Adjustment to accounts for accounting periods from January 2013
The adjustments to accounts for controlling directors and their family members now only covers property held by a company, where the activity of the company is property ownership. This can be found in schedule 2.17 of the Income Tax (Jersey) Law.
Income tax law
Adjustments to accounts for accounting periods up to December 2012
The following information is only relevant for accounting periods up to December 2012. From January 2013 all benefits in kind are dealt with in accordance with the provisions of Article 65B and the revised Schedule 2.
Article 65B(2) states:
In assessing the emoluments of an office or employment for the purposes of Article 65 of this Law there shall be left out of account any benefit, or amount attributable to any benefit, specified in Schedule 2 to this Law.
Property held by company
There shall be left out of account any benefit derived by an office holder or employee having control of the company providing it or by a member of that person’s family or household if, and to the extent that, the company is not entitled to make any deduction in computing the profit of its business under Article 70 of this Law, or to claim any allowances or relief under Article 106A or 133 of this Law, in connection with the provision of that benefit or in relation to any asset of whose ownership or use that benefit consists.
In administrative terms, the comptroller will not require completion of a benefit in kind return, in respect of benefits provided to a controlling director, his family or household, where the cost of providing the benefit is not claimed in computing the company’s tax liability. The cost of providing the benefit should be included as an adjustment in the tax computation.
General guidelines
The adjustment required in the tax computation is the cost of providing the benefit. If it can be clearly demonstrated that a proportion of the deduction claimed is for business purposes, an adjustment is only required in respect of the non-business use, similar to sole traders.
The new legislation takes effect from 1 January 2004. Adjustments will be required to all accounts with an account year ending in 2004. The adjustments should be apportioned where the accounting year end date falls part way through the year, eg accounts year ending 31 January 2004 would require an adjustment of 1/12th.
The comptroller will not extend the £1,000 exemption, available to office holders or employees, to controlling directors who opt to make an adjustment in the computation of their company.
In order to save correspondence agents are requested to show the adjustments in respect of benefits in kind separately on the tax computation. (Example at appendix 1). It would be helpful, particularly in the early stages of this new charge, for a note to be made on the computation if a benefit in kind return is to be made for the director.
Motor vehicles
A benefit is considered to arise for all motor vehicles excluding commercial type vehicles (Schedule 2.4).
The adjustment should include the running costs in addition to the capital cost of providing the motor vehicle. The amount to be added back in the computation should be the non-business use attributable to the vehicle. In order to verify the business/private mileage it will be necessary for a detailed log to be maintained. Failure to keep a log may prejudice the claim for business usage.
All the running costs including petrol, insurance, repairs, etc should be adjusted accordingly for non-business use.
Motor vehicles which are owned, and currently in the capital allowance pool, should be transferred at the written down value to a separate heading for motor vehicles. The transfer is to be made in the tax computations for any accounts year ending 2004. The appropriate restriction should be applied to the annual allowance for the non-business use.
If the vehicle is under lease finance the payments made will also require adjustment for non-business use.
As an alternative, particularly where business mileage is minimal, the total costs relating to the motor vehicle can be written out of the accounts and the notional flat rate deduction of 50p per business mile claimed.
Living accommodation
Where the company provides living accommodation and / or food to the director, his family or household, a benefit in kind arises.
The adjustment required to the tax computation for the cost of providing this benefit should include the cost of renting the property, if applicable, in addition to the costs of heat, light, water, insurance, parish rates, property maintenance, food and subsistence.
If the property is used for the business, an appropriate adjustment should be made for non-business use. The adjustment should be calculated on any reasonable basis which fairly reflects the cost of providing the benefit.
In businesses such as hotels, guesthouse, lodging houses and farming it may be time consuming calculating a reasonable apportionment for the heat, light, water, insurance and parish rates. The Comptroller will accept a notional adjustment of £1,400 (per household) to cover the cost of providing these benefits.
Similarly, where food and subsistence is provided and it is not possible to easily identify the cost of providing the benefit as it is mixed in with the provisions used for business purposes an adjustment of £60 per week for each adult and £25 per week for each child under 16 will be accepted.
Example tax computation Y/E 31 December 2004
| Net profits per accounts |
|
|
20,000 |
|
| Add |
|
|
|
|
| Depreciation |
|
|
2,000 |
|
| |
|
|
22,000 |
|
| Benefit in kind adjustments |
|
|
|
|
| Motor running costs £1,200 x |
5,000 |
= |
750 |
|
| |
8,000 |
|
|
|
| Heat, light, water etc |
|
|
1,400 |
|
| Food etc £120 x 52 weeks |
|
|
6,240 |
|
| |
|
|
30,390 |
|
| Capitol allowances |
|
|
|
|
| |
Pool |
|
Motor |
|
| WDV B/F |
10,000 |
|
|
|
| Transferred @ WDV |
(5,000) |
|
5,000 |
|
| |
5,000 |
|
5,000 |
|
| 2005 |
(1,250) |
|
|
x 3,000 / 8,000 = 469 |
| WDV C/F |
3,750 |
|
3,750 |
|
2005 case I assessment £30,390 less C/A £1,719
This example includes a motor vehicle with a total annual mileage 8,000 miles and business related mileage 3,000 miles. There are also 2 adults receiving accommodation and food.
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