New legislation progressing through the branches of Tynwald will put an end to avoidance of Manx income tax by use of ‘personal service companies’, Treasury Minister Eddie Teare MHK has warned.
 
The Income Tax (Amendment) Bill 2013, which last week completed the clauses stage in the House of Keys, includes provision to ensure that individuals working through such companies pay tax in the same way as other employees.
 
Mr Teare, who flagged up the change in his Budget in February this year, commented: ‘Although the Island’s income tax regime is favourable compared to other countries, there are still individuals who try to avoid or reduce their liabilities. I want to make sure that our tax system is fair, and that all employees are treated the same whether or not they work through a company.’
 
The Minister said that monthly deductions of income tax from employees’ salary payments were extremely important to maintain cash flow for Government in funding services for the Island’s public.
 
However, in recent years there had been evidence of planning to delay payment of tax by individuals providing services to clients via companies owned by the individual, instead of directly as an employee.
 
Mr Teare explained: ‘As the service is provided through a company, the payment for the service is made to the company. It is not considered to be remuneration of the individual and therefore is not subject to ITIP.
 
‘The change to the legislation will mean that if a client employs an individual it will not matter whether their services are provided through a company, trust or any other structure. The amount paid for their services will be treated as remuneration of the individual and subject to income tax with an ITIP deduction.’
 
Mr Teare said that personal service companies were also used for National Insurance planning and he intended to introduce an order shortly to address that too.