Draft Income Tax (Amendment No. 24) (Jersey) Law 200-
European Convention on Human Rights
The President of the Finance and Economics Committee has made the following statement –
In the view of the Finance and Economics Committee the provisions of the Draft Income Tax (Amendment No. 24) (Jersey) Law 200- are compatible with the Convention Rights.
(Signed) Senator T.A. Le Sueur
REPORT
This draft Law gives effect to the proposals described in paragraph 10.6 of the Budget Book 2005, apart from the proposals regarding ‘20% means 20%’.
Financial and manpower
implications
There will be no additional financial or manpower implications when the proposals for taxing 1(1)k’s and taxing all forms of property development are introduced. Additional manpower will be required to administer the proposed Income Tax Instalment System. It is estimated that 8 permanent staff will be required at an annual cost of some £285,000, together with one-off ‘set up’ costs of some £184,000.
European Convention on Human Rights
Article 16 of the Human Rights (Jersey) Law 2000 will, when brought into force by Act of the States, require the Committee in charge of a Projet de Loi to make a statement about the compatibility of the provisions of the Projet with the Convention rights (as defined by Article 1 of the Law). Although the Human Rights (Jersey) Law 2000 is not yet in force, on 11th November 2004 the Finance and Economics Committee made the following statement before Second Reading of this projet in the States Assembly –
In the view of the Finance and Economics Committee the provisions of the Draft Income Tax (Amendment No. 24) (Jersey) Law 200- are compatible with the Convention Rights.
Explanatory Note
Part 1 – Interpretation
Article 1 defines the Income Tax (Jersey) Law 1961 as the ‘principal Law’.
Part 2 – Introduction of
income tax instalment system (ITIS)
Article 2 inserts a new Article A15 in the principal Law, containing definitions required for the purposes of Part IV. Part IV requires statements and other returns of information to be made.
Article 3 inserts a new Article 19A in the principal Law, requiring a person who becomes an employer, or a building contractor when first taking on a sub-contractor, to notify the Comptroller.
Article 4 substitutes Articles 20 and 20A of the principal Law, being the requirements, respectively, for employers to provide the Comptroller with details of their employees and for persons in the building or construction industry to provide the Comptroller with details of their sub-contractors. The substituted Articles require additional information to be provided that will be necessary for the administration of ITIS and enable the Comptroller to issue general or individual notices requiring returns of information. It is expected that the Comptroller will issue a general notice, each year, requiring returns of information to be made monthly.
Article 5 inserts a new Article A39 in the principal Law, which has the effect that expressions defined in the new Article A15 have the same meaning in Part VII of the Law.
Article 6 amends Article 39 of the principal Law, with the effect that the rule that income tax is due and payable on the day after an assessment is made will be subject to the new rules for an instalment payment in April, for deductions from earnings from employment and for deductions from payments made to building sub-contractors.
Article 7 inserts new Articles 41A to 41I in the principal Law.
Article 41A creates the requirement for an individual to make an instalment payment in April in respect of his or her tax liability for the preceding year. The amount of the instalment will be calculated by reference to the individual’s tax liability for the year before that, as the individual’s liability for the preceding year will not have been calculated by April. So, in April 2006, an individual will pay an instalment on account of his or her liability to tax for 2005. The instalment will be an amount equal to one half of the individual’s liability to tax for 2004 save that, if the individual was in employment in 2004 and his or her earnings were 25% or less of total income, the instalment will be an amount equal to 40% of his or her liability to tax for 2004. The instalment will be reduced by any amounts already paid on account of the individual’s liability to tax for 2005. There are two exceptions to the requirement to pay the April instalment. Firstly, no instalment is paid if the amount would be less than £100. Secondly, an individual who is in employment in the year by reference to which the amount of the instalment is calculated and whose earnings from employment for that year exceed 25% of his or her total income is not required to pay the instalment. The Comptroller has a discretion to reduce or waive the instalment where there has been either a significant reduction in the individual’s liability to tax or in his or her unearned income from the year by reference to which the instalment is calculated to the year on account of which the instalment is paid. There is a right of appeal against a refusal by the Comptroller to exercise that discretion.
Article 41B creates the requirement for an employer to make deductions from earnings paid to employees. The deduction is a percentage of the employee’s gross wages. The default rate of deduction is 15% for 2006 and 2007, increasing to 20% for 2008 onwards and will apply in any case where the employer does not have a notice issued by the Comptroller specifying a rate for the employee in question. The employer is required to keep records of the amounts deducted and of the rate applied to each deduction and give each employee a summary of the deductions made. No deduction is required in the case of an employee under the age of 17. The employer must remit the amounts deducted to the Comptroller on a monthly basis and failure to do so is an offence.
Article 41C describes how the rate is to be calculated by the Comptroller. The deductions are on account of an individual’s liability to tax for the year preceding the year in which the deductions are made. Accordingly the rate is calculated by reference to the individual’s liability to tax for that preceding year, although it may also include any liability for arrears accruing from an earlier year. However, because the Comptroller will not have received a tax return from the individual by 1st January of the year in which the payments are to be made, the Comptroller may calculate a provisional rate based on the individual’s liability for the year preceding the preceding year. For example, the rate applicable to deductions to be made in 2006 may be provisionally calculated by reference to the individual’s tax liability for 2004. Once the individual has made a return for 2005, the rate may be recalculated. In addition, the rate may be reviewed at any time during the year in which the payment is to be made, if there is a change in the individual’s circumstances. Because the deductions made will not necessarily discharge the whole of the individual’s liability to tax for the preceding year, the individual is given the option of electing to have a higher rate applied to his or her deductions, although there is a cap upon the rate, described in paragraph (9). The Comptroller will send out a notice of the rate applicable to any employee. There is a right of appeal against the rate calculated by the Comptroller or against a refusal by the Comptroller to issue a rate.
Article 41D makes provision for husbands and wives. If a husband and wife living together have not elected for separate assessment (with the consequence that the wife’s income is deemed to be that of her husband) a rate is calculated on the husband’s income and that rate applies to both of them. However, they can jointly elect for different rates to apply to each of them, provided that the total amount deducted from their respective earnings is not less than the total amount that would have been deducted had they not made the election. There is no right of election if deductions are to be made at the default rate described in Article 41B.
Article 41E creates the requirement for a person in the building or construction industry (a building contractor) to make deductions from payments made to sub-contractors and to remit them to the Comptroller on a monthly basis. Failure to remit the money to the Comptroller is an offence. The deductions are made at the rate of 15% in 2006 and 2007, increasing to 20% for 2008 onwards. There is an exception if the sub-contractor has an exemption certificate. The building contractor must keep records of the deductions and give a sub-contractor a summary of them.
Article 41F enables a sub-contractor to apply to the Comptroller for an exemption certificate. A certificate will only be issued where the Comptroller is satisfied that the applicant has consistently complied with all the requirements of the Law and will be cancelled at any time when the Comptroller ceases to be so satisfied.
Article 41G requires the Comptroller to credit amounts received under Article 41B or Article 41E to the tax liability of the employee or sub-contractor from whose earnings or payments the amounts have been deducted.
Article 41H creates arrangements for persons entering the Island or, for the first time, commencing employment or becoming a sub-contractor of a building contractor (‘new taxpayers’). The earnings of a new taxpayer who is in employment or working as a sub-contractor of a building contractor on 1st January 2006 will, for the first five years, be subject to deductions under ITIS on account of the person’s liability to tax for the year in which the deduction is made. In the sixth and seventh year, deductions will be made from the person’s earnings at half the rate that would otherwise apply. After that, the person ceases to be treated as a new tax payer and, accordingly, his or her earnings become subject to deductions under ITIS in accordance with Article 41B, being on account of his or her liability to tax for the year preceding the year in which the deduction is made. The earnings of a new tax payer who commences employment or working as a sub-contractor of a building contractor after 1st January 2006 will be subject to the same transitional rule save that, in his or her case, the period of transition is spread over seven years of assessment starting with the year in which the employment or contract commences.
Article 41I restates the late payment surcharge and introduces an exception to it where, by the time in December specified for payment, 70% of the person’s tax has been paid through deductions made under ITIS.
Article 8 makes an
amendment and repeals which are consequential upon the introduction of the
instalment scheme. Article 17A is amended. Articles 26 (re-enacted as Article
41I), 102 (the £25 credit for monthly payments) and 136(4) the exception to the
requirement to make a return of information about an employee if the employee
is exempt from tax) are repealed.
Article 9 amends the Bankruptcy (Désastre) (Jersey) Law 1990 as to confer on amounts deducted by employers and building contractors but not yet remitted to the Comptroller the same priority in a bankruptcy as unpaid tax.
Article 10 provides for the commencement of Part 2. Provisions required to prepare for ITIS are brought into force on 1st January 2005. The requirement to pay instalments is brought into force on 1st January 2006.
Part 3 - Extension of trades
chargeable under Schedule D
Article 11 amends Article 3 of the principal Law so as to add a definition of “fixed place of business” and extend the definition “trade” to include any disposal, on a commercial basis, of property which derives its value from land or any building or structure.
Article 12 amends Article 61 of the principal Law. Article 61 establishes the charge to tax under Schedule D. The amendment, taken together with the amendments made by Article 11, widens the charge to tax under Schedule D. Residents and non-residents will become liable to tax on annual profits or gains arising from the trade of disposing, on a commercial basis, of property which derives its value from land or a building or structure in Jersey.
Article 13 provides for Part 3 to have effect for the year of assessment 2004 and ensuing years.
Part 4 - Persons granted
housing consent under Regulation 1(1)(k)
Article 14 inserts a new Part XIIA in the principal Law.
Article 135A applies to any person who acquires a property pursuant to a housing consent under Regulation 1(1)(k) of the Housing (Jersey) Regulations 1970 on or after 1st January 2005. Where the person’s non-Jersey income exceeds the prescribed limit, so much of that income as exceeds that limit shall be chargeable to tax at the prescribed rate. The States are given power to make Regulations setting the prescribed limit and prescribed rate.
Article 135B enables the Comptroller of Income Tax and the Housing Committee and its officers to exchange information for the purposes of administering Article 135A and the grant and revocation of housing consents under Regulation 1(1)(k).
Article 15 provides for Part 4 to come into force on 1st January 2005.
Part 5 – Apportionment of
allowances etc for individual absent from the Island
Article 16 inserts a new Article 129A in the principal Law.
Article 129A provides that, if a person is not in Jersey for the whole of a year, the exemption threshold applicable and the allowances and reliefs to which he or she is entitled, are duly apportioned. For example, if a person is in Jersey for 25 weeks of the year, his or her exemption threshold, allowances and reliefs will be 25/52nds of those that would have applied if he or she had been in Jersey for the whole year. The apportionment does not apply to a person who has been ordinarily resident in Jersey, but is occasionally resident outside Jersey, as such a person is taxed on the whole of his or her profits for the year. Nor does it apply to a person whose allowances and reliefs on his or her Jersey income are restricted so that the tax paid by the person does not fall below a percentage determined according to ratio between his or her Jersey income and his or her income from all sources, if that person is not an employee, office holder or sub-contractor of a building contractor in Jersey or is a director of a Jersey company.
Article 17 provides for Part 5 to have effect for the year of assessment 2006 and onwards.
Part 6 – Removal of allowance
for child in certain cases
Article 18 amends Article 95 of the principal Law with the effect that the enhanced exemption threshold and, for so long as it remains, the allowance in respect of a child over the age of 17 and in full-time education, is restricted to a case where the child is in higher education.
Article 19 amends Schedule 5 to the principal Law so that, despite the amendment of Article 95 of the principal Law, a person whose child is already in full-time education other than higher education will continue to benefit from Article 95.
Article 20 provides for Part 6 to have effect for the year of assessment 2005 and ensuing years.
Part 7 – Closing provision
Article 21 cites the short title of the Law.
