IM Payroll Social

Isle of Man payroll has two parts. Employers deduct income tax through the Income Tax Instalment Payments (ITIP) scheme under the Income Tax (Instalment Payments) Act 1974. They also deduct and pay National Insurance under the Social Security Contributions and Benefits Act 1992 and the Social Security Administration Act 1992 (as applied to the Island) and the Social Security (Contributions) Regulations 2001. The Income Tax Division of the Treasury collects both. The tax year runs from 6 April 2026 to 5 April 2027. Amounts are in pounds sterling (GBP).

Related skills: im-income-tax for the employee's annual income tax, allowances and rates, im-non-resident-income-tax for non-resident employees (code HR), im-corporate-income-tax for the company, and isle-of-man-vat for VAT.

Who this applies to

• Age band. National Insurance is paid from age 16 up to state pension age (Income Tax Division, National Insurance Contributions page).
• Class 1 is paid by employed earners and their employers. Class 2 is paid by the self-employed. Class 3 is voluntary, for people not liable to another class. Class 4 is paid by the self-employed on profits above set levels, on top of Class 2 (Paying National Insurance page).
• Employers after pension age. An employee over state pension age pays no Class 1 primary contributions, but the employer still pays (table letter C, with a Certificate of Age Exception) (Paying National Insurance page; PN 227/26 para 5).
• State pension age rises from 6 April 2026. For people born between 6 April 1960 and 5 March 1961 it moves in steps from 66 years and 1 month to 66 years and 11 months, on the way to 67. Employees keep paying until their own state pension age (PN 227/26 para 5).
• ITIP covers everyone who receives remuneration: employees, office holders such as directors, and pensioners. Remuneration means any salary, wages, fees, pensions or annuities, including bonuses, commission, holiday pay, pay in lieu of notice, termination payments, tips and round sum expenses (Income Tax (ITIP) page).
• Employment status is decided by the Income Tax Division, not by agreement between the parties (Employers page).

Rates, bands and thresholds

Item	Rate or amount	Year	Source
Lower Earnings Limit (LEL)	GBP 129 a week; GBP 559 a month	2026/27	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/rates-and-thresholds/ ; PN 227/26 para 4
Primary Threshold	GBP 176 a week; GBP 763 a month; GBP 9,152 a year	2026/27	rates and thresholds page; PN 227/26 para 4
Secondary Threshold	GBP 176 a week; GBP 9,152 a year	2026/27	same
Upper Earnings Limit (UEL)	GBP 1,082 a week; GBP 4,689 a month	2026/27	same
Class 1 employee rate, Primary Threshold to UEL	11%	2026/27	same
Class 1 employee rate above UEL	1%	2026/27	same
Class 1 employer rate on all earnings above Secondary Threshold	12.8%	2026/27	same
Class 2, self-employed	GBP 6.75 a week (GBP 351.00 a year)	2026/27	same
Class 2 small earnings exception	GBP 9,152 a year	2026/27	same
Class 2, volunteer development workers; share fishermen	GBP 6.45; GBP 8.30 a week	2026/27	same
Class 3 voluntary	GBP 20.65 a week	2026/27	same
Class 4 lower profits limit; upper profits limit	GBP 9,152; GBP 56,264 a year	2026/27	same
Class 4 rates	8% between the limits; 1% above the upper limit	2026/27	same
ITIP lower and higher rates	10% and 21% (tables D and C from 6 April 2026)	2026/27	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/employers/ ; PN 227/26 para 1
Monthly ITIP and NI payment (form T35)	by the 19th of the month after the month of payment	current	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/employers/compliance-and-penalties/
Employer's annual return (T37, T14, T9)	within 30 days after the tax year end (by 5 May)	current	compliance and penalties page
Most employer compliance failures	GBP 250	current	compliance and penalties page
Late T35 notification and payment	5% of the amount due; a further 5% if outstanding after six months	current	compliance and penalties page
Late annual return	GBP 250 plus GBP 50 a day	current	compliance and penalties page
Late notice of starting self-employment	GBP 100	current	Social Security (Contributions) Regulations 2001 reg 87(3), cited on the Paying National Insurance page
NI Holiday Scheme, returning students	refund of first 12 months' Class 1 primary contributions, up to GBP 4,400	current	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/national-insurance-holiday-scheme/

The taxable base

Step 1: Class 1 for each pay period

For each pay period, take gross earnings and compare them with the period thresholds:

• Employee (primary): 11% of earnings between the Primary Threshold and the UEL, plus 1% of earnings above the UEL.
• Employer (secondary): 12.8% of all earnings above the Secondary Threshold. There is no upper limit (rates and thresholds page).

The Division publishes deduction tables (CF391 for table letters A and J, CF393 for table C) for 2026/27 (National Insurance Contributions page). Table letters: A is the standard rate; J is the deferred rate (needs a Certificate of Deferment); C is over state pension age, employer only; B is the married woman's reduced rate, available from the Division on request (Paying National Insurance page).

Step 2: directors

A person who is a director at the start of the tax year has an annual earnings period for that year, so bonuses cannot be timed to avoid contributions. Either work out contributions on cumulative pay each time the director is paid, or, for regular pay, deduct per period and recalculate on the annual figure in the last pay period of the year. A director appointed during the year has a pro-rata earnings period to the year end (Paying National Insurance page).

Step 3: ITIP income tax

Deduct income tax on each payday according to the employee's tax code. A code is one to four numbers followed by F, M or S. The non-numeric codes are NT (no tax), SB (no allowances, tax at the lower rate using table D and table C if needed) and HR (no allowances, higher rate, table C) (Tax codes explained for employers page). The employer acts on form T6 (codes for the new year, issued in mid-March) or form T21 from a previous employer, never on the employee's own T1. Failing to apply the correct code makes the employer liable for the ITIP not deducted. The 2026/27 free pay tables and tables C and D apply from 6 April 2026 (Employers page). Where no code has come on T6 or T21 for a resident employee, use the emergency code: SB (tables D and C) for a person in subsidiary employment or receiving the State Retirement Pension; for all other cases the page gives a numeric S code (see Not yet confirmed). If a code has not arrived by 5 April, send form T20 marked 'substitute' and keep using the previous year's code until the new one arrives (Tax codes explained for employers page).

Step 4: self-employed contributions

• Class 2: GBP 6.75 a week, paid monthly, normally by direct debit (form CF351). A person whose net self-employed earnings are below GBP 9,152 can apply for a Small Earnings Exception certificate. It runs from the date of application and can be backdated up to 13 weeks. Opting out of Class 2 can reduce benefit and state pension entitlement (Small Earnings Exception page; Paying National Insurance page).
• Class 4: 8% of profits between GBP 9,152 and GBP 56,264 and 1% above. It is charged through the annual income tax assessment (and possibly payment on account), is paid with the income tax, and stops if the person is over state pension age at the start of the tax year. Class 4 does not count towards benefits (Paying National Insurance page).

Deadlines and filing

Requirement	When	Form
Register as an employer	within 14 days of the first payment to an employee	T30c (company), T30i (individual), T30x (partnership), T30p (pension provider)
Notify a starter	within 14 days of the start	T20
Notify a leaver	within 14 days of the end of employment	T21
Give payslips	every payday, showing gross pay, additions and ITIP and NI deductions
Pay ITIP and NI and send the monthly notification	by the 19th of the month after the month of payment, even for a nil month	T35
Employer's annual return	within 30 days after the tax year end (5 May), or 30 days after the last employee leaves	T37 with T14 for every employee and T9 for expenses and benefits
Keep payroll records	3 years after the end of the tax year
Register for online services	when the employer has 5 or more employees	Employer Tax Service

Source: Compliance and Penalties page. For 2026/27 the annual return is due by 5 May 2027.

Self-employed people send form R133 when they start, so the Division can confirm their status, and pay Class 2 monthly (Paying National Insurance page). Class 4 is assessed with the income tax return: see im-income-tax for return and payment dates.

Penalties and interest

• GBP 250 each for failing to register as an employer, notify a starter or leaver, give payslips, apply the correct tax code, keep records, or otherwise comply with the ITIP Act and regulations. A wrong code also makes the employer liable for the ITIP underpaid (Compliance and Penalties page).
• Late T35: 5% of the amount due (which the Division may estimate), and a further 5% if still outstanding after six months.
• Late annual return: GBP 250 and GBP 50 a day until it is submitted. A return that is incomplete may be sent back and treated as outstanding; continued failure may lead to prosecution.
• Online services: an employer with 5 or more employees who does not register can be fined up to GBP 5,000 on summary conviction.
• Wrong NI deduction: the employer is liable for the underpaid employee and employer contributions. Under the Social Security Contributions and Benefits Act 1992 Schedule 1 paragraph 3(1), as applied to the Island, an employer who fails to deduct at the right time may have to pay the employee's share too. Directors can be held personally liable for unpaid NI under the Social Security Administration Act 1992, as applied (Compliance and Penalties page; Reciprocal Agreement with the UK page).
• Late notice of self-employment: GBP 100, which can be charged within 6 years (Social Security (Contributions) Regulations 2001 reg 87(3), as cited on the Paying National Insurance page).

Cross-border points

• UK. Under the Social Security (United Kingdom) Order 1977 the Island and the UK are a single area for National Insurance liability. An employer in one territory with staff in the other stays liable as if both were in the same territory. An Island employer was held liable for employer NI on staff working in the UK (Staff of Government Division, July 2012) (Reciprocal Agreement with the UK page; Detached Workers page).
• New UK agreement. The Social Security (National Insurance Contributions Reciprocal Agreement) (United Kingdom) Order 2026 (SD 2026/0113) is going through ratification. When in force, workers pay in one territory at a time, generally where the work is done. Certificates of coverage allow temporary postings of up to 36 months and cover a few other groups. It has effect from the tax year starting on the 6 April after it enters into force (UK/Isle of Man Agreement page). It was still going through ratification when read, so the 1977 rules apply for 2026/27.
• Postings abroad. An Island employee sent abroad by an Island employer keeps paying Island NI for the first 52 weeks. For reciprocal agreement countries other than the UK, a certificate of detachment may extend that (Detached Workers page). The Island has reciprocal agreements with, among others, Ireland, France, Germany, the Netherlands, Spain, Switzerland, Canada, the United States, Japan, Jersey and Guernsey (Detached Workers page).
• Workers sent to the Island from an agreement country can keep paying at home with a certificate of detachment or an A1 form (Detached Workers page).
• Non-resident employees get no personal allowance; the employer uses code HR unless the Division gives clearance. See im-non-resident-income-tax.
• Returning students. The National Insurance Holiday Scheme no longer applies to new residents (it closed to new residents whose qualifying employment started after 5 April 2025). An Island student who completes a full-time degree-level course off-Island on or after 6 April 2019 and returns to permanent Island employment within 5 years can reclaim Class 1 primary contributions for the first 12 months, up to GBP 4,400, on form R247(RS) within 6 months after those 12 months (National Insurance Holiday Scheme page).

Worked examples

Example 1: monthly employee, GBP 3,500 a month

An employee aged 35 on table letter A earns GBP 3,500 in May 2026. Earnings above the monthly Primary Threshold of GBP 763 are GBP 2,737, all below the monthly UEL of GBP 4,689. Employee NI is 11% of GBP 2,737, GBP 301.07. Employer NI is 12.8% of GBP 2,737, GBP 350.34 after rounding. Both, with the ITIP deducted under the employee's code, go to the Division with form T35 by 19 June 2026. This is the exact percentage method; the CF391 tables can differ by a few pence.

name: IM Class 1 monthly, earnings 3,500 (2026/27)
inputs:
  pay: 3500
  pt_month: 763
  uel_month: 4689
steps:
  - main_band: max(min(pay, uel_month) - pt_month, 0)
  - above_uel: max(pay - uel_month, 0)
  - employee_ni: main_band * 0.11 + above_uel * 0.01
  - employer_ni: round(max(pay - pt_month, 0) * 0.128, 2)
expected:
  main_band: 2737.00
  employee_ni: 301.07
  employer_ni: 350.34

Example 2: self-employed with profits above the upper profits limit

A self-employed resident has profits of GBP 70,000 for 2026/27 and paid Class 2 every week. Class 4 is 8% of GBP 47,112 (GBP 56,264 less GBP 9,152), GBP 3,768.96, plus 1% of GBP 13,736 above the upper limit, GBP 137.36. Class 4 is GBP 3,906.32, payable with the income tax on the assessment. Class 2 for 52 weeks is GBP 351.00, paid monthly. Total contributions are GBP 4,257.32.

name: IM self-employed Class 2 and Class 4, profit 70,000 (2026/27)
inputs:
  profit: 70000
  lpl: 9152
  upl: 56264
  class2_week: 6.75
  weeks: 52
steps:
  - class4_main: max(min(profit, upl) - lpl, 0) * 0.08
  - class4_upper: max(profit - upl, 0) * 0.01
  - class4: class4_main + class4_upper
  - class2: class2_week * weeks
  - total: class4 + class2
expected:
  class4_main: 3768.96
  class4_upper: 137.36
  class4: 3906.32
  class2: 351.00
  total: 4257.32

Ask the client first

1. Is the worker an employee, a director or self-employed, and has the Division confirmed the status?
2. What is each worker's age and table letter (A, J, C, B), and is anyone near state pension age?
3. What tax code has the Division issued on T6 or T21, and is any worker non-resident?
4. When did the employer first pay staff, and are the T30, T20 and T21 notifications in?
5. Does anyone work in the UK or another country, or come from abroad, and for how long?
6. For the self-employed: what are the net profits, and is there a Small Earnings Exception certificate?

Sources

Source	URL	Read on
Practice Note PN 227/26, Budget 2026 income tax and National Insurance proposals (17 February 2026), paras 1, 4, 5	https://www.gov.im/media/1391759/pn-227-26-budget.pdf	2026-10-30
Income Tax Division, National Insurance: Rates and Thresholds	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/rates-and-thresholds/	2026-10-30
Income Tax Division, National Insurance Contributions	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/	2026-10-30
Income Tax Division, Paying National Insurance	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/paying-national-insurance/	2026-10-30
Income Tax Division, Small Earnings Exception	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/small-earnings-exception/	2026-10-30
Income Tax Division, National Insurance Holiday Scheme	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/national-insurance-holiday-scheme/	2026-10-30
Income Tax Division, Reciprocal Agreement with the UK	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/reciprocal-agreement-with-the-uk/	2026-10-30
Income Tax Division, UK/Isle of Man Agreement on Social Security relating to National Insurance Contributions (SD 2026/0113)	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/reciprocal-agreement-with-the-uk/ukisle-of-man-agreement-on-social-security-relating-to-national-insurance-contributions/	2026-10-30
Income Tax Division, Detached Workers	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/national-insurance-contributions/detached-workers/	2026-10-30
Income Tax Division, Employers	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/employers/	2026-10-30
Income Tax Division, Employers: Compliance and Penalties	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/employers/compliance-and-penalties/	2026-10-30
Income Tax Division, Employers: Income Tax (ITIP)	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/employers/income-tax-itip/	2026-10-30
Income Tax Division, Employers: Tax codes explained for employers	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/employers/tax-codes-explained-for-employers/	2026-10-30
Income Tax Division, Employers: Legislation	https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/employers/legislation/	2026-10-30

Not yet confirmed: the Tynwald order or regulations setting the 2026/27 National Insurance limits and rates (the figures come from PN 227/26 and the Division's rates page, which agree); the section numbers in the Income Tax (Instalment Payments) Act 1974 and its regulations for the employer deadlines and GBP 250 penalties (taken from the Division's Compliance and Penalties page); the current numeric emergency tax code for 'all other cases' (the tax codes page still shows 1450S at 10/21%, which matches the 2024/25 allowance, not GBP 17,000); interest on late ITIP and NI; when the 2026 UK agreement enters into force.