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Tax reminder over 'Personal Service Companies'

Tuesday, 17 June 2014

Businesses and individuals who engage the services of a worker through a ‘Personal Service Company’ are being reminded that they must comply with a new law designed to stop the use of such arrangements to avoid Manx income tax and National Insurance payments.

‘Personal Service Companies’ are owned by individuals and used by them as a vehicle for providing services to clients, instead of being directly employed. Payment for the service is made to the company, and was not previously seen as remuneration of the individual, so was not subject to ITIP and NI.

Under legislation which came into effect on April 6 this year engagement of services via such companies or similar third parties is deemed to be employment, and the employer is expected to deduct tax and NI from payments as they would for any other employee.

However, Treasury recognises that determining a worker’s employment status under the new rules can be complex, so the Assessor of Income Tax has introduced a clearance procedure which can be used by the engaging body to clarify the status of a new or existing worker.

Treasury Minister Eddie Teare MHK explained:

‘Although the Island’s income tax regime is benign compared to other countries, there will always be individuals who try to avoid their liabilities. I want to make sure that our tax system is fair, and that all employees are treated equally.

‘Getting a worker’s employment status wrong, and failing to deduct tax and National Insurance, can be an expensive mistake under the new legislation as penalties and interest are payable.

‘However, it is accepted that clarifying that status can be a complicated matter, which is why we have introduced the clearance procedure to help businesses and individuals to comply with the new law.’

Mr Teare continued:

‘A number of businesses have already used the clearance procedure and so have the certainty that they are applying the new rules correctly. The Assessor is also aware that some businesses are engaging workers as employees rather than through personal service companies and so are now correctly deducting tax and national insurance.

‘The Assessor is monitoring compliance and will be taking action to ensure the new legislation is being complied with by all businesses. Those who are contacted by the Income Tax Division and are found to not be correctly deducting tax and national insurance will be liable to penalties and interest for late payment and for failing to comply with their obligations.’

Anyone who would like to clarify the status of a new or existing worker can contact the Income Tax Division on +44 1624 685400.

Further information about the new legislation and the clearance procedure can be found in Guidance Note GN 50 'Personal Service Companies' which is available on the Isle of Man Treasury Income Tax Division’s website.

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