Self-Employed

Information for Individuals who are self-employed or operate their own business and need to know what are their rights and responsibilities as a taxpayer.

TRN requirements for sole proprietors
Filing Income Tax returns
Income Tax Payments
Income Sources
Deductions Allowed
Deductions Not Allowed
Capital Allowances
Business Losses
Income Tax Threshold and Rates
Calculation of Tax Liability
Powers of the Commissioner General
Good Record Keeping Records
Applying for a TCC

 

TRN requirements for sole proprietors

A Sole Proprietor (excluding companies) must submit a completed and signed ‘Application for Taxpayer Registration (Individuals) – FORM 1’ with the following:
 

    •  Valid ID. Any of the following types of ID may be used.
      • Passport
      • Driver’s Licence
      • National ID, Work ID, School ID, certified passport-size photograph or any other photographic ID which MUST be accompanied by a certified copy of the Birth Certificate and Marriage Certificate (if applicable). If applicant’s name was changed by Deed Poll, the Deed Poll is required.
    • National Insurance Scheme (NIS) Card
    • Business Name Registration Certificate (BNRC) – if business has a Trade Name

If the applicant’s trade name is different from his given name, the trade name/business name must be registered at the Companies Office of Jamaica (COJ), under the Business Names Act. If the individual already has a TRN, ONLY the Additional Information (Individuals) Form should be completed.

 

Filing Income Tax returns


Individuals are required to file Income Tax Return - IT01 which include:
 

    • Self-employed
    • Employed persons with other income (including pensioners)
    • Partners (showing share of partnership profits) - IT01 & IT03

Provided income from all sources in any year of assessment exceeds the tax free income (threshold) of $796,536. (Year of Assesment 2016) Individuals are required to file a tax return by March 15:
 

    • A final income tax return for the previous year (IT01)
    • An estimated income tax return for the current year - (ITO7)

NB. A partnership is not taxable, but a partnership return (IT03) should be filed showing the partnership income and its distribution.Each partner’s return must include the share of the partnership profit.All returns filed for each partner should have a Taxpayer Registration Number (TRN).

 

Income Tax Payments


The previous year’s tax liabilities should be paid by March 15 and estimated tax paid quarterly by March 15, June 15, September15 and December 15.  This may be paid at any Tax Office.

 

Income Sources


Income includes profit or gain from business,trade, profession, vocation, rent, interest, dividends, farming, etc.
 

Examples of sources of income:
 

    • Sale of goods
    • Fees received from rendering services/subcontracts
    • Farming
    • Mini-bus/taxi service
    • Rent

Examples of Professionals(operating in private practice)
 

    • Doctors
    • Lawyers
    • Accountants &
    • Engineers

Deductions Allowed
 

    • Wages and salaries for staff
    • Rental paid for business premises.
    • Interest paid towards bank loans/overdrafts used for business purposes.
    • Insurance-fire/theft.
    • Transportation expense.
    • Other expenses incurred in the production of business income.

 

Deductions Not Allowed
 

    • Private/domestic expenses
    • Capital expenses
    • Depreciation

(See section below on Capital Allowances)

 

Capital Allowances
 

Businesses and Individuals can claim tax allowances, on certain assets acquired and used in earning their income.These allowances are given for income tax purposes instead of depreciation and for the wear and tear of particular assets. This means you can deduct a portion of the cost from your taxable profit and reduce your tax obligations.

 

There are five (5) types of Capital Allowances:

  1. Investment Allowances: This is given in place of an Initial Allowance to some types of expenditure.
  2. Initial Allowances: This is given for one year only, the year of purchase.
  3. Annual Allowances: Is given year by year as long as the asset continues to be used for the purpose of the taxpayer business.
  4. Balancing Allowances: Is given or taken back when the Asset is sold or ceases.
  5. Balancing Charges: To be used for business purposes.

 

These allowances are designed to ensure that over the life of the asset the total allowed by way of Initial and Annual Allowance does not exceed the original cost less the selling price on disposal.

 

Capital Allowances may be applied to an Asset over three(3) stages of its life:
 

Stage 1 - Acquisition: When asset is purchased it is qualify for Initial or Investment Allowance.
 

Stage 2 - Period of Use: Asset was in use during the year of assessment qualifies for Annual Allowance.
 

Stage 3 - Disposal: Sale or disposal of an Asset qualifies for Balancing Allowance orBalancing Charge.

 

The Types of Expenditures that Qualify for Relief are:
 

    • Industrial Buildings and Structures
    • Non-residential Buildings
    • Plant & Machinery
    • Mines, Oil Wells, etc.
    • Scientific Research
    • Patents

 

Some Non-Qualifying Industrial Building in that no capital allowances are to be given for any building which is used as:
 

    • dwelling house
    • retail shop
    • showroom
    • hotel or an office

 

Where a part only of the whole of a building comes within the above categories and the cost of constructing that part does not exceed ten percent (10 %) of the cost of the whole, the whole of the building qualifies(provided of course, that the trade qualifies)example where a building is used in a qualifying trade half as a workshop and half as an office, the half in use as workshop is an ’an industrial building’ the other half is not.

 

Items that do not depreciate or suffer wear and tear cannot be given Capital Allowance,they have infinite useful life. E.g. Books,reference materials such as ‘Laws of Jamaica’.

 

To claim capital allowances, a Schedule 2 – ‘Capital Allowance Schedule must be completed and attached to the taxpayer yearly return. Capital Allowances must be claim on the ‘cost’ of the asset. If an asset was ‘revalued’ the allowance must have been claimed on the original cost and should have been claimed in the year of acquisition.


 

Business Losses


Losses from a business can be set off against the total income from all sources received in the current year.If a loss cannot be fully offset, the balance may be carried forward indefinitely.

 

Income Tax Threshold and Rates


 

Calculation of Tax Liability
 

Total income less business expense,and then subtract nil rate. (Tax at 25%)

 

Total Income $2,000,000
Less Business Expenses $ 650,000
Statutory income $ 1,350,000
Less nil rate (2016) $796,536
Taxable income $ 553,464
Tax (25% X $792,768) $138,366

 

Powers of the Commissioner General

 

The Commissioner General is empowered by the Income Tax Act to make assessments in the absence of proper records, documents and information.This can be done at any time within six(6) years after the end of the chargeable year of assessment.To verify tax liability(ies), return (s) maybe randomly selected for audit.

 

Good Record Keeping

  1. Well-kept records may shorten the length of time an income tax audit takes to be completed.
  2. Can help you get loans from banks and other creditors.
  3. Keeps you better informed about the financial position of your business.
  4. Can mean tax savings, as it can be used as a reminder of deductible expenses and credits
  5. Can help to verify all your business expenses for tax audit purposes.

NB. In filing your annual return, income from all sources must be included. If you are also employed, any tax deducted by your employer is allowable as a credit against your liability.

 
 

Applying for a TCC

 

GART Rates