Self-assessments are a very topical issue when it comes to personal finances, but is one with which we at Invicta are very familiar, and deal with on a regular basis nonetheless. This article expands on previous articles that are on our website and social media pages regarding self-assessments (with the latest found at the following link: https://www.invicta-accounting.com/blog-post/self-assessment-tax-update/), with more insights into a number of specific issues to be taking into consideration when completing personal tax returns, and discusses more on what we can do to assist you.
Concentrating on just the Isle of Man in this article, the recently ended tax year for individuals is 06th April 2019 to 5th April 2020, and the deadline date for submission was extended to 6th November 2020 due to COVID-19. As we are all getting ready to return back to work offices or sites after the lockdown, you might already be planning on getting your tax return in early, perhaps to assess whether there are any tax refunds you could cash in on, to ease the cashflow pressures caused by the pandemic.
Below are a number of topics which we noted our own clients make enquires from us about more often.
Paper-form vs online self-assessments
There are obvious advantages of using Online Services over paper form returns, including elimination of time delays, reducing paper-work and easier audit trails. Online tax returns are currently available to complete for registered online users for the recently ended tax year, however the IOM government announced a delay in the sending out of paper tax returns for residents who use them, with expected dates of arrival through post around early-mid June.
Registration for Online Service is relatively straight-forward. You will be required to create an online account and afterwards, you would enrol for tax services where your online tax return will be available for you to complete. If you require the use of a tax agent (an accountant), online services has been made easier to facilitate this. Invicta is a registered tax agent and would assist with the whole process from online registration to completion and submission of your tax return online, eliminating the administrative tasks that come with this process. This also gives you the advantage of consolidating the full history of your past tax returns in one place, including any letters or correspondences from the Tax Office.
Self-assessment for the self-employed
If you are a sole trader or self-employed, completing a self-assessment can be challenging, including understanding what needs to be included in the return. As a rule of thumb, if your business is not separately registered as a company, then you and your business are considered to be “one person”, which would mean that all the profits derived from your business would need to be included in your personal tax return. Business-related income would have to declared, but most business-related expenses you incur will be allowed as deductions. Maintaining records of your business income and expenses throughout the year (invoices, receipts, statements) is crucial to completing self-assessments and addressing any queries from the tax office.
Invicta has various clients who are self-employed, of all sizes and operating in a number of industries across the IOM, and therefore has vast experience in tax affairs for these types of businesses. We know the various income streams which would be subject to tax and would need to be declared (and how) and also which deductions you can claim to reduce your tax liability; we make it easier for you to collate documentation required to complete a full return. We have also offered tax services and assistance with catching up on previous years’ tax returns and addressing any tax queries from the Tax Office relating to previous tax years, bringing your tax affairs up to date.
Tax is based on the country that you are resident in, and on world-wide income. Therefore, this means that if you are tax resident in the IOM, then your full income is taxed in the IOM, irrespective of where you earned that income. Any overseas income you earn will be taxed in the IOM, with exception of property income (e.g. rental income) where you are taxed based on where the property is located. So, if you are IOM tax resident but have property in the UK which you rent out, the rental income would be declared and taxed by HMRC in the UK. All other income that is non-property related will be tax in the IOM, wherever it’s based.
If you are not tax resident in the IOM, but you earn income that is based on the island, you would be required to declare this income to the IOM Tax Office as a non-resident for tax purposes, however you will not be taxed on this income if it is taxed in your country of tax residency as tax department of that country would also be using the world-wide income basis of tax.
Registration is required through the Tax Office to be tax resident in the IOM, where you will be required to complete an “R25 form” (Registration for Manx Income Tax form). You would need to meet the residency requirements to be eligible. Generally, individuals residing in the IOM for a period of six months or more in any tax year are considered tax resident in the IOM. There are other specific criteria for tax residency, which can be found at: https://www.gov.im/media/97083/pn14407taxresidenceintheisl.pdf
Invicta has assisted a number of clients with registration for IOM tax residency, especially those who have recently moved permanently from overseas (including from the UK), and including those who still have income-earning assets overseas (such as property, investments, etc.)
Deadlines and penalties
The deadline of 6th November 2020 is still a few months away, however tax returns are at most times put off until the last minute, when there is then a rush to complete before deadline passes. This may happen due to busy schedules, forgetting about the deadline date throughout the year, or just rather wanting to avoid the admin of doing it.
General advice from the Tax Office is to complete these as soon as possible to avoid missing deadlines and incurring penalties, possibly submitting incomplete or incorrect returns, sometimes at a personal disadvantage of overstating profits and overpaying tax. Planning to complete returns now gives you enough time to collate information needed without feeling the need to rush. Invicta has helped all our clients in this regard, with processes in place to complete the returns in time and giving you feedback on relevant details as we prepare it.
Please note that late return submissions attract instant penalties of £100, and then an additional £200 if the return is still not submitted 6 months after deadline date. Our systems in place will ensure these are not incurred.
What Invicta can help
Contact us for a free consultation to discuss your situation and what assistance we can provide regarding the above topics or any other areas relating self-assessments. And be sure to look out for further tax updates on our website over the next weeks.
For assistance call us 01624 672358 or email us at firstname.lastname@example.org.