ITIS rate calculations (FOI)

​Request

With the decision to move all tax payers onto current year basis, it has highlighted the method by which the effective ITIS rate is calculated and the potential for overtaxing some taxpayers, with them having to wait until the following year to claim this back.

The purpose of this question is to identify how many people this affects and to what extent.

A

How many Tax assessments are expected for 2020?

B

How many of these have been processed?

C

How much tax had been overpaid? (of those tax assessments which have been processed)

D

How many assessments had overpaid?

Please break this down into more detail:

a) Number of Assessments 0-£499 Overpaid

b) Number of assessments £500-£999 Overpaid

c) Number of assessments Over £1000 overpaid

E

How much Tax had been underpaid?

F

How many assessments had underpaid?

Please break this down into more detail:

a) Number of Assessments 0-£499 underpaid

b) Number of assessments £500-£999 underpaid

c) Number of assessments Over £1000 underpaid

G

How much money is Revenue Jersey holding of overpaid tax, either from 2020 or any previous years.

Response

The Income Tax Instalment Scheme (ITIS) was introduced in 2006 to help people accrue sufficient funds to settle their annual tax bill. In 2006, new taxpayers began to pay on the Current-Year Basis while existing taxpayers continued to pay a year in arrears, but with monthly payments – the Prior-Year Basis (PYB) of paying taxes which was removed in 2020. Previously, islanders faced an annual tax bill and many of them chose to join “thrift clubs” to save money up over the year to pay that year’s tax bill in arrears.

The Scheme is a “blunt instrument” – and can be less precise, for example, than the UK’s PAYE system (which still generates large numbers of credit and debit balances annually), because of a number of factors including the “Prior-Year Basis” (PYB) of payment (now removed – with the 2019 PYB liability effectively frozen for later payment); the way so-called “married-people’s taxation” operates (plans to abolish this and move to “Independent Taxation” are being developed); the degree of volatility arising when people’s circumstances change – essentially changes in income, marriage or numbers of children) all of which affect Marginal Relief calculations; and the number of domestic and / or worldwide income streams which taxpayers have.

For taxpayers with simple tax affairs (eg one income from a Jersey employer, no investment income and no changes of circumstances in-year), the calculation of the ITIS “Effective Rate” set out in the Income Tax Law – which determines monthly deductions from salary - is geared to generate a potential overpayment of tax by rounding up the Effective Rate to the next whole number. It is more probable than not therefore, that more taxpayers will have a credit balance on their tax account when their previous-year’s tax assessment has been finalised. (This is not unusual – tax instalment schemes in other jurisdictions operate similarly.)

This credit balance will usually be factored into the calculation of the (next) current year’s ITIS Effective Rate, resulting in lower deductions from salary. Taxpayers can – and do – request repayments of any credit balance in respect of ITIS but always need to bear in mind that this will immediately lead to a revision of their Effective Rate for the current year and could increase the monthly deductions from salary needed to meet the current-year tax liability.

The Treasury Minister is aware that the current calculation set out in the Income Tax Law can lead to some large overpayments and has identified an improvement which she proposes to lodge as part of the draft Finance Law giving effect to her Budget for 2022 which will be set out in the forthcoming draft Government Plan. Revenue Jersey’s website provides information on how to check whether a tax account is in credit or debit after the finalisation of the tax assessment for the 2020 year of assessment.

As part of the publicity around the removal of the Prior Year Basis of paying taxes, PYB taxpayers who participate in ITIS were urged to file their 2020 tax return as early as possible in order to benefit from a reduced ITIS Effective Rate (where relevant) or to benefit from a repayment. Non-ITIS taxpayers (who “Pay on Account”) similarly could benefit from the cancellation of the second tax payment they were due to make in November 2020.

A

Revenue Jersey estimates that around 65,000 individual taxpayers (payment on account and ITIS) may be required to file for the year of assessment (YOA) 2020.

B

As at 10 June 2021, approximately 28,300 tax returns from individual taxpayers (payment on account and ITIS) had been processed.

C, D, E and F

Notes on table

• data extracted as at 10 June 2021

• taxpayer count rounded to the nearest hundred, amounts rounded to the nearest £100k

• the table reflects only taxpayers that have a positive 2020 tax liability and pay their tax through the ITIS system

• the figures provided are a best estimate but have not been subject to audit at this time

Further explanatory notes

• taxpayers can see the amount of overpayment or underpayment of tax at the time of issue of the 2020 assessment by reviewing the effective rate calculation accompanying the assessment.

• the exceptions to the bullet immediately above are in cases where:

• ITIS taxpayers have requested a “special” rate – these might be taxpayers that have requested an enhanced effective rate due to a change they are anticipating in their circumstances

• ITIS taxpayers are on a rate which has been adjusted downwards due to exceptional circumstances such as hardship

• in cases where the effective rate includes an overpayment this will, at that point, have been taken into account to calculate the effective rate to apply for the rest of the year. The taxpayer therefore benefits from a reduced effective rate for that period. A taxpayer can, as an alternative, request a refund or for the overpayment to be set off the frozen 2019 liability. In both cases the effective rate for the rest of the year will need to be increased to collect the estimated 2021 tax due. For more information on the PYB tax reform and the options should a taxpayer account be in credit see the following link:

 Prior Year Basis (PYB) Tax Reform (gov.je)

• where the effective rate notice shows a figure of arrears or an underpayment it should be noted that the taxpayer still has until 30 November 2021 to settle the outstanding 2020 tax liability

• overpayments and underpayments shown on the effective rate notices are cumulative - they reflect arrears and overpayments held from previous years

• ITIS operates to help employed taxpayers make regular payments towards their estimated tax liabilities. It is not a direct payment against any assessed amount. As such it is inevitable that on calculation of an individual’s personal assessment the amount collected under ITIS will not match exactly the tax liability and so underpayments and overpayments will generally occur.

• in the case of taxpayers that were paying tax on a prior-year basis, before the changes made in 2020 to put all taxpayers on a current-year basis, some taxpayers will have requested changes to their effective rates driven by their expectation of their 2019 tax liability – so will not necessarily reflect the 2020 year of assessment position

• there are further reasons that taxpayers will have underpaid or overpaid their tax as follows:-

For overpayments:

• where a taxpayer has voluntarily increased their ITIS effective rate as part of their planning toward a change in their circumstances (for example retirement, anticipated additional income)*

• additional non-ITIS payments made by the individual (this may include payments the taxpayer has intended to go to their suspended 2019 liability but has not informed Revenue Jersey yet)*

• changes in circumstance (e.g. reduced employment income, increased allowances) ahead of those changes being notified to Revenue Jersey

For underpayments:

• the individual being in receipt of other sources of income not subject to ITIS deductions

• changes in circumstance (e.g. increased employment income or no longer entitled to allowances) not notified to Revenue Jersey

• incorrect over-declarations of income on tax returns (including the declaration of pence on forms where pounds only are required)

(NB – the reasons for an individual overpaying or underpaying tax are not recorded on Revenue Jersey systems so it is not possible to quantify the amount involved for each criteria shown above).

G

Revenue Jersey estimates that credit balances to the approximate value of £16.5m have not currently been repaid (part of this will be for reasons intended by the taxpayer – see * above) and these will, currently, be being used to reduce ITIS effective rates.