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Prior Year Basis (PYB) Tax Reform Proposal

Paying tax for the previous year

Around two-thirds of taxpayers currently pay their tax for the previous year in the current year. For example, in 2020, these taxpayers are currently paying for their 2019 tax liability through their 2020 earnings. For tax purposes, this is known as Prior Year Basis (PYB). 

This method of paying tax in arrears means that, if a person’s circumstances change, it is not reflected in the deductions made from their wages until at least a year later. For example, if their income reduces during 2020, their wage deductions would actually need to increase to pay off their 2019 tax bill.

For many people this creates a strain on their finances.

The two phases of PYB Tax Reform Proposal

The PYB Tax Reform Proposal would be delivered in two phases: 

Phase 1 

Through an Amendment to the Income Tax (Jersey) Law 1961, to be debated by the States Assembly in November 2020, affected Islanders would be moved onto the Current Year Basis (CYB) taxpayer status. CYB taxpayers pay tax from the income they earn each year towards the tax they would owe for that same year. So, this year, they would be paying the tax they owe for 2020. If the amendment is approved, Revenue Jersey would need to make the following changes from December 2020: 

  • ‘freeze’ all PYB taxpayer 2019 tax bills for a number of years when payments would begin
  • move all PYB taxpayers’ payments made this year to count towards their 2020 rather than their 2019 tax bill
  • calculate and confirm the exact liability for PYB taxpayers for 2020 in 2021, once PYB taxpayers have completed and submitted their 2020 return

From January 2021, all Islanders would pay tax on a CYB. 

Phase 2 

Through a set of Regulations, to be debated by the States Assembly in spring 2021, details would be set out for how PYB taxpayers would pay their frozen 2019 tax liability. A customer feedback survey and customer focus groups in November, will help inform the work to finalise the payment plan Regulations. 

After a period of time, the 2019 bill will be payable over a manageable number of years.

Benefits for customers with reduced 2020 income 

Income Tax Instalment System (ITIS) taxpayers 

Taxpayers paying by ITIS have a percentage effective rate based on the income they most recently declared to Revenue Jersey. 

Example: A customer earnt £30,000 in 2019 and has a £4,000 tax bill that their 2020 ITIS payments will cover: 

  • their monthly salary is £2,500, and they need to pay £333.33 per month for 12 months to cover their bill
  • Revenue Jersey calculates that they need to pay 14% of their salary each month, £350pm, to cover their bill (ITIS rates are set at 1% increments, so in this case there would be a slight overpayment)
  • unfortunately, the customer then had a significant drop in income from March onwards. Their income for this year is now likely only to be £20,000
  • with no intervention, the customer would continue paying 14%, but of a smaller salary: £233.24pm from £1,666pm. They would be paying about £100pm less than the required amount. This would leave £1,000 of unpaid tax at the end of the year

Under the proposal, all ITIS payments made this year would go towards the tax on their income they’ve earnt in 2020, not 2019, so they would no longer have a shortfall to worry about.

‘Pay on Account’ taxpayers

Anyone who receives the majority of their income from non-employment sources (such as rental income, self-employment, investment income, etc.) is asked to pay their tax in two instalments, one in May and one in November.

Example: A customer earnt £30,000 last year and their tax bill that they are paying off this year is £4,000: 

  • they were not able to make their May payment as their business was closed, but they are trading again, and their income is likely to be £18,000, creating a tax liability for 2020 of just £550
  • without intervention, the customer would be due to pay £4,000 in November to cover their 2019 tax bill in full

Under the changes, the 30 November 2020 payment deadline is deferred (although we encourage those who can afford it to pay in November as normal).

The 10% surcharge would not apply to anyone in November 2020. We will ask taxpayers to make a second payment towards their 2020 tax bill by 31 May 2021, based on half of their 2019 liability.

The final deadline for payment of the 2020 liability would remain at 30 November 2021.

If you are receiving a pension

Islanders who are no longer in employment, and whose income is primarily from a pension or other sources such as property rental or investments, will be largely unaffected by the changes we are making. They are ‘Pay on Account’ customers, and for most the only change will be to the dates they make their two payments towards their annual tax bill.

Some customers may have seen a drop in income due to falls in investments or suspension in rental income, and could take up the option of not making the November payment this year. 

If you're already switching to Current Year Basis (CYB)

It is common for customers to voluntarily increase their tax payments, over and above what is required by law. People do this to plan ahead, so they have a credit balance when they need it later on. A common example is people who increase their ITIS rate in the years approaching retirement, meaning they’ll have less to pay when their only income is from a pension. 

Don’t worry if you’re trying to build up a credit by increasing your tax payments. In 2021, once the changes are made to taxpayers’ accounts, you can move any credit balance to your 2019 tax bill to reduce the amount frozen, or you can request a refund and then set up a payment plan for the full amount of tax when the time comes. We'll give clear advice on how to request this in due course.

Payment options

The terms for the payment of the 2019 bill are being developed and will be published before the debate on 3 November 2020.

Communications to taxpayers

The Treasury and Resources Minister has written to PYB and CYB taxpayers. Copies of these letters, and the leaflet that was sent to PYB taxpayers, are available below, along with Easy Read documents.

Prior year tax to current year leaflet

English

Portuguese

Polish

Romanian

PYB to CYB clear text leaflet - English

Letter sent to prior year taxpayers 

English

Portuguese

Polish

Romanian

Letter sent to current year taxpayers

English

Portuguese

Polish

Romanian

Public survey findings 

A survey for Islanders to submit their views on the PYB Tax Reform Proposal ran from 3 August to 2 September. Islanders could complete it online or use a paper copy of the survey that was available at Parish Halls, The Library in St Helier and Citizens Advice. Translations of the survey were also available in Portuguese, Polish and Romanian. 

The survey asked participants about their thoughts on the proposal, and their preferred methods of repayment. From the 2,387 Islanders who completed the survey it found that:

  • 52% of those who responded supported the change, and 38% are against the change
  • 42% of those surveyed supported PYB taxpayers paying their 2019 tax bill over 5 to 10 years from 2023 and 52% did not support this 
  • 36% of respondents said they wanted to pay their 2019 tax bill over 10 years with monthly payments, ranking it first place in a list of options

In addition, more than 1,400 free text comments were submitted, and the five most popular themes were:

  • write-off the 2019 tax liability, comments for and against (partial or in full), 544 mentions 
  • early redemption discount, 169 mentions
  • remain on PYB / pay at retirement, 127 mentions 
  • disagree that the proposal is a stimulus measure, 95 mentions
  • interest charge, 71 comments

Full report on the PYB survey findings

What happens next

The PYB Tax Reform Proposal to freeze the 2019 PYB tax liability and move PYB taxpayers to CYB status will be debated by the States Assembly in November 2020. 

Payment plan details will be further developed once the public survey and focus group feedback has been fully assessed and final draft proposals will be put before the States Assembly for debate in early 2021.

How tax works

Prior Year Basis explained

Before we introduced the Income Tax Instalment System (ITIS), all islanders paid their entire tax bill, usually in one payment in December each year. There was no ‘pay in instalments / via salary’ option. 

The former Tax Office would not know what new taxpayers owed in tax until customers submitted their first tax return, between January and May, the year after their first year earning income. For example:

  • a customer who started work in January 1980, might earn £20,000 that year
  • they would owe say £3,000 tax on their 1980 income, but not find out for some time
  • the tax office waited to receive the customers’ 1980 tax return in say March 1981
  • customers would wait for it to be processed until perhaps June 1981, then receive their bill, for their 1980 tax

They would have until December 1981 to pay their 1980 tax.

In this way, before ITIS was introduced, all islanders paid their tax on a Prior Year Basis (PYB).

In 2006, the way islanders paid their tax changed when we introduced the ITIS: a method of collecting tax from islanders who were in employment. It allowed us to collect regular payments from a large percentage of our customers (those with employers), directly from their salaries towards their tax bill each year.

How ITIS works

ITIS works like a direct debit scheme you may pay towards your electricity or oil bill. Each year when we get your tax bill we confirm your exact income and the tax you should pay on it, then we look at the payments you have made through ITIS towards it. Most of the time your payments will have covered the bill.

If your income has gone up or down (similar to electricity usage) mid-year, provided you tell us about it, we can then change the % of salary you make as a payment to even things out if you’ve over or underpaid.

How Current Year Basis (CYB) is different

If you started paying tax after 2006, the ITIS payments you make this year, are going towards your tax liability for this year. Once we know exactly what you earnt for the whole year (when you submit your 2020 tax return in 2021) we’ll then be able to check you have covered the exact amount, and if needed, we either increase or decrease your effective rate to make up any shortfall, or reduce it, if you have paid more than was needed, again, similar to utilities direct debit payment schemes.

When ITIS was introduced we were able to make an estimate of salary payments needed based on each person’s salary at the point they came into register for tax. They would immediately be given an effective rate and employers were legally obligated to deduct either the default rate where no rate is supplied by the employee, or, whatever rate the employee gave to the employer. 

For information on the common reasons your tax bill and or ITIS effective rate can change go to Understanding your assessment

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