Reciprocal Agreement with the UK
Since 1948 the Isle of Man (IOM) and the United Kingdom (UK) have operated a reciprocal agreement, The Social Security (United Kingdom) Order 1977, covering both National Insurance Contributions (NIC) and contributory benefits (the Agreement). The affect of the Agreement is to:
- Treat the two separate social security schemes as one so that an individual moving between the two countries would be able to maintain entitlement to certain contributory benefits, namely State Retirement pension, Jobseekers Allowance and Incapacity Benefit; and
- Treats the IOM and the UK as a single area for liability to NIC.
In relation to point 2 above this means that where an employer in one country has staff working in the other country both the employer and the employee will remain liable to National Insurance as though both were in the same country.
Alteration with effect from 6th April 2016
A new reciprocal agreement, The Social Security (Reciprocal Agreement) (Isle of Man) Order 2016, removes state pensions from the existing agreement for those individuals that reach state pension age on or after 6th April 2016. This is necessary as the UK have introduced a Single Tier Pension while the Isle of Man have not. It also covers voluntary National Insurance contributions.
The main effect of the new agreement is that persons reaching state pension age after the 6th April 2016 who have paid NICs in the UK and NICs in the IOM are required to make separate pensions claims to each country. More information regarding this can be found on the Social Security Division's webpage under the heading Retirement Pension.
Regarding voluntary NICs, there is now the ability to apply to pay voluntary contributions to improve pension entitlement in one country while paying compulsory contributions to the other country, so building up pension entitlement in both countries. However voluntary contributions cannot be paid to both countries at the same time. This brings the reciprocal agreement with the UK in line with reciprocal agreements with other countries regarding voluntary contributions. Details on Social Security reciprocal agreements with other countries can be found on the Social Security Division's webpage under the heading Reciprocal Agreements with other countries.
In 2012 the Agreement between the Isle of Man and the UK was subject to a legal challenge by an Isle of Man resident employer who argued that the agreement could not impose a liability on them to pay employer NI for employees working in the UK.
Following an appeal to the Staff of Government Division of the High Court of the Island in July 2012 it was confirmed that the IOM employer was indeed liable to pay employer NIC for employees in the UK and the employer was required to pay the arrears of outstanding NIC.
Details of the appeal can be found here
Consequences of failure to deduct the correct amount of NIC
Employers should be aware that failure to deduct the correct amount of NIC at the right time can result in the employer not only having to pay the employer NIC but also the employee NIC as well. (See Schedule 1 paragraph 3(1) of the Social Security Contributions and Benefits Act 1992, as applied to the Island)
Directors of companies which are employers in the IOM are reminded that, under the provisions of the Social Security Administration Act 1992 (as applied to the Island), they can be held personally liable for any unpaid NIC liabilities found to be due.