Filing Problems

Filing Problems - The increased burden on Jersey companies

With the impact of the Zero/ten legislation now being felt following the completion of 2009 annual accounts, the burden imposed on Jersey companies by financial returns is more than ever. Don Connolly, audit & accounts partner, wrote the following article for the Jersey Evening Post Law & Accountancy review in February to outline the responsibilities of Company Secretaries.

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The New Year has brought yet more challenges for directors and secretaries of Jersey companies and highlights the need to keep timely and accurate records of a company’s affairs. No longer is it possible, as was the case in some instances, to wait up to ten months to prepare company financial statements in order to calculate a company’s tax liability for the previous year.   It is now imperative to keep up to date records which enable the officers of a company to file all the returns which have become requirements in recent years.

Benefits in Kind and ITIS Returns

Previously, all companies had to contend with in the way of filing financial returns was to submit a quarterly Social Security return to the Social Security Department.  This details their employee’s remuneration in order to ascertain the contribution to be paid by the company and the employee.   In 2004 it became obligatory to commence filing annual returns of employees ‘Benefits in Kind’.  This requires employers to be able to put a monetary value on benefits that they and their employees receive.  In 2006, following the introduction of the Income Tax Instalment System, came the requirement for employers to start deducting a set amount from their employees’ salaries and wages and pay this across to the Income Tax Department.  At the same time as this payment is made they need to file monthly ITIS returns which sets out the remuneration of their employees and the tax deducted.  Due to changes in individuals’ circumstances, the rate of deduction of tax from employee’s remuneration will often change through the year, necessitating employers having to amend standing orders to employees and updating paperwork.

GST Return

In May 2008 we had the introduction of the Goods and Services Tax which impacted on companies with taxable supplies or sales of over £300,000.  This requires those affected companies to charge GST on their sales, but they are then allowed to offset this with GST incurred on their expenses.  The balance of the GST is then paid to the Comptroller at the same time as a quarterly return is filed.  Initially, many companies had difficulties filing these quarterly returns, as not only did they have to ascertain the impact of the Law to their business activities, but many did not have the required book-keeping skills or facilities to record such data.  For some, this required investment in accounting software to assist them with this function, and for others this required the recruitment of skilled staff to assist them with their duties.  Even for those companies under that £300,000 threshold, a monthly check is required to ascertain whether their turnover in the preceding twelve months has crept over the limit.  If this does occur then they must register immediately with the GST department and commence charging GST on their sales.

0/10 Return

For many, the impact of the introduction of the new 0/10 tax legislation is only now beginning to be felt, as Jersey resident shareholders become aware of the fact that tax on company profits will no longer be paid by their company but is due by them individually.  As the majority of financial year ends of Jersey companies are 31 December, the 0/10 legislation is impacting for the first time following completion of the 31 December 2009 year end accounts. 

For trading companies in the island the taxation of profits has become much more complicated than under the old system with the introduction of deeming provisions. In the event that no dividend is distributed, shareholders will initially be assessed on 60% of the company’s profits, with the balance being deferred until the occurrence of certain trigger events. This is shown by the simple example below for a trading company with one shareholder which has profits of £10,000 in 2009 and pays no dividends:

Whilst the total tax payable is unchanged, the remaining liability will be due on the occurrence of a trigger event, which include the following:-

• The profits are paid to the shareholder by way of a dividend;
• The shareholder sells or transfers their shares;
• The shareholder becomes non-Jersey resident;
• The death of the shareholder.

The above highlights the need for the Company Secretary to keep track of these profits which have not yet been subject to taxation and may not be assessed for many years.

This year, companies have to submit to the Comptroller of Income Tax a revised income tax return entitled ‘Return of Income by a Limited Liability Company’.  This form is the responsibility of the Company Secretary, and needs to detail the following:

• Rate of tax the company is subjected to;
• Individual Jersey resident shareholders of the company, their addresses, the number of shares they hold and how long they have held them in that year;
• Dividends paid to shareholders, be they actual or deemed;
• Attributed profits;
• Movements in any shareholder loans.

Therefore it is now necessary for the Company Secretary to keep accurate records of the profits made by their company in order to inform the shareholder of their attributed profits, and actual or deemed dividends which will occur in the future.

At Alex Picot, we recommend that professional advice is obtained to ensure companies, their officers and their shareholders are made fully aware of their responsibilities and the tax impact on their financial affairs.