As a small business owner, what are my obligations?

As a small business owner, there’s so much you need to think about. Of course, your focus often remains on delivering the best product and/or service to your customers at a great price, but there are also many other aspects of running a business that you need to know.

Maintaining up-to-date accounts is critical for business success. It helps you to identify your business’s overall health and wealth, but you need to keep accurate accounts for when you submit your annual returns and these records should also be kept for up to ten years too!

There are many tax obligations businesses must be aware of in Jersey to avoid hefty penalties, fines and a negative reputation. This blog discusses some of the key practices businesses must follow in order to run their business in accordance with local legislation and regulations.

Prepare Accounts

The directors of a Jersey company must prepare accounts for a period of not more than 18 months, beginning with the company’s date of incorporation or, if the company has previously prepared accounts, beginning at the end of the period covered by the most recent accounts.

As many business owners probably do not have a good understanding of accounting, it is best to employ an accountant or bookkeeper to prepare your accounts. These should be prepared in accordance with the generally accepted accounting principles of their choice. Although, the accounts of a company must specify which generally accepted accounting principles have been adopted in their preparation.

Annual Returns

Every company incorporated in Jersey must submit an annual company tax return. The standard rate of company tax in Jersey is 0%. Therefore many companies do not have to pay company tax but must submit the return. The exceptions to the standard rate are:
● 10% for certain. See regulated financial service companies on Locate Jersey website
● 20% for utility companies. For example, telephone, gas or electric
● between 0% and 20% for retail companies in Jersey with a retail turnover of £2m and above.
Using the following scale of either:

  • at 0% where profits are less than £500k
  • on a sliding scale from 0% to 20% where profits are between £500k and £750k
  • at 20% where profits exceed £750k
    ● 20% on income specifically derived from trading in Jersey in either:
  • the importation or supply of hydrocarbon oils
  • Quarrying
  • property development
  • property rental

Once your company is incorporated with the Jersey Financial Services Commission, your company’s details will be automatically passed to Revenue Jersey (tax).

Revenue Jersey will register your company for corporate income tax and will provide you with a:
● tax identification number (TIN)
● tax reference
● link to the online filing site, Taxes Office Online Services (TOOS)

This will be sent by post to your company’s registered office address. Under local legislation, your company must submit a corporate tax return every year. The return must be submitted online and you’ll need to be registered with Revenue Jersey for online filing services. For help on how to complete your annual corporate tax return, click here.

Your company must deliver its return for the year of assessment by midnight on 31 December of the following year. If you fail to complete your corporate return by midnight on 31 December, you will likely receive a penalty of £300. If the return is not delivered within 3 months after the deadline you will also be liable to an additional penalty of £100 for each month that the return remains undelivered up to a maximum of 9 months.

Personal Tax Returns

As a business owner, you must also make sure you complete your personal tax return. As you run a business there may be deductions you can apply to your personal tax obligations to reduce your overall tax liability.

Nowadays, the tax department prefers you to submit your personal tax return online. In order to do so, you’ll need your Jersey digital ID and a onegov account.

If you’re married or in a civil partnership, the primary taxpayer is responsible for filing the return and declaring the income for both people.

If you got married or entered into a civil partnership during the year, the primary taxpayer is responsible for declaring their spouse’s or partner’s income from the date of marriage or civil partnership.

You can however elect for separate assessments.

Completing a personal tax return when you run a small business you must keep accurate records of your income and expenditure during the year including:
● your sales and takings
● your purchases and expenses
● Money that is taken out of your business for your personal use

You should complete the self-employment sections on your next Income Tax return. It’s recommended to file online as the form can automatically calculate parts of the self-employment section saving you time.
If you’re a Jersey resident for tax purposes, you must declare your business income from any sources including out-of-Island income arising from any trading activities.

If your income is mainly from self-employment, you’ll be sent a payment on account request.

This means you’ll need to pay your annual income tax in 2 instalments in May and November each year and any remaining balance by 30 November.

The 2 instalment payments will be based on your prior year’s tax bill. Unless you think your tax bill will be less than the prior year’s bill. For example, if you’re not expecting to make much profit in the first year of trading, in which case you can ask for the instalment payments to be reduced.

If you receive self-employment and employed income, and your self-employed income is less than 3 times greater than your employed income, you should expect to pay tax via ITIS instead of by instalments. You can pay your ITIS instalments online via the States of Jersey website.

Tax Relief for Businesses

If you work from home and use your home as an office, there are a number of deductions you
can make to reduce your overall tax liability:

Notional relief as a home office

You can claim a notional £520 for the use of your home as an office. This covers utilities etc. It’s still possible to claim any direct business costs at home in addition to this such as telephone, printing etc.

Claim back the cost of utilities

You can also claim back the cost of your home utilities like electric, water, oil, home insurance, cleaning, and telephone by adding the total annual cost together of all these bills. . You can’t claim mortgage costs in this calculation.

The total amount incurred should then be divided by the number of rooms in the house – but don’t count hallways and toilets as rooms. So if total costs came to £5,000 and you had 6 rooms in the house and one was used for an office the claim would be equate to £833.

Any other home costs that are incurred wholly for business purposes such as office equipment, computers, telephones, printers, desks, chairs etc. should be claimed separately in addition to the home as office claim above.

Other tax deductions include reclaiming the cost of specific uniforms, protective clothing and small tools. You can also reclaim subscriptions that you pay to a professional body on an annual basis or exam fees too.

Social Security

Under Jersey law, all individuals employed (self or by an employer) must pay social security. Usually, if you are employed by a company you have 6% of your salary deducted and paid to the Social Security Department with your company making up the additional 6.5% as an employment cost.

If you run your own business and do not employ others, you as an employee of your firm must also pay social security, this is referred to as Class 2 Contributions. If you are a start-up you have the option to elect for the Start-Up Plan.

What is the Start-Up Plan?

The Startup Plan can help you pay your Class 2 Social Security contributions if you’ve recently started a business and your income will be lower than what you previously earned.

Instead of paying your contributions based on your income from 2 years ago, you’ll pay a monthly rate based on an annual income of £19,056.

How the plan works

The rates and thresholds below are for 2022 and these change every year. You’ll pay a fixed monthly rate of £198.50. This is based on 12.5% of an annual income of £19,056.

In the recalculation of the Startup Plan, we’ll use your annual income. This is the amount of income you receive between January and December, including:
● earned income from your self-employed role
● earned income from employed roles, if applicable
● unearned income, if applicable

If your annual income is more than £19,056, you’ll have to pay an additional 12.5% of the difference up to the standard earnings limit of £57,168.

For example, if your income is £2,000 more than £19,056, you’ll pay 12.5% of £2,000. You’ll be billed for the difference 2 years later when your tax assessment for this period becomes available. Income between £57,168 to £260,688 has a 2.5% rate.

Let’s discuss GST

If your business generates an income in excess of £300,000 you must charge GST on all invoices and submit your GST contributions to Revenue Jersey. GST-registered businesses collect the tax from their customers and then pay it to Revenue Jersey once a quarter.

If you work in retail and sell a lot of high-volume, low-value goods, the GST retail scheme allows you to account for your total quarterly sales instead of your individual sales, reducing your accounting and book-keeping costs.

If you earn less than £300,000 you do not need to register for GST ad apply it to your invoices.

Register with the Data Protection Authority

The chances are you will handle customer data, or if you employ others, staff data too. To ensure you are following the local Data Protection legislation, you are required to register with the local data protection authority. The cost is just £50 but opens up significant support to you to ensure you maintain the security of your customers’ data.

Are you insured sufficiently?

If you are running your own business, it’s really important to make sure you are sufficiently protected. You can do this by purchasing insurance. All businesses must have adequate insurance to protect the business from any claim made by a member of the public (public liability insurance) or a client (professional indemnity insurance).

Insurance when employing staff: If you employ staff, you must also have adequate insurance (employer’s liability insurance) in place to ensure both the company and its employees are suitably protected in the case of a claim following an accident. You should speak with an insurance company to discuss your specific requirements and the premium you are likely to pay.

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