Goods and Services Tax (GST) is applied at two rates:
- 5% on the majority of goods and services supplied in Jersey for local use, including imports
- 0% for specific areas
It is collected at each stage of production, manufacture, distribution and sale, where the supplier is registered for GST.
Examples of taxable goods and services under GST are:
- new and used goods, including those under a hire purchase agreement
- rented and hired goods (eg DVDs or cars)
- business stock used for private purposes (eg a shop owner consuming his own stock instead of selling it)
- services (eg hairdressing or hotel accommodation)
- admission charges
- imported goods
Input tax vs output tax
To understand how GST works, you need to understand the difference between output tax and input tax.
'Input tax' is the GST that you pay to your suppliers on goods or services that you buy for your business. You are only allowed to claim input tax on goods and services that are directly related to making taxable supplies to your customers.
'Output tax' is the GST that your customers pay you for goods or services that you sell.
Quarterly vs monthly accounting
When you work out your quarterly accounts, you can offset the GST you've collected from your customers (your output tax) against the GST you've paid on your business costs (your input tax). You only pay us the difference of these two amounts. If your input tax is greater than your output tax, you will be entitled to a credit or repayment.
Although GST accounting is done on a quarterly basis, we can assist the cash-flow of your business if you are regularly entitled to input tax refunds (eg if you are an exporter or property developer) by allowing your business to reclaim its input tax at monthly intervals.
Reclaiming input tax - which goods and services
Examples of the goods and services you can claim input tax on include:
- goods for resale
- raw materials
- processing costs
- capital equipment
- office equipment
- contractor’s fees
Examples of the goods and services you can't claim input tax on include:
- employee wages
- goods or services diverted for your personal use
- private expenses
How output tax can benefit your business
As a GST-registered business, you will hold the tax you have collected from your customers for up to four months before you are required to pay it to us. This money could be placed in a business deposit account to earn interest for your business.
You must remember however, that this money does not belong to your business and should not be used to supplement cash flow.
Example of a GST calculation
First the importer buys a television from overseas for £400 but incurs a further cost of £200 in packaging, transport, insurance fees and other Customs duties. These costs are deemed to be part of the value of the television and, at the time of import, the importer must therefore pay £30 in GST, representing 5% of £600. However, since the importer can reclaim the £30 he paid as GST to customs, the net cost is only £600.
Importer to wholesaler
When the importer adds his mark-up of £200, his selling price to the wholesaler becomes £800, to which GST of 5% (£40) is added, making a GST inclusive price of £840. However, the cost to the wholesaler is only £800, since he is also able to reclaim the £40 of GST.
Wholesaler to retailer
After adding his mark-up of £200 the wholesaler sells the television to the retailer for £1,000 plus 5% GST of £50, making the selling price £1,050. Again, the retailer is able to reclaim the GST of £50, so the actual cost to him is only £1,000.
Retailer to consumer
Finally, the retailer sells the television to a consumer and applies his mark-up of £200, making the selling price £1,200 to which 5% GST (£60) is added. The consumer pays £1,260 (GST inclusive) and pays the full cost of the £60 of GST in the final selling price.
Since all the registered traders involved in the sale have been able to claim back the GST paid on the television, there is no cascading tax effect on the consumer, who does not pay GST on GST.
Each step of this example is illustrated by the table below.
||Total net cost
||GST paid |
|Importer purchases TV
|Importer adds mark-up and sells to wholesaler
|Wholesaler adds mark-up and sells to retailer
|Retailer adds mark-up and sells to final consumer
|Total paid to GST Department