VAT, GST and Sales Tax in Isle of Man

Summary

Name of the tax Value-added tax (VAT)
Date introduced 1-Apr-73
Trading bloc membership Part of the European Union (EU) for customs and VAT matters but not an EU Member State
Administered by Isle of Man Customs and Excise Division (http://www.gov.im)
VAT rates
Standard 20%
Reduced 5%
Other Zero-rated, exempt and exempt with credit
VAT number format GB 999.9999.99
VAT return period Quarterly, Monthly (if requested by a business that receives regular repayments), Annual (on request if annual taxable turnover is less than GBP1,350,000)
Thresholds
Registration GBP83,000; nil for non-established businesses
Deregistration GBP81,000
Distance selling GBP70,000
Intra-Community acquisitions GBP83,000
Recovery of VAT by non-established businesses Yes

Scope of the tax

The Isle of Man is an international financial center that is part of the territory of the United Kingdom for indirect tax purposes. How ever, the Customs and Excise Division in the Isle of Man operates independently from that of the United Kingdom, and the Isle of Man has its own VAT legislation. The United Kingdom and Isle of Man are considered one for VAT purposes, and the VAT laws of the two jurisdictions are very similar.

VAT applies to the following transactions:

  • The supply of goods or services made in the Isle of Man or the United Kingdom by a taxable person
  • The intra-Community acquisition of goods from another EU Member State by a taxable person (see the chapter on the EU)
  • Reverse-charge services received by a taxable person in the Isle of Man
  • The importation of goods from outside the EU, regardless of the status of the importer

Who is liable

A taxable person is any entity or person that is required to be registered for VAT. It includes any entity or individual that makes taxable supplies of goods or services, intra-Community acquisi­tions or distance sales in the Isle of Man in the course of a busi­ness in excess of the turnover thresholds.

Effective from 1 April 2016, the VAT registration threshold is GBP83,000; this threshold generally increases annually. The VAT registration threshold previously applied to both Isle of Man domestic and non-established businesses. However, effective from 1 December 2012, the VAT registration threshold was removed for businesses not established in the Isle of Man or the United Kingdom so that a nil registration threshold now applies. As a result, any non-established business that makes taxable sup­plies in the Isle of Man is required to register for VAT. Non-established businesses involved only in distance sales of goods to Isle of Man residents who are not taxable persons (see the chapter on the EU) are not affected by the removal of the VAT registration threshold. The distance selling threshold is GBP70,000; this threshold is set by EU law and does not generally increase from year to year.

Exemption from registration. A taxable person whose turnover is wholly or principally zero-rated (see Section D) may request exemption from registration.

Voluntary registration. A business may register for VAT volun­tarily if its taxable turnover is below the VAT registration thresh­old. A business may also register for VAT voluntarily in advance of making taxable supplies.

Group registration. Corporate bodies that are under “common control” and are established or have a fixed establishment in the Isle of Man or the United Kingdom may apply to register as a VAT group. A VAT group is treated as a single taxable person. The group members share a single VAT number and submit a single VAT return. VAT is not charged on supplies made between group members. Group members are jointly and severally liable for all VAT liabilities.

Non-established businesses. A “non-established business” is a business that has no fixed establishment in the Isle of Man or the United Kingdom. Effective from 1 December 2012, a non-established business must register for VAT if it makes any of the fol­lowing supplies in the Isle of Man, regardless of the value of the supply:

  • Goods located in the Isle of Man at the time of supply
  • Intra-Community acquisitions of goods (see the chapter on the EU)
  • Services to which the reverse charge (see Reverse charge) does not apply

A non-established business must also register for VAT if it makes distance sales of goods to Isle of Man residents in excess of the distance selling annual threshold.

A non-established business that registers for VAT may normally do so from its place of business outside the Isle of Man. The application form (VAT 1 MAN) may be sent to the following address:

Isle of Man Customs and Excise

P.O. Box 6

Custom House

North Quay

Douglas IM99 1AG

Isle of Man

Reverse charge. If a non-established business supplies services to an Isle of Man taxable person but does not register for VAT, the taxable person may be required to account for the VAT due under “reverse-charge” accounting. This means that the taxable person charges itself VAT. The self-assessed VAT may be deducted as input tax (that is, VAT on allowable purchases) depending on the taxable person’s partial exemption status (see Section F). This provision does not apply in all circumstances. For example, it applies only if the place of supply of the services is the Isle of Man.

Tax representatives. A non-established business may choose to appoint a tax representative or agent to act on its behalf in VAT matters in the Isle of Man.

The Isle of Man VAT authorities may require that a non-estab­lished person appoint a tax representative. However, this condi­tion may be imposed only if the business is established in a country outside the EU that has not agreed on mutual assistance provisions with the Isle of Man.

Annual accounting. Businesses with annual turnover of less than GBP1.35 million may apply to complete an annual VAT return. Businesses that use annual accounting must make either three quarterly or nine monthly VAT payments, depending on the level of turnover. Any balancing payment must be made with the annual return. The annual return is due by the last day of the second month following the end of the taxable person’s VAT year.

Special accounting. A flat-rate scheme exists for businesses with an annual taxable turnover of less than GBP150,000. Under the scheme, eligible businesses may opt to calculate VAT due based on a fixed percentage of their total turnover. The percentages range from 4% to 14.5%, depending on the trade sector of the business.

Other special accounting schemes exist for retailers, including second-hand goods retailers, tour operators, gold traders and farmers.

Reverse-charge accounting for domestic supplies of mobile phones and computer chips. A domestic reverse charge with respect to specified goods is designed to combat missing trader fraud. The reverse charge applies, with some exclusions, to supplies of mobile phones and computer chips that are valued at GBP5,000 or more and that are supplied in the United Kingdom or Isle of Man by a VAT-registered business to another VAT-registered busi­ness. Under the reverse-charge accounting mechanism, it is the responsibility of the customer, rather than the supplier, to account for VAT on supplies of the specified goods.

Reverse-charge accounting for domestic supplies of emissions allowances. Purchasers of specified emissions allowances must account for VAT under a domestic reverse-charge accounting procedure, rather than paying VAT to the supplier. Only those compliance market credits that can be used to meet obligations under the EU Emissions Trading Scheme (EUETS) are subject to the reverse-charge mechanism. These currently comprise EU Allowances, some Certified Emission Reductions (CER) and some Emission Reduction Units (ERU), as defined in Directive 2003/87/EC (as amended).

Reverse-charge accounting for domestic wholesale supplies of gas and electricity. Purchasers of wholesale supplies of gas and elec­tricity are required to account for VAT under a domestic reverse-charge accounting procedure, rather than paying VAT to the supplier. VAT-registered businesses that do not resell or trade the gas or electricity are not affected. No additional notification or reporting requirements apply to these transactions.

Registration procedures. To register for VAT, form VAT 1 MAN should be completed and submitted along with supporting docu­mentation to:

Isle of Man Customs and Excise

P.O. Box 6

Custom House

North Quay

Douglas IM99 1AG

Isle of Man

A VAT registration can usually be processed within 7 to 10 work­ing days.

Late-registration penalties. A penalty is assessed for late VAT registration, which is calculated as a percentage of the VAT due (output tax less input tax).

If the liability to register for VAT arises before 1 April 2010, the penalty rate that applies depends on the length of time between when a business should have been registered and when it regis­ters. If this period is less than 9 months, the penalty is 5% of the VAT due. If the period is between 9 and 18 months, the penalty increases to 10% of the VAT due. For businesses that register more than 18 months late, the penalty rate is 15% of the VAT due. The minimum penalty is GBP50.

If the liability arises on or after 1 April 2010, the penalty rate that applies may range from 30% (in most cases) to 100% (for delib­erate and concealed acts) of the VAT due. However, measures exist for the reduction of such penalties if the business discloses the failure to register to the VAT authorities. The degree of miti­gation depends on the “quality” of the disclosure.

Penalties apply to a range of other offenses (see Section J).

Digital economy. From 1 January 2015, the place of supply for digital services business to consumer (B2C) is where the cus­tomer belongs.

Mini One-Stop Shop. The Mini One-Stop Shop (MOSS scheme) became available from 1 January 2015. EU taxable persons sup­plying electronic services to nontaxable customers will have a requirement to register for VAT in the EU Member State where the nontaxable customer belongs. Registration for the MOSS scheme enables EU taxable persons to file a single VAT return and make a single payment.

Deregistration. A taxable person that ceases to be eligible for VAT registration must deregister. A taxable person may also request deregistration if its taxable turnover drops below the deregistra­tion threshold (GBP81,000 in 2016) or if its taxable turnover is wholly or principally zero-rated (see Section D). However, dereg­istration is not compulsory in these circumstances.

VAT rates

In the Isle of Man, the term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.

If an Isle of Man company is not required to register for VAT but the beneficial owner is a non-Isle of Man or non-UK resident, look-through provisions may apply. In 1983, the Isle of Man reached agreement with the UK government to introduce mea­sures to look through the fact that a company is resident in the Isle of Man and to consider the place of residence of the beneficial owner. Con sequently, if a package of corporate administration services is provided to an Isle of Man company in these circum­stances, the supply is not subject to VAT.

In the Isle of Man, the following three rates of VAT apply:

  • Standard rate: 20%
  • Reduced rate: 5%
  • Zero rate: 0%

The standard rate of VAT applies to all supplies of goods or ser­vices, unless a specific measure provides for the zero rate, the reduced rate or an exemption.

Some differences exist between the Isle of Man and the United Kingdom with respect to the supplies that are eligible for zero rating and the reduced rate.

Examples of goods and services taxable at 0%

  • Books, newspapers and periodicals
  • Certain foodstuffs
  • Children’s clothing and footwear
  • Drugs and medicines supplied on prescription
  • New housing
  • Transport services
  • Passenger transport (including yachts)
  • Exports of goods and related services

Examples of goods and services taxable at 5%

  • Fuel and power supplied to domestic users and charities
  • Energy-saving materials
  • Building materials for residential conversions
  • Sanitary protection products
  • Children’s car seats
  • Domestic property repairs
  • Holiday accommodation

The term “exempt supplies” refers to supplies of goods and ser­vices that are not liable to tax and that do not give rise to a right of input tax deduction (see Section F). In addition, some supplies are classified as “exempt with credit.” Exempt-with-credit sup­plies are effectively treated as if they were zero-rated, but they are not within the scope of VAT. This means that no VAT is charge­able, but the supplier may recover related input tax. Exempt­with-credit supplies include services supplied to taxable persons in the EU and to customers outside the EU.

Examples of exempt supplies of goods and services

  • Betting and gaming
  • Education
  • Finance
  • Insurance
  • Land and buildings (in most cases)
  • Public postal services
  • Human blood products
  • Medical services

Option to tax for exempt supplies. An option to tax can be made in respect of commercial land and property. Where an option to tax is made, supplies of interest in the land and property will become taxable with VAT chargeable at the standard rate of VAT and in return, input tax in relation to the taxable supply will be recoverable subject to the normal rules.

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The “basic” tax point under Isle of Man law is the point when the goods are either removed from the supplier’s premises or made available to the customer, or when the services are performed.

The basic tax point may be overridden by the creation of an “actual” tax point. An actual tax point may occur before or after the basic tax point.

Before the basic tax point. If the supplier issues a VAT invoice or receives payment with respect to the supply, a tax point is created to the extent covered by the invoice or payment.

After the basic tax point. If an invoice is issued up to 14 days after the supply, the date of the invoice becomes the tax point. Taxable persons may request permission to extend the period for this invoicing tax point to up to a maximum of 30 days after the basic tax point.

Deposits and prepayments. The receipt of a deposit or prepay­ment normally creates an actual tax point if the amount is paid in the expectation that it will form part of the total payment for a particular supply. A tax point is created only to the extent of the payment received.

Intra-Community acquisitions. The time of supply for an intra­Community acquisition of goods is the 15th day of the month following the month when the acquisition occurred. If the sup­plier issues an invoice before this date, the tax point is when the invoice is issued.

Intra-Community supplies of goods. For intra-Community sup­plies of goods, the time of supply is the earlier of the 15th day of the month following the month when the goods are removed from the supplier or the date on which the VAT invoice is issued.

Imported goods. The time of supply for imported goods is the date of importation or the date on which the goods leave a duty suspension regime.

Goods sent on approval or for sale or return. The tax point for goods sent on approval or for sale or return is the earlier of when the goods are accepted by the customer or 12 months after their removal from the supplier. However, if a VAT invoice is issued before these dates, the invoice creates an actual tax point, up to the amount invoiced.

Continuous supplies of services. If services are supplied continu­ously, a tax point is created each time a payment is made or a VAT invoice is issued, whichever occurs earlier.

Reverse-charge services. The tax point for reverse-charge ser­vices is primarily when the service is performed. For single ser­vices, this is when the service is completed or when payment for the service is made, whichever is earlier. For a continuous supply of services, the tax point is the end of each periodic billing or payment period or when payment is made, whichever is earlier. For continuous supplies that are not subject to billing or payment periods, the tax point is 31 December each year unless a payment creates an earlier tax point.

Cash accounting. Businesses with annual turnover of less than GBP1.35 million may apply to use cash accounting. Under the cash accounting scheme, businesses account for output VAT and reclaim input VAT on the basis of cash received and paid, rather than on the basis of invoices issued and received.

Continuous supplies of services. VAT is due when payments are received or when an invoice is issued, whichever happens first. Where payments are made at regular intervals, a VAT invoice can be issued in advance. However, the customer cannot recover input tax until the first payment is due or has been paid. Where payments are not made at regular intervals, an invoice should be issued annually to create a tax point.

Leased assets. The same general rules apply as with the continu­ous supply of services provided that legal title to the goods does not pass to the recipient and there is no express contemplation that title will transfer at some point in the future. Goods supplied on terms that expressly contemplate that title will transfer at some point in the future (e.g., under hire-purchase or conditional sale agreements) are treated in the same way as a normal sale of goods where title passes at the outset. Unless a VAT invoice is issued, the time of supply will be linked to the basic tax point (see above). This means the full amount of VAT becomes payable at the outset rather than being due on the installment payments.

Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. Input tax is generally recovered by being deducted from output tax, which is VAT charged on supplies made.

Input tax includes VAT charged on goods and services supplied in the Isle of Man or the United Kingdom, VAT paid on imports of goods into the Isle of Man or the United Kingdom, and self-assessed VAT on intra-Community acquisitions of goods and reverse-charge services (see the chapter on the EU).

A valid tax invoice or customs document must generally accom­pany a claim for input tax.

Special rules apply to the recovery of input tax on expenditure incurred before registration and after deregistration.

Nondeductible input tax. Input tax may not be recovered on pur­chases of goods and services that are not used for business purposes (for example, goods acquired for private use). In addi­tion, input tax may not be recovered for some items of business expenditure.

The following lists provide some examples of items of expendi­ture for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is related to a taxable business use.

Examples of items for which input tax is nondeductible

  • Purchase of a car (unless the car is available exclusively for busi­ness use)
  • Fifty percent of VAT incurred on the rental or lease of a car used for mixed business and private purposes
  • Private expenditure
  • Business entertainment and hospitality (except when provided to overseas customers)

Examples of items for which input tax is deductible
(if related to a taxable business use)

  • Conferences, exhibitions, training and seminars
  • Taxi services
  • Restaurant expenses for employees
  • Accommodation
  • Motoring expenses and fuel for business purposes
  • Business use of a home telephone

Partial exemption. Input tax directly related to making exempt supplies is generally not recoverable. If a taxable person makes both exempt and taxable supplies, it may not recover input tax in full. This situation is referred to as “partial exemption.”

An Isle of Man taxable person that makes exempt supplies may calculate the amount of VAT that it may recover in several ways. The standard partial exemption calculation method is a two-stage calculation. The following are the two stages of the calculation:

  • The first stage identifies the input VAT that may be directly allocated to taxable and to exempt supplies. Input tax directly allocated to taxable supplies is deductible, while input tax directly related to exempt supplies is not deductible. Supplies that are exempt with credit are treated as taxable supplies for these purposes.
  • The second stage identifies the amount of the remaining input tax (for example, input tax on general business overhead) that may be allocated to taxable supplies and recovered. The cal­culation of recoverable VAT may be performed using the general pro rata method based on the respective value of tax­able and exempt supplies made.

If the standard calculation provides an unfair or distortive result, a special calculation method may be agreed with the VAT author­ities. In some cases, the authorities may impose the use of a special calculation method.

Capital goods scheme (CGS). Capital goods are items of capital expenditure that are used in a business over several years. A tax­able person does not have to be partly exempt or (for capital costs incurred after 1 January 2011) have nonbusiness activities when costs are incurred for the CGS to apply. The value of a capital item is the VAT-exclusive value of the item. Only the value of standard or reduced-rated taxable supplies is considered. Before 1 January 2011, the value of a capital item was determined by reference to the business-related expenditure. Effective 1 January 2011, the value is determined by reference to total expenditure on an asset. This includes both business and nonbusiness expendi­ture on an asset.

Input tax is deducted in the VAT year in which the goods are acquired. The amount of input tax recovered depends on the tax­able person’s business use in the VAT year of acquisition. The scheme requires adjustments to be made to the initial amount of VAT claimed. This reflects the differences in the use of capital items over a period of time. This period is known as the “adjust­ment period.” If, during the adjustment period, there is any change in the proportion of taxable use, then the taxable person must make a corresponding adjustment to input tax.

In the Isle of Man, the capital goods adjustment applies to the following assets for the number of intervals (normally a year) indicated:

  • Land and buildings and related property expenditure valued at GBP250,000 or more are adjusted for a period of 10 intervals.
  • Individual computer hardware valued at GBP50,000 or more is adjusted for a period of five intervals.
  • Effective 1 January 2011, the CGS was extended to apply to ships and aircraft valued at GBP50,000 or more; the adjustment period is five intervals.

If, in any subsequent interval, the amount that the item is used to make taxable supplies increases or decreases compared with its use in the original deduction period, a CGS adjustment is required in that subsequent interval. No retrospective adjust­ments are made after the end of the first interval. The actual input tax adjustment (if any) required in a subsequent interval is calcu­lated by dividing the total input tax (or total VAT if incurred after 1 January 2011) on the capital item by the total number of inter­vals in the adjustment period (usually either 5 or 10) and then multiplying by the adjustment percentage.

Refunds. If the amount of VAT recoverable exceeds the amount of VAT payable in a period, a refund may be claimed. This is done automatically through the submission of the periodic VAT return. A taxable person that receives regular repayments of VAT may request permission to submit monthly returns to improve cash flow.

Preregistration costs. VAT incurred on the purchase of goods for your taxable business still on hand at the time of VAT registration can be recovered, subject to the normal rules, up to four years prior to the effective date of VAT registration. VAT incurred on services purchased for your taxable business can be recovered, subject to the normal rules, up to six months prior to the effective date of VAT registration.

Write-off of bad debts. VAT on bad debts over six months old can be written off and output tax recovered. If payment is subse­quently paid, however, VAT must once again be accounted for.

Noneconomic activities. Generally, VAT incurred in relation to noneconomic activities is not recoverable.

Recovery of VAT by non-established businesses

The Isle of Man refunds VAT incurred by businesses that are nei­ther established nor registered for VAT in the Isle of Man. Non-established businesses may reclaim VAT to the same extent as VAT-registered businesses. For the general VAT refund rules, see the chapter on the EU.

EU businesses. An electronic VAT refund procedure applies across the EU. EU businesses must submit their claims for Isle of Man VAT through an electronic interface to their local VAT authorities.

Refunds are based on the calendar year. The final deadline for refund claims is 30 September of the year following the year in which the tax was incurred. Claims must be accompanied by the appropriate documentation (see the chapter on the EU).

Non-EU businesses. For businesses established outside the EU, refunds are made in accordance with the terms of the EU 13th Directive. The Isle of Man does not generally exclude businesses from any country from eligibility.

Refunds are based on the period from 1 July to 30 June (a pre­scribed year), and the final deadline for refund claims is 31 December following the end of the prescribed year in which the tax was incurred.

Applications for 13th Directive refunds of Isle of Man VAT must be submitted in English and must be accompanied by the appropri­ate documentation (see the chapter on the EU). The minimum claim period is three months and the maximum period is one pre­scribed year. The minimum claim for a period of less than a year is GBP130. For an annual claim, the minimum amount is GBP16.

Applications must be sent to the following address:

HM Revenue and Customs

Compliance Centres

VAT Overseas Repayment Unit

S1250

Benton Park View

Newcastle Upon Tyne

NE98 1YX

Invoicing

VAT invoices and credit notes. An Isle of Man taxable person must generally provide a VAT invoice for all taxable supplies made to other taxable persons, including exports and intra-Community supplies (see the chapter on the EU). Invoices are not automati­cally required for B2C supplies, such as retail transactions, unless requested by the customer.

A VAT invoice is necessary to support a claim for input tax deduction or refund.

A VAT credit note may be used to reduce the VAT charged and reclaimed on a supply. The credit note must reflect a genuine mistake, an overcharge or an agreed reduction in the value of the original supply. A credit note must be issued within one month after the discovery of the mistake or overcharge, and it must be cross-referenced to the original VAT invoice.

Electronic invoices are permitted in accordance with EU Directive 210/45/EU.

Proof of exports and intra-Community supplies. Isle of Man VAT is not chargeable on supplies of exported goods or on intra-Com­munity supplies of goods except distance sales (see the chapter on the EU). However, to qualify as VAT-free, exports and intra­Community supplies must be supported by evidence that proves the goods have left the Isle of Man/United Kingdom. Acceptable proof includes the following documentation:

  • For an export, official customs documentation and commercial documentation, such as consignment notes and airway bills
  • For an intra-Community supply, a range of commercial docu­mentation, such as customer orders, sales invoices, transport documentation and packing lists

In all cases, the evidence must clearly identify the supplier, the customer, the goods and the destination. The evidence must be obtained within three months after the time of supply and be retained for at least six years.

Foreign-currency invoices. If a VAT invoice is issued in a foreign currency, the VAT value must be converted into pounds sterling (GBP), using an acceptable exchange rate, and stated in the invoice. Suppliers may use any of the following rates:

  • The United Kingdom market selling rate at the time of supply
  • The United Kingdom VAT authorities’ published exchange rate for the period
  • Any other acceptable commercial rate agreed to in writing with the VAT authorities

B2C invoices. Effective 1 January 2015, new rules applied to the place of supply for supplies of telecommunications, broadcasting and electronic services to non-VAT taxable customers. For fur­ther details of the VAT rules on electronic services in the EU, please refer to the European Union chapter.

VAT returns and payment

VAT returns. VAT returns are generally submitted quarterly. VAT return quarters are staggered into three cycles to ease the VAT authorities’ administration. The following are the cycles:

  • March, June, September and December
  • February, May, August and November
  • January, April, July and October

At the time of registration, each taxable person is applied about the return cycle that it must use. However, the Isle of Man VAT authorities may consider a request to use VAT return periods that correspond with a taxable person’s financial year. In addition, a taxable person whose accounting dates are not based on calendar months may request permission to adopt nonstandard tax periods.

Taxable persons that receive regular repayments of VAT may re quest permission to submit monthly returns to improve cash flow.

Returns must be submitted by the last day of the month following the end of the return period. They may be submitted by mail or electronically. Payment in full is also due by the same date. However, taxable persons that pay their VAT return liabilities electronically have an additional 7 days after the normal due date to make payments.

VAT returns must be completed in pounds sterling, but return liabilities may be paid in pounds sterling or euros.

Payments on account. Taxable persons whose annual VAT liabil­ity is greater than GBP2.3 million must make payments on account, which are interim payments made at the end of the second and third months of each VAT quarter. The balance of VAT payable for the period is made at the end of the quarter. The amount of the payment is generally based on the taxable person’s VAT liability for the preceding 12 months. Electronic transfers must be used for all payments on account.

Special schemes. Not applicable.

Electronic filing and archiving. Electronic filing is permitted, and electronic archiving is permitted with approval from Isle of Man Customs.

Annual returns. Not applicable.

Penalties

If a business with a turnover of GBP150,000 or more submits a VAT return or payment late, the taxable person is in default and is issued a Surcharge Liability Notice. The surcharge liability period initially lasts for 12 months from the date of the notice.

Any further default within this period triggers a penalty and extends the notice period. The penalty is a percentage of the VAT due.

The following are the percentage penalties:

  • For the first further default in the notice period: a penalty of 2% of the VAT due
  • For the second further default in the notice period: a penalty of 5% of the VAT due
  • For the third further default in the notice period: a penalty of 10% of the VAT due
  • For the fourth and subsequent further defaults in the notice period: a penalty of 15% of the VAT due (for each further default)

In the 2% and 5% penalty bands, penalties are not imposed on amounts of less than GBP400. A minimum penalty of GBP30 is imposed for the 10% and 15% penalty bands. If payment is made on time, but the return is submitted late, no penalty is levied. However, the surcharge liability notice period is extended.

For businesses with turnover of less than GBP150,000, a help letter is issued at the first default stage. If the business defaults again within the next 12 months, a Surcharge Liability Notice is issued, followed by the same penalties listed above for further defaults.

Penalties for errors made on VAT returns. Under the current pen­alty regime (applying to inaccuracies on VAT returns for returns due for submission on or after 1 April 2009), if a business makes an error on a VAT return despite taking “reasonable care,” it should not be liable to a penalty. Otherwise, the penalty rate depends on the behavior giving rise to the error (rather than the size of the error) and may range from 30% (for “careless” errors) to 100% (for “deliberate and concealed” acts) of the VAT due. However, provisions exist for the reduction of such penalties if the business makes an unprompted disclosure to the VAT author­ities. The degree of mitigation also depends on the “quality” of the disclosure.

EU declarations

Intrastat. An Isle of Man taxable person that trades in goods with other EU countries (excluding the United Kingdom) must com­plete statistical reports, known as Intrastat, if the value of its sales or purchases exceeds certain thresholds. Separate reports are required for intra-Community acquisitions (Intrastat Arrivals) and intra-Community supplies (Intrastat Dispatches).

The 2016 threshold for Intrastat Arrivals is GBP1.5 million. The 2016 threshold for Intrastat Dispatches is GBP250,000.

A taxable person whose intra-Community trade exceeds GBP24 million (for either Arrivals or Dispatches) must also provide additional information concerning terms of delivery.

Intrastat declarations must be submitted monthly and completed in pounds sterling. The submission deadline is the 21st day fol­lowing the end of the Intrastat return period (normally a month) to which they relate.

Penalties may be imposed if a taxable person’s Intrastat declara­tions are persistently late, missing or inaccurate.

EU Sales Lists. An Isle of Man taxable person must submit an EU Sales List (ESL) if they make either or both of the following types of supply:

  • Intra-Community supplies of goods to business customer in other EU Member States
  • Intra-Community supplies of services in other EU Member States if the place of supply is the customer’s Member State and if the customer is required to account for the VAT due on the supply under the reverse-charge procedure

The information to be included on the ESL includes the country code and VAT registration number of the customer, the total value of those supplies in pounds sterling and an indicator to identify the supply as one of goods or services.

An ESL is not required for any period in which the taxable person does not make any intra-Community supplies.

Monthly submission of ESLs is required if the value of supplies of intra-Community goods exceeds GBP35,000 in the current quarter or any of the previous four quarters.

Quarterly submission of ESLs is required for supplies of intra­Community services, but businesses may elect to submit them on a monthly basis.

Small businesses with a taxable turnover of less than GBP145,000 submitting annual VAT returns that make intra-Community sup­plies of less than GBP11,000 per year may request to submit annual ESLs.

For paper returns, ESLs must be submitted within 14 days after the end of the reporting period. For electronic returns, they must be filed within 21 days after the end of the reporting period.

Penalties are assessed for the late submission of ESLs and for material inaccuracies in ESLs.