Last week we discussed the financial obligations of self-employed persons for income tax, National Insurance Scheme (NIS) and National Housing Trust (NHT). This week we’ll complete our look at all the various taxes that the self-employed are responsible for paying.

Education Tax

Self-employed persons are required to pay two per cent of their statutory income in education tax every month. If you’re new to business you’re probably unsure of exactly how much income you may earn for the year, or initially you might not earn any net income at all.

The amount of education tax you pay will be based on the expected taxable earnings that you indicated in your estimated income tax return form, so it’s best to be conservative with this estimation.

It’s interesting that although there are constant reminders about paying your income tax, you hardly hear about your responsibility to pay education tax. In fact, I discovered that even the Inland Revenue Department seems a little ambivalent about when this tax should be collected.

I was told that many self-employed persons only pay education tax once per year when they submit their annual income tax returns.

I asked about the penalty cost, as the education tax form has a section that requires you to fill in late payment charges. The agent at the tax helpline admitted that although there was no specific penalty for late payment, you could be assessed and fined a flat charge.

However, if you need to get a Tax Compliance Certificate, monthly payments are definitely required. My advice would be to pay it monthly, so that later on you’re not burdened by unexpected penalty charges.

General Consumption Tax (GCT)

There is some amount of confusion about which businesses should collect GCT. Under the GCT Act, persons engaged in a taxable activity are required to apply for registration. However there are some people who are exempt from registering. An exempt person, as outlined on the Jamaica Tax Administration website, is “anyone engaged totally in the following:

• any activity carried on essentially as a private recreational pursuit or hobby;
• any engagement, occupation or employment under any contract of service or as a director of a company;
• any sale of goods or service, which is exempt from the GCT.”

Persons have up to 21 days after commencing operations to apply for GCT registration, and failure to do so can result in a fine. On the GCT application form it asks you to indicate your expected monthly and annual sales amount. If you put in an annual sales figure that’s more than J$1million, you will be registered on the system as a registered taxpayer and you must collect and remit GCT.

Registered Taxpayers can claim an input tax credit for the GCT paid on purchases directly related to providing the taxable goods and services. If the GCT charged on sales is more than the GCT paid out, the difference is to be paid to the Inland Revenue Department. If it is less, the registered taxpayer may claim a credit or refund.

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If you indicate that your annual sales will be less than J$1million, then you will be recorded as a registered person. In this case, you will not collect GCT in your business, but you’ll have to pay the tax on purchases of goods and services, without being eligible for credit. Even if you don’t qualify, you can request to be listed as a registered taxpayer, which will be subject to approval by the Commissioner. The benefit would be that you could set off your GCT input charges against GCT collected. The downside would be the additional reporting requirements.

If within your initial 12 months of operating, your sales reach J$1million, you are required to write a letter to the GCT registration unit at East Street in Kingston, stating that your turnover for the last ‘x’ months has reached the threshold, and that you wish to be upgraded to become a regular taxpayer. Once approved, you should immediately start charging and paying GCT.

It’s best to seek an accountant to help you to understand your GCT obligations and to set up systems that will make the filing of returns simpler, as there are severe penalties for late payment. You can also read more in the guide to GCT located at www.jamaicatax.gov.jm

One combined tax needed

The information given above and in the previous columns should give you a good idea of what your tax obligations will be in starting a business. Note that if you’re self-employed with employees, you have other taxes like HEART, so ensure that you contact the relevant offices for more details.

For most self-employed persons, who are trying to learn their own businesses and keep their heads above water, it can be very time-consuming and confusing to keep track of all these taxes. As someone who is struggling to cope with all these requirements, I really look forward to a day when tax reforms can institute a system with just one tax to be paid. This will give us more time focus on our core business – making money!