What is Isle of Man VAT?
Value Added Tax (VAT) is an indirect tax charged on most goods and services in the UK and the Isle of Man. Technically It is an indirect tax that is a cost to the consumer but as a VAT registered business owner it certainly feels like a business cost !
The VAT rate in the Isle of Man and the UK is generally 20% but some categories of goods and services are subject to VAT at 5% (eg Childrens car seats and home energy) – others at 0% (eg most food and children’s clothes) and some are exempt completely (eg Education, insurance, medical treatments).
More info on that here: https://www.gov.uk/guidance/rates-of-vat-on-different-goods-and-services#introduction
Do I need to be VAT registered ?
You must register if:
- At the end of any month the total value of your taxable supplies you have made in the preceding 12 months, on a rolling 12-month basis, exceeds £85,000, or
- at any time you expect that the value of your taxable supplies in the following 30 days will be more than £85,000
If your taxable sales (supplies) are below the VAT registration threshold or if all your sales are outside the scope of VAT because they are customers outside the IOM/UK, you are not required to register for VAT but you may make a voluntary registration as long as your supplies are not exempt.
What are the advantages and disadvantages of being VAT registered?
Most businesses don’t have a choice about being registered for VAT. If the annual vatable turnover is greater than the £85,000 threshold you will need to register your business. Here are some advantages and disadvantages of being VAT registered:-
- VAT Recovery (Advantage) VAT registered businesses can recover that VAT that they pay on their purchases (inputs) – this includes VAT paid on buy equipment as well as on other purchases such as rent, stock / materials etc – which seems very beneficial.
When a business registers for VAT it can even reclaim the historical VAT paid on equipment it purchased in the past (so long as it still has it) – on the stock it is holding and on professional fees incurred during the 6 months prior to registration.
- VAT on sales. Recovering the VAT on your purchases (stock / rent / telephone / equipment purchases) is great but the trouble is being VAT registered means you have to add 20% on your sales – which can make you uncompetitive compared to a non VAT registered business.
This is why some businesses try hard to avoid VAT registration. (Taxis and hairdressers are good examples of this). In practice, following registration for VAT, rather than issuing an invoice for £100, the business will now need to issue an invoice for £100+vat=£120.00.
If your customer is a VAT registered business – then they will recover the extra £20 (20%) on their VAT return so the cost to them is still £100. However if your customer is not a business (called a consumer) then the cost to them just increases by £20 overnight.
- Credibility. Being a VAT registered company can give credibility to customers, because it confirms that the company is legitimate and is most likely a larger, more established business.
How is VAT in the UK different from other countries?
In other countries, VAT is known as Good and Services Tax (GST) but the principle remains the same. Different countries use different VAT rates.
Is VAT in the Isle of Man the same as the UK ?
Yes, for VAT purposes the Isle of Man is treated as being part of the UK. As a result the VAT rules in IOM and UK are essentially identical.
How do I register for VAT in IOM?
To register for VAT, you start by filling out a VAT1MAN form. If you are a new trader, you will also need to submit a document showing ‘intent to trade’ – this usually takes the form of a sales contract, a lease agreement or a sales invoice – the VAT office will advise you.
If your business is already trading then a REG5MAN which shows monthly turnover to date will also be required. This allows the VAT office to examine your sales numbers and is mainly used to check if the business has applied to be registered for VAT in time. If it has not – then you will need to discuss this with the VAT office and potentially pay a historical VAT liability together with penalties.
See IOM’s guidance note for VAT registration here.
VAT Applications will normally take up to 7 days to process.
How to file a VAT return?
Isle of Man VAT is administered via the VAT Online Portal. Using the portal, you can file your VAT returns and make payments online. See detailed guidance on the VAT online portal here
