Corporate report

Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man for the year ended 31 March 2023

Updated 23 November 2023

Accounting Officer’s Foreword

1. Introduction

The full title of this Account is the ‘Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man’ but will be referred to hereafter as the ‘Isle of Man (IoM) Account’.

Agreements between the IoM and UK governments result in certain tax revenue streams known as ‘common duties’ being pooled and then shared on an agreed basis. The IoM Treasury is therefore entitled to a share of common duties collected in both the UK and the IoM that is attributable to goods consumed and services supplied in the Island.

The common duties included in the share are: Value Added Tax (VAT), Beer Duty, Wine Duty, Spirits Duty, Cider and Perry Duty, Tobacco Products Duty, Customs Duty, Pool Betting Duty and the Soft Drinks Industry Levy (SDIL).

On 24 March 2020, HM Treasury and the IoM Treasury signed a Final Expenditure Revenue Sharing Arrangement (FERSA), based on a 2018 to 2019 review of IoM household and business expenditure, which set out the IoM share of common duties from 2018 to 2019 onwards. Under the FERSA, the Isle of Man share of common duties is increased annually by an indexation of 4.35% for VAT and 1.58% for all other duties, for a maximum of 6 indexed years, until a new survey calculation is carried out. Under the FERSA, the agreed share for the year ending 31 March 2023 was £405.6 million (see note 1).

In addition to the FERSA, the IoM receives Hydrocarbon Oil (HCO) Duty on the basis of actual consumption net of HCO Duty paid back to HMRC (see note 1). The IoM also receives Lottery Duty paid in the IoM but collected in the UK (see note 1).

To ensure the IoM receives the agreed share of revenues, the IoM net duties collected in the year of account along with all regular monthly payments to the IoM required by the FERSA are deducted from the agreed share and an adjustment is made for the cost of collection (see note 3). This results in either HMRC or the IoM government receiving a payment from the other party as final settlement of the closing balance (see note 6).

In May 2021, the IoM presented an Impact Assessment report to HM Treasury and HMRC on the effects of COVID-19 on the Island’s economy, specifically in relation to the Island’s share of VAT under the FERSA. It was agreed that a ‘one-off’ adjustment figure of £23.8 million would be paid to the UK by the IoM. This adjustment was paid by the IoM to the UK in November 2021 and recorded in the 2021 to 2022 Account (see note 4). A separate adjustment was made to the cost of collection, which was in favour of the IoM, and this was also deducted in the 2021 to 2022 Account (see note 3). No further adjustments have been deemed necessary and therefore none have been recorded in the 2022 to 2023 Account.

2. Basis for the preparation of the Account

The IoM Account is compiled annually by HMRC on a cash basis and reports the total share of revenues for the year. It presents receipts and payments made to or by the IoM (see note 5), as accounted for in HMRC’s Annual Report and Accounts, and calculates the balance owing to the IoM or UK government. The Account is prepared in accordance with the Treasury Direction and the principles within Managing Public Money. The Account is prepared on a going concern basis.

3. Statutory background

The Isle of Man Act 1979 requires the UK Commissioners of HMRC to prepare the Account for each financial year in such form and manner as HM Treasury may direct showing the payments made by them to the IoM Treasury. The requirements for this are set out in Section 2(4) of the Act. Section 2 of the Act also stipulates that copies of the Account are laid before Parliament.

4. Audit arrangements

This Account has been prepared under a direction issued by HM Treasury in accordance with Section 2(4) of the Isle of Man Act 1979 and is subject to audit by the Comptroller and Auditor General.

Justin Holliday
HMRC Chief Finance Officer and Accounting Officer for the IoM Account
13 November 2023

Statement of the responsibilities of the Accounting Officer

I have delegated authority from the Accounting Officer of HMRC for the preparation of the Account and have been appointed as Accounting Officer.

The Account is prepared on a cash basis and must properly present the receipts and payments for the financial year and the balance owing to the IoM Treasury or HMRC at the year-end.

So far as I am aware, there is no relevant audit information of which the auditors are unaware. I have taken all steps that I ought to have taken to make myself aware of any relevant audit information and to establish that the auditors are aware of that information.

I confirm that the Account is fair, balanced, and understandable and that I take personal responsibility for the Account and the judgements required for determining that it is fair, balanced, and understandable.

I confirm that the Account is prepared in accordance with the Treasury Direction and the principles contained within Managing Public Money.

Justin Holliday
HMRC Chief Finance Officer and Accounting Officer for the IoM Account
13 November 2023

The Certificate and Report of the Comptroller and Auditor General to the Treasurer of the Isle of Man and the Houses of Parliament

Opinion on financial statements

I certify that I have audited the financial statements of the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man for the year ended 31 March 2023 under the Isle of Man Act 1979. The financial statements comprise the Receipts and Payments Account and the related notes.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and HM Treasury directions.

In my opinion the financial statements:

• properly present the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man’s receipts, payments and balances for the year ended 31 March 2023
• have been properly prepared in accordance with the Isle of Man Act 1979 and HM Treasury directions issued thereunder

Opinion on regularity

In my opinion, in all material respects, the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Basis for opinions

I conducted my audit in accordance with International Standards on Auditing (UK) (ISAs UK), applicable law and Practice Note 10 Audit of Financial Statements of Public Sector Entities in the United Kingdom. My responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of my certificate.

Those standards require me and my staff to comply with the Financial Reporting Council’s Revised Ethical Standard 2019. I am independent of the Commissioners of the HM Revenue and Customs in Account with the Government of the Isle of Man in accordance with the ethical requirements that are relevant to my audit of the financial statements in the UK. My staff and I have fulfilled our other ethical responsibilities in accordance with these requirements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Conclusions relating to going concern

In auditing the financial statements, I have concluded that the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work I have performed, I have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

My responsibilities with respect to going concern are described in the relevant sections of this certificate.

Other information

The other information comprises information included in the Foreword and the Accounts Direction, but does not include the financial statements nor my auditor’s certificate and report. The Accounting Officer is responsible for the other information.

My opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in my certificate, I do not express any form of assurance conclusion thereon.

My responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit or otherwise appears to be materially misstated.

If I identify such material inconsistencies or apparent material misstatements, I am required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact.

I have nothing to report in this regard.

Opinion on other matters

In my opinion, based on the work undertaken in the course of the audit, the information given in the Foreword for the financial year for which the financial statements are prepared is consistent with the financial statements and is in accordance with the applicable legal requirements.

Matters on which I report by exception

I have nothing to report in respect of the following matters which I report to you if, in my opinion:

• adequate accounting records have not been kept by the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man or returns adequate for my audit have not been received from branches not visited by my staff

• I have not received all of the information and explanations I require for my audit

• the financial statements are not in agreement with the accounting records and returns

Responsibilities of the Accounting Officer for the financial statements

As explained more fully in the Statement of the Responsibilities of the Accounting Officer, the Accounting Officer is responsible for:

• maintaining proper accounting records

• providing the C&AG with access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters

• providing the C&AG with additional information and explanations needed for his audit

• providing the C&AG with unrestricted access to persons within the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man from whom the auditor determines it necessary to obtain audit evidence

• ensuring such internal controls are in place as deemed necessary to enable the preparation of financial statements to be free from material misstatement, whether due to fraud or error

• ensuring that the financial statements are properly presented in accordance with the Isle of Man Act 1979 and HM Treasury directions issued thereunder; and

• assessing the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless the commissioners intend to liquidate the entity or have no alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

My responsibility is to audit, certify and report on the financial statements in accordance with the Isle of Man Act 1979.

My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a certificate that includes my opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Extent to which the audit was considered capable of detecting non-compliance with laws and regulations, including fraud

I design procedures in line with my responsibilities, outlined above, to detect material misstatements in respect of non-compliance with laws and regulation, including fraud. The extent to which my procedures are capable of detecting non-compliance with laws and regulations, including fraud is detailed below.

Identifying and assessing potential risks related to non-compliance with laws and regulations, including fraud

In identifying and assessing risks of material misstatement in respect of non-compliance with laws and regulations, including fraud, I:

• considered the nature of the sector, control environment and operational performance including the design of the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man’s accounting policies

• inquired of management, HMRC’s head of internal audit and those charged with governance, including obtaining and reviewing supporting documentation relating to the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man’s policies and procedures relating to:

  • identifying, evaluating and complying with laws and regulations
  • detecting and responding to the risks of fraud
  • the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations including the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man’s controls relating compliance with the Isle of Man Act 1979 and Managing Public Money

• inquired of management, Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man’s head of internal audit and those charged with governance whether:

  • they were aware of any instances of non-compliance with laws and regulations
  • they had knowledge of any actual, suspected, or alleged fraud

• discussed with the engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud

As a result of these procedures, I considered the opportunities and incentives that may exist within the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man for fraud and identified the greatest potential for fraud in the following areas: revenue recognition. In common with all audits under ISAs (UK), I am also required to perform specific procedures to respond to the risk of management override of controls.

I also obtained an understanding of the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man’s framework of authority as well as other legal and regulatory frameworks in which the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man operates, focusing on those laws and regulations that had a direct effect on material amounts and disclosures in the financial statements or that had a fundamental effect on the operations of the Commissioners of HM Revenue and Customs in Account with the Government of the Isle of Man. The key laws and regulations I considered in this context included the Isle of Man Act 1979 and Managing Public Money.

Audit response to identified risk

To respond to the identified risks resulting from the above procedures:

• I reviewed the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described above as having direct effect on the financial statements

• I enquired of management and HMRC’s Audit and Risk Committee concerning actual and potential litigation and claims

• I reviewed minutes of meetings of those charged with governance and the Board and internal audit reports

• in addressing the risk of fraud through management override of controls, I tested the appropriateness of journal entries and other adjustments; and evaluated the business rationale of any significant transactions that are unusual or outside the normal course of business

I also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

A further description of my responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website. This description forms part of my certificate.

Other auditor’s responsibilities

I am required to obtain evidence sufficient to give reasonable assurance that the income and expenditure reported in the financial statements have been applied to the purposes intended by Parliament and the financial transactions conform to the authorities which govern them.

I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

Gareth Davies
Comptroller and Auditor General National Audit Office
157-197 Buckingham Palace Road
Victoria
London
SW1W 9SP

15 November 2023

Receipts and payments account

For the year ended 31 March	Notes	2023	2022
		£	£
IoM share of Consolidated Revenue Receipts	1	435,869,384	420,228,827
IoM Net Duties collected	2	(135,067,998)	(131,224,512)
		300,801,386	289,004,315
Cost of UK collection	3	(2,669,405)	(2,273,666)
IoM share of Revenues		298,131,981	286,730,649
COVID-19 Adjustment for 2020 to 2021	4	–	(23,783,306)
Total IoM share of Revenues		298,131,981	262,947,343
The IoM Cash Account
Balance due to/(due from) the government of the IoM at the start of the year	5	299,329	(10,655,514)
Total IoM share of Revenues, as above		298,131,981	262,947,343
Total		298,431,310	252,291,829
Less payments made by the UK	5	(304,356,032)	(251,992,500)
Balance due to/(due from) the government of the IoM at the end of the year	6	(5,924,722)	299,329

Approved for the Accounting Officer of HM Revenue and Customs on behalf of the Commissioners of HM Revenue and Customs. The Receipts and payments accounts has been prepared in accordance with the Accounts Direction.

Justin Holliday
HMRC Chief Finance Officer and Accounting Officer for the IoM Account
13 November 2023

Notes to the account

1. Consolidated IoM Share of Revenue Receipts

The IoM share of common duties for 2022 to 2023 has been agreed between the IoM Treasury and HM Treasury as £405.6 million under the FERSA signed on 24 March 2020. The agreed share is based on the following common duties – VAT, Beer Duty, Wine Duty, Spirits Duty, Cider and Perry Duty, Tobacco Products Duty, Customs Duty, Pool Betting Duty, and SDIL.

In addition to this share, the IoM is credited with receipts of HCO on an actual consumption basis and Lottery Duty, as lottery receipts are paid in the IoM but the duty is collected from Camelot in the UK. A small element of HCO Duty paid to HMRC is also adjusted in this Account to compensate for subsequent IoM repayments of Duty to qualifying charities and businesses and the total added to net HCO receipts.

These adjustments, referred to as ‘removals’, take place when eligible IoM charities and businesses purchase HCOs from within the UK and pay the duty to the UK. They subsequently reclaim that duty from the IoM and the IoM then reclaims the duty from the UK by completing 4 quarterly returns detailing all approved transactions. This is then accounted for by adding the removals totals back into the net HCO receipts.

The tables below provide further detail.

Details of total IoM share for the year ended 31 March	2023	2022
	£	£
Agreed share of common duties	405,631,982	389,963,217
HCO Duty	28,557,524	28,646,806
Lottery Duty (1)	1,679,878	1,618,804
Total	435,869,384	420,228,827

HCO Duty details for the year ended 31 March	2023	2022
	£	£
IoM HCO net receipts (2)	28,539,629	28,610,790
Removals to IoM – ex bonded warehouses (3)	12,668	23,020
Removals to IoM – RNLI vessels (3)	5,227	5,444
Removals to IoM – registered fishing vessels (3)	–	7,552
Total IoM allocation (4)	28,557,524	28,646,806

Notes:

1. Source of figures – monthly returns from Camelot
2. Source of figures – IoM Service Account (note 2)
3. Source of figures – IoM quarterly schedules of UK removals
4. Total IoM allocation includes £17,895 HCO Duty paid to the UK

2. Isle of Man Customs and Excise Service Accounts of the Duties collected in the Isle of Man

These figures are taken from the IoM Customs and Excise Service Accounts of the duties collected in the IoM for the year ended 31 March 2023.

For the year ended 31 March	Gross Duties Collected 2023	Drawbacks, Repayments and Allowances 2023	Net Duties Collected 2023	Net Duties Collected 2022
Duties in common with the UK	£	£	£	£
HCO	28,579,810	(40,181)	28,539,629	28,610,790
Tobacco	899,981	–	899,981	1,043,181
Beer	313,969	–	313,969	305,277
Spirits	216,049	–	216,049	163,187
Wine	22,414	–	22,414	11,967
Soft Drinks Industry Levy	–	–	–	–
Total	30,032,223	(40,181)	29,992,042	30,134,402
Consumer taxes
Value Added Tax	452,000,025	(346,944,719)	105,055,306	101,082,221
Customs Duties
Customs Duties order 1979	20,813	(163)	20,650	7,889
Total Common Duties	482,053,061	(346,985,063)	135,067,998	131,224,512

3. Cost of Collection

In accordance with Section 2(2)(b) of the IoM Act 1979, HMRC deducts the cost of collecting taxes from the amount of the UK revenue attributed to the IoM. These costs are reviewed annually.

Each tax (1) incurs a different percentage of cost of collection. This percentage is applied to the difference between the calculated split of the IoM Share of Revenue Receipts (2) and the actual duties collected in the IoM. This results in the total costs incurred by the UK in collecting tax on behalf of the IoM. The resulting average of the 8 different tax stream percentages is shown below.

For the year ended 31 March	IoM share of Trust Statement Receipts (2)	IoM Net Duties Collected	Balance being UK Revenue Collected	Resulting Average Cost % per £1 (3)	Allocated Cost of Collection 2023	Allocated Cost of Collection 2022
	£	£	£	%	£	£
Cost of Collection	435,869,384	(135,067,998)	300,801,386	0.89	2,669,405	2,559,787
COVID-19 Adjustment to Cost of Collection (4)	–	–	–	–	–	(286,121)
Total Cost of Collection					2,669,405	2,273,666

Notes:

1. The 8 tax streams involved are VAT, Import VAT, Tobacco, Alcohol, Customs, Pool Betting, SDIL and HCO. Lottery is not included as this duty is collected by Camelot and not by HMRC, and therefore no Cost of Collection is involved.

2. The IoM share of revenue receipts is calculated by applying the percentage of the relevant tax stream recorded in the certified HMRC Trust Statement collection figures to the FERSA revenue share figure.

3. It costs an average of 0.8874311p for each £1 of revenue collected in the UK rounded to 0.89 (0.89p for each £1 of revenue in 2021 to 2022).

4. It was agreed by HM Treasury and Isle of Man government that HMRC would calculate an element of Cost of Collection for the COVID-19 adjustment payment made by the IoM to HMRC totalling £23.8m paid to HMRC in November 2021. The adjustment figure was calculated using certified 2020 to 2021 cost of collection ratios for VAT and Import VAT and totalled £286,121 and this was deducted as shown above from the total Cost of Collection figure for 2021 to 2022.

4. COVID-19 adjustments for 2020 to 2021

As noted in the Accounting Officer’s Foreword, an adjustment of £23.8 million was paid by the IoM to the UK in November 2021, along with an element deducted for cost of collection. This was recorded in the 2021 to 2022 Account. No further adjustments have been made during 2022 to 2023.

	£
Total payment made by the government of the IoM to the UK in 2021 to 2022	(23,783,306)

5. Payments made by the UK

HMRC make monthly advance payments to the IoM based on the IoM agreed share of revenues (see note 1) and a forecast of receipts to be collected in the IoM. This is then adjusted quarterly to account for actual collection figures.

Further payments are made to settle any outstanding balances owed to the IoM from the prior year.

For the year ended 31 March	2023	2022
	£	£
April	25,085,998	21,305,268
May	25,085,998	21,305,268
June	25,085,998	21,305,268
July	23,861,078	37,754,128
August	25,085,998	21,305,268
September	25,085,998	21,305,268
October	14,250,882	37,367,499
November (1)	25,085,998	(2,478,038)
December	25,085,998	21,305,268
January	40,170,761	19,562,281
February	25,085,998	21,305,268
March	25,085,998	21,305,268
Totals	304,056,703	262,648,014
Closing balance from the previous year which was settled during the year of account	299,329	(10,655,514)
Payments made by the UK	304,356,032	251,992,500

Note:

1. Includes the COVID-19 adjustment for 2020 to 2021 in favour of HMRC as agreed by HM Treasury and IoM Treasury (see Note 4).

6. Closing balance

	2023	2022
	£	£
Balance due to/(due from) the government of the IoM at 31 March	(5,924,722)	299,329

The balance due from the IoM reflects the position at 31 March 2023. The UK subsequently withheld £4,953,096 on 21 April 2023 as the adjustment for the final quarter of 2022 to 2023, as required under the FERSA.

Direction given by HM Treasury

HM Treasury, in pursuance of Section 2(4) of the Isle of Man Act 1979, hereby gives the following direction.

1.This Direction shall apply to the account prepared in respect of the financial years ended 31 March 2020 and all subsequent years until this direction is amended. This account shall comprise of:

• a foreword
• a statement showing:
  • the consolidated Isle of Man share of revenue receipts
  • the share of revenues agreed between the respective governments
  • a calculation being a record of previous years’ adjustments
  • Isle of Man net duties collected
  • cost of collection charges
  • a statement of balances due to or from the Isle of Man Treasury
  • a statement of payments made to or received from the Isle of Man Treasury
• explanatory notes as considered necessary
• minor presentational changes may be made without seeking prior Treasury approval

2.The account shall be signed and dated by the HMRC Principal Accounting Officer or by a person authorised on their behalf.

3.The Direction shall be reproduced with the published account.

4.This Direction supersedes any previous Accounts Direction under section 2(4) of the Isle of Man Act 1979.

Vicky Rock
Director of Public Spending Group
HM Treasury
14 February 2020