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Audit Exemption in the Isle of Man 4 April 2006

    In the Treasury’s Public Response Document, “Audit Exemption – Raising the Thresholds” dated 5 December 2005, it stated:

    “Treasury will continue to monitor the issue and will review the £1 million turnover limit again in future. The review will also consider whether to introduce an audit exemption for charities and how to ensure that the current audit position for exempt companies is maintained within the new 0% corporate tax rate regime.”

    We are not yet able to make an announcement in respect of audit exemption in relation to charities, but feel that it is now important to make clear how Treasury intends to address audit exemption in general, especially as the embargo on new tax exempt companies will have effect from 6 April 2006.

    Treasury acknowledges that there is uncertainty in the business community regarding the future of companies currently in the special tax regimes. An audit exemption limit of only £1 million, far lower than that in the United Kingdom, could lead to a significant number of companies moving away from the Isle of Man rather than migrating to the standard domestic system. At the same time, and as was clear from the consultation exercise carried out last year, Treasury understands that further changing the audit exemption regulations may affect the balance of the fee income received by those firms of accountants with audit practices.

    However, accommodating all views on this matter is not possible, and Treasury must act in the best interests of the economy. For this reason, we have decided both to change the audit exemption rules significantly and to carry out a further consultation exercise to determine whether the audit exemption regime should be completely overhauled.

    At the earliest opportunity, a regulation made under the provisions of section 324B Companies Act 1931 will be taken to Tynwald for approval. Subject to that approval, the regulation will provide that from 6 April 2006 Regulation 2 (2) (a) of the Companies (Exempt and Non-resident Private Companies) (Audit Exemption) Regulations 1993 will be substituted with words to the effect that a company will be an “audit exempt company” if it meets two out of the following three criteria:

    1. its annual turnover is £5.6 million or less;
    2. its balance sheet total is £2.8 million or less, and;
    3. its average number of employees is 50 or fewer.

    These criteria closely match those used in the United Kingdom.

    The consultation exercise will start as soon as possible.

    Treasury Minister Allan Bell, MHK, said,

    “As I have said on many occasions, this Government aims to encourage the growth of the economy, and that growth has to be based on a thriving business community. We listen to the concerns of that business community. The changes that I am announcing today address some of those concerns and once again show that we do all that we can to retain the economic dynamism for which the Isle of Man has become renowned.”

    4th April 2006

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