Tax Director from Equiom Tax Services Limited, Andrew Cardwell, provides an overview of the Isle of Man budget 2022
Treasury Minister, David Ashford, delivered his budget speech on 15 February 2022. The theme was a common one, namely a spending and investment plan which would facilitate and encourage growth in the economy and the prudent use of financial reserves. The key features followed the recent budget announcements made by our current Chief Minister under a five year plan that was initiated in 2017.
At the macroeconomic level, government revenue is forecast to increase at an average rate of 3.9% per annum over the coming five fiscal years, with expenditure broadly following suit and relatively small surpluses anticipated for 2022/23 through to 2026/27. The broad assumption is that economic activity will return to the pre-pandemic levels, which have cost the island approximately £300m to date, by around 2024. Customs & Excise receipts, which make up around half of the annual revenue receipts, are assumed to continue in line with the current FERSA agreement.
For the same forecast period, annual deficits are anticipated on the capital account, indicating there will be a shortfall on the funds which are earmarked for infrastructure plans and other capital spending. It is inevitable that reliance will be placed upon reserves to support both revenue and capital spending, albeit the forecast is for reserves to dip only temporarily, before returning and exceeding the 2021/22 levels by the time we reach 2025/26.
For the taxpayer, there was little in the way of personal tax changes to report on. Income tax rates and tax bandings will remain at the same rates as for 2021/22, although the personal income tax allowance was increased by £250 to £14,500. Regarding national insurance contributions, there was a minor increase in the lower earnings limit and modest increases in voluntary contribution amounts. When factoring in the current rate of inflation, the vast majority of taxpayers will be slightly worse off in 2022/23.
The real challenges, as ever, remain on the horizon, and relate principally to international initiatives which could affect the ability of low tax territories to do business and the ongoing issue of the structural deficit. Whilst we might expect to have already absorbed the impact of recent international initiatives, such as the economic substance requirements and US proposals for a global minimum corporate tax rate, the reality is that perhaps it is too early to appreciate the full financial impact that they will have on the Isle of Man economy.
The significant longer-term domestic issue continues to be pensions, namely how we fund both the government and Manx state pensions. This will hinge to some degree upon our future economic prosperity and tighter fiscal control, although it will likely require a more revolutionary approach to fundraising. The recent review of our system of national insurance, for example, could lead to changes in the assessment of the types of income that should be subject to national insurance.
Overall, the Budget was what we might have expected, given the focus of more recent budgets: no matters of fundamental significance to report, but a continuing focus on growth and fiscal responsibility.
Equiom’s experienced tax team offers both global insight and local knowledge to advise individuals and help businesses to solve a diverse range of international business and tax challenges. Please contact Andrew Cardwell for further information on the topics discussed in this article.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.