the balance being taxed at 20%. The SB code is used because your allowances may already be used elsewhere.
I have other income, how will this affect my tax code?
You must enter all your income on your tax return. Other (unearned) income and allowable deductions may be combined in your code so that the correct amount of tax has been deducted at the end of the year. If your other income is quite large and cannot be included in your code, you may be sent a payment on account notice. This will be due and payable within 30 days or by 6 January of the current tax year, whichever is the latest.
What happens at the end of the year?
At the end of the year your employer will give you a form T14, or a final payslip, showing the amount of your total pay from them during the year. You should use this to complete your annual tax return which is sent to you in April.
When your assessment has been raised, it will show how much tax you owe (your liability), how much ITIP you have paid, and, therefore, by how much you have underpaid or overpaid your tax. If you have paid too little, the balance will be due and payable within 30 days from the date of the assessment notice or the following 6 January, whichever is latest. If you have paid too much, the Income Tax Division will refund the balance to you. Refund cheques are usually issued about 10 to 14 days after the assessment notice.
However, if the refund is due to a default assessment then it will not be authorised until we have received and processed your outstanding tax return. This is because the figures on the assessment are estimated and will not be a true reflection of your tax position.