Tuesday, October 30, 2018

2019 Jersey Budget Update

Jersey’s 2019 Budget has been developed by the Treasury and Resources Minister with three core principles in mind: that the government should ensure its actions are affordable, that it should maintain a balanced approach and that it should apply common sense in all areas.

The most significant measures this year relate to changes in the administration of tax and the introduction of Revenue Jersey, a new revenue administration within the States Treasury and Exchequer department, which is intended to bring together the administration of the States revenue streams.

The key highlights are:

Tax Administration

Revenue Jersey/Revenue Administration Law

The States intend to create Revenue Jersey, which will initially bring together work and officers from the Taxes Office, Social Security Contributions teams and Customs Revenue teams.

In addition, a new Revenue Administration Law is being established. The first tranche of changes includes the following:

  • The Taxes Office expect to offer islanders the facility to file personal tax returns online in 2020 (in respect of the 2019 year of assessment). For those islanders who take up online filing the deadline for filing returns will be extended from 31 May to 31 July.
  • The due date for payment of personal income tax will become 30 November in the year following the year of assessment. This will also become the new late payment surcharge deadline. The date for the first instalment payment will be moved from last Friday in April to 31 May in the year following the year of assessment.
  • There is a plan to incorporate the collection of social security contributions into the personal tax system, in the same way that Long-term Care contributions are collected now.
  • Companies will be required to make two tax payments from 2020: 50% of the expected liability by 31 May in the year following the year of assessment and the remaining payment by 30 November. “Large corporates”, however, will pay earlier on 31 March and 30 September. 30 September will also be the new surcharge deadline for large corporates.
  • From 2020 the late filing penalty will be increased from £250 to £300 and additional penalties will be charged where a tax return is filed very late.
  • New law will be drafted to enable the Comptroller to charge interest on late payments and pay interest on payments he makes late. It will also allow the Comptroller to levy penalty interest where someone does not pay their tax bill within 3 months of the due date.
  • Civil penalties will be introduced to deal with under declaration of tax, geared according to the behaviour exhibited. Deliberate acts of tax evasion will be subject to the highest penalties (up to 100% of the tax evaded), careless acts will result in penalties of 10% to 30% of the tax due and innocent errors will not be penalised at all.

Business Tax Proposals

Economic substance test

New legislation is to be drafted introducing an economic substance test for companies that are resident in Jersey, with effect for accounting periods beginning on or after 1 January 2019. A consultation was published in August and discussions have taken place with the EU Code of Conduct Group regarding the proposals. The draft legislation was published on 23 October 2018 and guidance notes are due to be published.

Large corporate retailers (LCRs)

The 2018 Budget introduced a tax on LCRs and broadened the definition of financial services companies so that more companies are subject to tax at the rate of 10%. The new rules only apply to profits arising from 1 January 2018 and companies can claim relief where the rules result in them being subject to tax on profits before this date. However, to claim relief companies had to change their accounting date to 31 December. As this can be burdensome and costly for companies which are part of a larger group, proposals will now allow companies to elect to calculate their tax liability for the 2018 year of assessment as if they had a 31 December accounting date. 31 December will be regarded as the company’s accounting date for subsequent years too and any change from that date will be dealt with under the normal rules governing change of accounting date.

Personal Tax Proposals

Exemption thresholds

  • The single person exemption threshold will increase from £14,900 to £15,400 and the married couple/civil partnership threshold will increase from £23,950 to £24,800, whilst the second earner’s allowance will move from £5,580 to £6,000.

Higher Child Allowance

  • The higher child allowance given to parents of children over the age of 17 and receiving full-time higher education, is to be removed now that the States have voted to provide Jersey students with a new, more generous, grant scheme.

High Value Residents (HVRs)

New HVRs are expected to have taxable income of £725,000 per annum generating an annual tax liability of £145,000. Where the HVR fails to generate this level of income, they are treated as receiving deemed income, topping up their taxable income to the expected level.

Currently, income from Jersey rental properties is not taken into account when calculating whether an HVR has reached the expected taxable income. From 2019 it is proposed that such income will be included. The income from Jersey rental properties will continue to be subject to tax at 20%.

Taxation of non-resident individuals

Non-residents in receipt of Jersey source pension and/or property income are subject to tax at 20% on the full amount of income received. In many circumstances this tax will be deducted at source. However, targeted relief is to be introduced entitling non-resident individuals to claim to reduce the amount of Jersey tax that they pay on that income where those individuals have a low worldwide income or the income is subject to genuine double taxation.

Stamp duty/Land transactions tax (LTT)

A number of changes have been made to help first time buyers, including: 

  • It is proposed that the stamp duty/LTT paid by first time buyers is reduced by increasing the nil band from £300,000 to £350,000 and the 1% band from £300,000 - £400,000 to £350,000 - £450,000 and applying tapered relief up to £500,000 (formerly £450,000).
  • The stamp duty/LTT charge on mortgages on a property valued up to £600,000 for all home buyers and reducing the stamp duty/LTT charges on mortgages on property valued between £600,000 and £700,000 by means of a tapering relief.
  • Stamp duty/LTT on residential property over £500,000 will increase by 0.5% to fund the above reliefs.

Other Changes 

  • Goods and services provided by private domiciliary care agencies, providing personal care to individuals in their own home are to become exempt. This will ensure the GST treatment is the same as for a residential care home.
  • A small number of minor amendments have been made to pension schemes including an amendment to the commutation of “trivial” pension schemes to prevent pension holders from using the provisions to access more than 30% of a pension fund tax free. 

On-going Work

  • An island-wide consultation on personal income tax is to be published by the end of November 2018.
  • Next Steps

For more information please contact David Osborne, Head of Tax at Baker Tilly Channel Islands, on david.osborne@bakertillyci.co.je  or DL: +44 (0)1534 755 106

Disclaimer: Statements and opinions expressed in articles, reviews and other materials herein are those of the author(s).

While every care has been taken in the compilation of this information and every attempt made to present up-to-date and accurate information, we cannot guarantee that inaccuracies will not occur.

Baker Tilly Channel Islands Limited will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any inform.

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