Budget 2011: A summary of the proposed changes
1. Introduction
The purpose of this report is to present a summary of the Minister’s budget proposals relating to the following enacting legislation ahead of lodging on 26 October:
· Finance (2011 Budget) (Jersey) Law 201-
· Income Tax (Amendment No. 37) (Jersey) Law 201-
· Goods and Services Tax (Amendment No. 3) (Jersey) Law 201-
· Goods and Services Tax (Miscellaneous Amendments) (Jersey) Regulations 201-
The legislation will be lodged along side the “EXPENDITURE PROPOSALS FOR 2012 AND 2013 AND DRAFT BUDGET STATEMENT 2011” which in turn will be agreed with the Minister later on 21 October.
2. Proposals
Income Tax Proposals
Submission of company accounts - Jersey resident shareholder declarations
Currently accounts may be submitted voluntarily in support of personal tax returns. It is proposed that the law be amended to make it a requirement for the Jersey resident shareholders of Jersey companies to submit a copy of the company accounts in support of their shareholder declarations. This will enhance the Comptroller compliance check on the Jersey resident shareholders.
Late filing fee for company tax returns
It is proposed that the law is amended to introduce a late filing fee for the late submission of company tax returns. The fee will be £250 and the deadline date and time will be 6.00pm on the last Friday in July. This fee is the same for personal tax returns.
Provision to raise an additional tax assessment
It is proposed that the law is amended to allow the Comptroller to raise an appropriate additional assessment to income tax on any person who refuses to supply any document or information required in support of any declaration made on their income tax return.
Calculation of ITIS effective rate
It is proposed that the law is amended with regard to the calculation of the ITIS effective rate to statutorily factor in any significant shortfall in the collection of tax due on employment income. This tends to happen when an individual’s earnings increase significantly. This will ensure that the tax is collected earlier, avoid the individual falling into arrears and potentially reduce the level of tax written off when an individual has left the Island leaving tax outstanding.
Profits arising from the exploitation of land
It is proposed that all profits arising from the exploitation of land in the Island are brought within the 20% tax charge under Schedule A, which already brings into charge to tax all profits and gains arising from rents and other receipts arising from land.
Increasing compliance for non-resident landlords
Certain non-resident landlords with rental income arising in Jersey are not fulfilling their tax obligations by failing to pay the tax due on their rental income. It is proposed that the law be amended to empower the Comptroller to order any tenant to deduct tax when there is a non-compliant non-resident landlord, to ensure Jersey tax relating to rental income, including any arrears, is collected.
Amendments to occupational and private pensions tax legislation
Various amendments are proposed to ensure greater clarity in, and to remove ambiguities from, the current pensions tax legislation.
Calculation of deemed interim dividend
This proposal will make it easier for many Jersey resident shareholders of Jersey trading companies to complete their tax returns. The calculation of deemed interim dividends will now factor in all cash dividends paid out of the same relevant profit by the 31 December of the following year.
The shareholder will now declare on their personal tax return:
· the deemed interim dividend
· the cash dividend
There will be no longer a need to declare a tax credit. It will not result in any more or less tax being paid.
Calculation of profits for attribution
This proposal will also make it easier for many Jersey resident shareholders of Jersey investment companies to complete their tax returns.
The shareholder will now declare on their personal tax return:
· the attributed profit less the cash dividend paid
· the cash dividend
There will be no longer a need to declare a tax credit. It will not result in any more or less tax being paid, nor the timing of when that tax is due and payable.
Calculation of deemed interim dividends following the sale of shares
The profits of a Jersey company for the periods to and from the date of transfer or sale of the shares may be significantly different. It is proposed that the law is amended to provide for an alternative calculation of deemed distributions by reference to the periods to and from the date of transfer or sale of the shares in order to produce a more equitable apportionment of the taxable deemed distributions. A similar amendment is proposed where a court orders the disposal of shares.
Payment of tax by trustee
The law currently provides that, where a trust owns shares in a Jersey company, the Comptroller shall assess the trustees of the trust as agent of a Jersey resident beneficiary in respect of any tax due on deemed distributions or attributed profits. It is proposed that the law is amended to provide that the Comptroller may instead assess the Jersey resident beneficiary of a trust on deemed distributions or attributed profits if the trustees fail comply with the provisions as set out in the law.
Profits arising from importation of oil and related products
It is proposed that all profits arising to companies importing oil into the Island to be used as fuel for vehicles, boats, aircraft and heating are brought within the 20% tax charge currently levied on utility companies under Article 123C(3).
Exemptions
The Minister proposes to increase the Income Tax Exemption limits for the Year of Assessment 2011 by 1.1% (the increase in average earnings in 2010) which will mostly affect individuals and tax revenues in 2012.
Exemption Thresholds for Year of Assessment 2010 and 2011
<><> | 2010 | 2011 |
Single Person | £12,650 | £12,790 |
Single Person (aged 63+) | £14,110 | £14,270 |
Married Couple | £20,280 | £20,510 |
Married Couple (aged 63+) | £23,220 | £23,480 |
Allowances
The established “20 means 20” provisions will result in the fifth and final year of the withdrawal of tax allowances in 2011 for those on higher incomes.
The allowances for year of assessment 2010 and 2011, as proposed under the ‘20 Means 20’ measures, are shown below.
Proposed Allowances for Year of Assessment 2010 and 2011
<><> | At Marginal 27% rate | At Standard 20% rate |
<><> | 2010 | 2011 | 2010 | 2011 |
Single Person | N/A | N/A | £520 | £0 |
Married Person | N/A | N/A | £1,040 | £0 |
Earned Income (max) | N/A | N/A | £680 | £0 |
Wife’s Earned Income (max) | £4,500 | £4,500 | £900 | £0 |
Child Allowance | £3,000 | £3,000 | £3,000 | £3,000 |
Child Allowance (higher education) | £6,000 | £6,000 | £6,000 | £6,000 |
Additional Allowance* | £4,500 | £4,500 | £4,500 | £4,500 |
*for people with single-handed responsibility for children
Goods and Services Tax Proposals
Increase the GST rate from 3% to 5%
The proposal is to increase the GST rate from 3% to 5% from 1 June 2011.
A commitment was made not to increase GST for three years following its introduction in May 2008 and that commitment will be met.
The proposal maintains its broad-based coverage with few exclusions by zero-rating or exemption. If further exclusions were introduced the tax system would become more complicated, the compliance costs for business and the administration costs for the States would both increase, and a higher rate would be required to generate the same revenue yield.
Protecting the less well-off in our society from the impact of GST is maintained in this proposal and the income support system and GST bonus adjusted accordingly.
As was the case when GST was introduced, the Treasury Minister recognises the difficulties faced by the Jersey hospitality industry (in particular hotels) in providing prices to tour operators for accommodation in Jersey before the proposed increase in GST can be approved. The Minister would allow a similar concession which in effect will delay the imposition of the 5% rate to this sector until 1 January 2012.
Transfer of going concern (TOGC)
Amendments are proposed to provide greater clarity for what are intended to be business friendly provisions that apply to GST registered businesses.
Value of gift not subject to GST
It is proposed that the value of a gift before it is treated as a supply (and taxable) for GST purposes should be increased from £10 to £100.
Powers and penalty
Amendments are proposed to the late return penalty and late payment surcharge which based on live tax experience are considered to fall disproportionately on smaller GST registered businesses.
Adjustments by the use of tax credit and debit notes and supplies by agents
Various changes are proposed to provide greater flexibility for the business community.
International Services Entities (ISE) Fees
The proposal is to increase the £100 ISE fee to £200 from 1 January 2011, raising in the region of £3 million a year.
This proposal if agreed by the States would bring the total annual statutory fees payable by international companies to £350, which is broadly in line with our closest competitors.
Impôts Duty Proposals
Alcohol
The Minister proposes that the duty on alcoholic beverages should rise by 6.2%. This would raise an additional £1 million per year.
Tobacco
The proposed new duty rates are 11.1% higher than the current rates which would raise an additional £1.3 million a year.
Fuel
The Minister considers it appropriate to propose a 4.9% increase for 2011 which would raise an additional £1 million a year.
The Minister’s proposals are summarised in the following table.
Duty increases proposed for 2011
| Current duty | Proposed duty | Increase |
Litre of Whisky @ 40% | £9.37 | £9.95 | 58 pence (+6.2%) |
Bottle of table wine | £1.12 | £1.19 | 7 pence (+6.2%) |
Pint of beer/lager < 4.9% abv | £0.28 | £0.30 | 2 pence (+6.2%) |
Pint of beer/lager > 4.9% abv | £0.42 | £0.45 | 3 pence (+6.2%) |
20 King Size cigarettes | £3.15 | £3.50 | 35 pence (+11.1%) |
Litre of unleaded petrol | £0.41 | £0.43 | 2 pence (+4.9%) |
Litre of Diesel | £0.41 | £0.43 | 2 pence (+4.9%) |
Stamp Duty Proposals
Stamp Duty Rates
Further bands of stamp duty for higher value properties of over £1m are being proposed. This applies to wills of immoveable estate as well as freehold property transactions.
Proposed changes to stamp duty and LTT rates
Property value (£) | Current | Proposed |
0 - 50,000 | 0.5% | 0.5% |
50,001 - 300,000 | 1.5% | 1.5% |
300,001 - 500,000 | 2% | 2% |
500,001 - 700,000 | 2.5% | 2.5% |
700,001 - 1,000,000 | 3% | 3% |
1,000,001 - 1,500,000 | 3% | 3.5% |
1,500,001 - 2,000,000 | 3% | 4% |
>2,000,001 | 3% | 5% |
A discount is available to a “first-time buyer” purchasing a property up to £400,000 and for any buyer through the “Jersey Homebuy” scheme. These will continue to apply to freehold and share transfer transactions.
Land Transactions Tax (Share Transfer)
Further bands of Land Transactions Tax for higher value properties of over £1 million are being proposed so that it remains consistent with stamp duty.
Judicial fees
Judicial fees are charged for court services such as for the acknowledgement of debts and matrimonial causes.
It is proposed that all judicial fees are increased to reflect more closely the actual costs incurred. Many have not changed since 2004. Typical increases in fees are from £50 to £60 or from £100 to £120.
There are also a number of changes proposed to the way fees are collected to reduce the difficulty in collecting payments in certain situations.
3. Resource implications
Financial Implications
The financial implications of the Budget proposals are summarised as follows:
· GST
o The proposed 2% increase in GST to 5% from 1 June 2011 is estimated to generate £16 million.
o An increase in ISE fees will generate £3 million.
· Impôts Duty
o The proposal to increase impôts duties is estimated to generate additional States income of £3.3 million in 2011. This is made up of:
· £1 million from fuel duty;
· £2.3 million from alcohol and tobacco duty;
· Stamp Duty and Land Transactions Tax
o The introduction of the proposed increased bands for properties of £1 million and above will generate an estimated £1 million.
Manpower Implications
The proposals within the Budget Statement 2010 will be implemented without any increase to current approved manpower levels.
4. Recommendation
That the Minister approves the legislation that will enact the 2011 Budget proposals described in this report. The legislation is to be lodged alongside the Budget Statement (to be agreed 22 October) on 26 October.
Tax Policy Advisor
Treasury and Resources Department
gov.je