ITIS applies
to all employees, whether full time, part
time or contract, as well as to all directors who get
paid a salary or fees, plus all labour only subcontractors
who do not have an exemption certificate from the
Income Tax Office - which is only issued if they have
a good tax compliance record.
ITIS does not apply to sole traders, partnerships,
those individuals living off investment income and
pensioners in receipt of a pension. A mandatory
system of early payment on account during the
year will be introduced for those taxpayers,
ie., half the previous year's tax liability at the end of
April and a final settling up when the Notice of
Assessment goes out in September. Such a system
increases the flow of funds into the States Treasury
in a broadly similar manner to ITIS for employees.
Employers and main contractors need
to deduct the
correct tax at each pay day, in accordance with the
effective rate of tax applicable to each employee,
director or labour only subcontractor, and notify all such
employees, etc, of the amounts withheld, keep records
of the amounts deducted for each person, send a
schedule of the names and tax reference numbers
of all persons, and the tax deducted on their behalf, plus
a remittance, preferably by telegraphic transfer or
through BACS, of the total tax deducted, to the Income
Tax office, within 15 days of the end of every month.
The Income Tax office currently gets 75% of employers'
returns
of employees' earnings electronically and they
strive to work with the Employment and Social Security
Department to develop a CD which will allow
the
employer to declare both Income Tax and Social
Security deductions on the same CD which can then be
sent with the relevant details to Social Security and
Income Tax. Neither Income Tax nor Social Security
will see or be able to download the confidential details
relating to the other. The employers who are unable to
make electronic returns will have to complete two
separate paper schedules, one for Income Tax and one
for Social Security.
Once the employers' schedule of employees'
names and
tax deductions are received by the Income Tax Office,
there will be an automatic transfer of all the employees'
tax deductions to their individual ledger account,
thereby immediately updating their tax records. The
25% of paper returns still received from employers are
all data captured and verified and then dealt with in
the same manner.
The employer must provide, both to
the Income
Tax
Office and the employee, an annual summary, within
30 days of the year end, of remuneration and tax
deducted for each employee.
When both a husband and wife are employed
and there
is no election for separate assessment, tax will be
deducted from both their salaries. However, there will
be provisions to allow them to adjust the amount of tax deducted from each
of their salaries, provided the original deduction total is met.
Non-resident employers employing people locally
will
be included in ITIS.
The current complex dual system of exemptions/
allowances does not lend itself to breaking down the tax
entry point into weekly/monthly tax codes for each
employee as under a true PAYE system and, unlike the uniform deduction rates
for Social Security contributions, the amount of tax due from each
employee involves a complex calculation dependent
upon their individual circumstances. Instead, an
effective rate of tax for each employee is
identified, reflecting their last known level of income
and tax liability on same. (Although the standard rate
of tax is 20%, individuals do not pay tax at 20%, but at
an effective rate ranging from 1% to some 19%
depending on individual circumstances, such as
whether they are married, have children, a mortgage,
etc). For those employees who continue to be exempt
from tax, of course, their effective rate will be 0%.
The use of such a simple and straightforward
methodology will also help employers as there will be
no need for complex codes and a booklet of tax
deduction tables.
This individual effective rate for each employee
is
communicated to him or her, annually before December
for the calendar year ahead. It will be subject to
amendment where the Income Tax Office is satisfied
that there has been a significant change in
circumstances, or as the Income Tax Return of the
employee is processed and it is apparent that
refinement is necessary, (eg., if the level of over/under payment of tax
from previous years is substantial). The individuals amended effective rate
is communicated
to both the employee and his/her employer if known.
It is necessary to create a comprehensive employee
and labour only subcontractor database to
enable the timely and effective transmission of data and
tax deductions between employers, main contractors
and the Income Tax Office. The default position, the one
that will apply, for example, to new taxpayers who arrive
in the Island without an effective rate of tax, or from
previous employment and no longer know their effective
rate, or who are school leavers, is an emergency
effective rate of tax deduction until the employer sees
official notification from the Income Tax Office - this is
set at 15%. However, those new taxpayers who call
in promptly to the Income Tax Office outlining their
personal circumstances and expected income, will have
an effective rate issued immediately.
The effective rate of tax calculated is
increased for those with existing tax arrears. A statutory maximum effective
rate of tax is set out in law, as this is considered vital to protect the
employee from oppressive levels of tax deduction.
Penalty provisions is incorporated into
the law to
require employers to make timely returns of their
employees' monthly schedules and the tax deducted.
New businesses who take on employees and who fail to register with Income
Tax within one month, will also be subject to a penalty regime. But new
businesses, such
as sole traders and partnerships who do not take on
any employees, will not be subject to such a penalty
regime.
All employees, directors and labour only subcontractors continue to complete an Income
Tax Return for each year of assessment and they are issued in the usual manner.
.
::
ITIS
©
2007 Foxleigh Knight & Co., Limited
THE BASIS OF ASSESSMENT
Income Tax Instalment System (ITIS)
THE
DETAIL
For established taxpayers, the tax deduction system operates to
deduct tax in year 2 to pay the liability that will arise on
earnings received in year 1, ie., those deductions in January,
2006, were in respect of the 2005 tax liability.
New taxpayers (those arriving on the Island and taking up employment, whether on contract or otherwise and those entering the labour market from the education system here in Jersey)must register with the Income Tax Office within 30 days of taking up employment. They have tax deductions imposed upon them from the first month of employment.
New taxpayers are on an alternative ITIS which sees deductions in year 1 to satisfy the liability arising upon year 1 earnings. This ensures, for example, that those who come and work here on short-term contract have tax deducted from their earnings all the way through their contract and will not be able to leave Jersey owing tax.
In addition, those who reside in Jersey for only part of the tax
year only receive tax allowances and reliefs for the part of the
year that they were resident in the Island. In other words, a full
year's tax allowances or tax exemptions is only available to
a taxpayer who has been and continues to be permanently
resident in the Island, excluding holidays or business trips
abroad. This prevents those who work in the Island for only
part of the year claiming tax repayments based on a full year's
tax allowances or tax exemptions. The tax deductions of new
taxpayers, therefore, are accelerated in relation to the rest
of the tax paying population. This means that there will be two
bases to operate concurrently for different groups of employees.
In order to get new taxpayers who intend to remain permanently
in Jersey on to the system for established taxpayers, there is
a transition after 5 years of paying tax as a new taxpayer.
This operates so as to have tax deductions from the new
employee's earnings for years 6 and 7 at half of the usual
effective rate of tax. This enables new taxpayers to be absorbed
into the mainstream tax deduction system without too much
difficulty in their 8th year of residency.
.
deduct tax in year 2 to pay the liability that will arise on
earnings received in year 1, ie., those deductions in January,
2006, were in respect of the 2005 tax liability.
New taxpayers (those arriving on the Island and taking up employment, whether on contract or otherwise and those entering the labour market from the education system here in Jersey)must register with the Income Tax Office within 30 days of taking up employment. They have tax deductions imposed upon them from the first month of employment.
New taxpayers are on an alternative ITIS which sees deductions in year 1 to satisfy the liability arising upon year 1 earnings. This ensures, for example, that those who come and work here on short-term contract have tax deducted from their earnings all the way through their contract and will not be able to leave Jersey owing tax.
In addition, those who reside in Jersey for only part of the tax
year only receive tax allowances and reliefs for the part of the
year that they were resident in the Island. In other words, a full
year's tax allowances or tax exemptions is only available to
a taxpayer who has been and continues to be permanently
resident in the Island, excluding holidays or business trips
abroad. This prevents those who work in the Island for only
part of the year claiming tax repayments based on a full year's
tax allowances or tax exemptions. The tax deductions of new
taxpayers, therefore, are accelerated in relation to the rest
of the tax paying population. This means that there will be two
bases to operate concurrently for different groups of employees.
In order to get new taxpayers who intend to remain permanently
in Jersey on to the system for established taxpayers, there is
a transition after 5 years of paying tax as a new taxpayer.
This operates so as to have tax deductions from the new
employee's earnings for years 6 and 7 at half of the usual
effective rate of tax. This enables new taxpayers to be absorbed
into the mainstream tax deduction system without too much
difficulty in their 8th year of residency.
.