Entrepreneurs, especially those with a limited background in accounting, often go nuts at the thought of having to file taxes. Accounting consultants, therefore, provide an essential service to businesses. Their involvement in all stages of the entrepreneurial journey will ultimately determine your level of success.
You may know about accounting and filing taxes, but focusing on the daily operations of your businesses takes away your attention from the intricacies of proper bookkeeping and tax filing in Jamaica. Shana Spencer, Director at Knowledge Base Accounting and Consulting, shared some tips with me recently about filing taxes for your business in Jamaica. You can watch the interview by clicking here.
Who is Shana Spencer?
Shana is a jovial person who loves accounting; it’s her passion! She went to college and pursued a Bachelor of Science degree in Accounting and Finance in hopes that she would achieve her dream of becoming an accountant. She is so in love with accounting that she’s constantly working around the clock. Sometimes, she has to tell herself that it’s bedtime and she needs to get some sleep!
Why should entrepreneurs file taxes in Jamaica?
Persons tend to run away from taxes in Jamaica. It’s not a situation like overseas where you can file taxes and quickly get tax returns. However, businesses and self-employed individuals need to file their taxes. This is also true if your employer doesn’t file taxes on your behalf.
From a company perspective, it doesn’t look good for your company if you should be audited by the government and you are not up to date. Filing taxes and having proper bookkeeping can open doors for you. As a sole trader, you would be able to get easy access to loans, NHT benefits, and an NIS pension.
People are not going to want to do business with you if banking information is in your name. A bank account in the company’s name is professional; it shows that you are stable. If you are not filing taxes, you won’t get a tax compliance letter and you won’t be able to open a business account.
Filing taxes makes you eligible for tax relief and other benefits. For example, there was a COVID relief of a $350,000 tax credit. Paying your taxes also enables you to get loans to fund your business. Banks will only look your way if you are filing and paying your tax liabilities.
It’s always better to pay taxes than to pay none at all. There’s no running to a tax consultant for help if you’re not filing and the government catches up with you.
How often should entrepreneurs file their taxes in Jamaica?
There are different tax categories. There is statutory tax, general consumption tax (GCT), and income tax. Income tax is filed annually and should be done before March 15th each year.
GCT is filed at the end of the month. Your GCT filings are based on what you did earned in the month prior. They are due on the last working day of the following month. For instance, your GCT filings for June 2021 would be due on the last working day of July 2021.
Sole traders don’t file monthly returns unless they have staff within their organizations. Companies file an annual return for their statutory taxes. The government requires the annual filing to reconcile the monthly statutory payments the company would be making monthly. The annual filing is due on March 15th annually.
Companies tend to have a lot of fixed assets that give them capital allowance and depreciation claims. So, the annual statutory filing will allow the tax office to recalculate what you’ve paid to determine whether your company has overpaid or underpaid. A refund is issued if you’ve overpaid and you will be responsible for ensuring that refund is reflected on your employees’ pay advice slips.
Another important point to note is that entrepreneurs who own corporations should also be paying individual taxes! That’s one of the downsides of operating a corporation – double taxation. Your business is taxed and your income from the business is also taxed. You would file those individual tax returns as a self-employed individual.
What types of businesses should file GCT returns in Jamaica?
For sole traders, the threshold is $10 million annually or $840,000 per month. You’re not authorized to collect GCT from your clients if your sales equate to less than this threshold. However, you should still file your GCT monthly to reflect this discrepancy.
Several businesses are no longer required to pay GCT because of the recent increase in the GCT threshold. Shana always ensures that her clients are privy to information like this. There are numerous recent tax exemptions and changes to the threshold that many are not aware of.
What forms are involved in filing your taxes in Jamaica as a sole trader?
The main documents used are the SO4 and the SO4a. Sole traders file using an SO4 and SO4A. The SO4 and SO4A must be filed by March 15th annually. There are also quarterly SO4A filings if your sole proprietorship hasn’t reported a loss on the SO4.
Sole traders without registered businesses should still file taxes using these forms. Speak with a Tax Administration of Jamaica (TAJ) representative for more details.
What are some items that would be tax exempt if I operate my business from home in Jamaica?
One of the biggest mistakes Shana’s clients make is assuming that everything is tax deductible. They may put grocery bills, the full amount of their utility bills, the full amount of their rent and so on. The only tax deductible items are business related expenses. Since the expenses reduce income (and therefore taxes paid) there is a tendency to ‘throw’ everything onto the tax form. That’s a big no-no!
- For utility bills, you can only deduct up to 40% of the bills.
- For rent, you can only deduct the portion of rent represented by the square footage of your office space.
- Your car payments, insurance, and gas bill can’t be deducted if your car isn’t solely being used for business. You have to be able to prove the business nature of your movements with the car.
- Phone calls can be deducted as businesses expenses, especially if you have a phone specifically dedicated to business calls. The point is to have relevant proof of the business calls.
There are many other things that you may be unaware are tax deductible. That’s why it’s best to speak with an accountant. Tax deductible items may differ from one business to the next. Also, tax exemption primarily applies to sole traders and not corporations.
Are sole proprietors and corporations required to pay taxes on stock investments?
Definitely! Money earned here is dividend paid and would be classified as “other income”. Any income you earn, especially as a sole trader, is taxable.
What advice would you give to someone who is just starting a business in Jamaica?
Get assistance from accounting consultants. Shana is a consultant you can contact although there are several others. What distinguishes Shana and her team from the rest though is that they treat their clients like family. Shana wants her clients to tell her exactly what’s wrong and why they need her services. Her clients are often so frustrated with the process that they hand everything over to her.
Many of them genuinely don’t know that they will have tax liabilities or can even access waivers. The first thing she does as the consultant is look back at the history for each year from the inception to the present. Sometimes, clients aren’t able to pay taxes in full so she would write to the TAJ on their behalf and ask for a waiver.
The process may take a while but it does work. She takes it from there once the TAJ responds. A full waiver may not be granted, but she does request a payment plan on her clients’ behalf. Once we’ve covered everything and we are up to the present day, she’ll sit down with the client and try to explain the process of filing taxes in Jamaica.
She then encourages clients to get accounting software, such as QuickBooks or PeachTree, so that they can keep accurate records. The monthly fees associated with these software are small when compared to the lasting benefits. Clients will be organized, digitized, no messy receipts in boxes etc.
Bonus Tips on Filing Taxes
Ensure that you pay your taxes and file your returns, especially if you have a regular 9-5 and may be earning an additional source of income. You’ll access increased benefits such as a higher NHT mortgage. This is a big step that brings you closer to becoming a homeowner. Some persons don’t know that they can apply for an NHT refund each January. Ensure that you take advantage of these benefits.
Paying taxes in Jamaica is important, especially if you are self-employed. Those taxes make you eligible for NIS pension and NHT benefits. The NHT looks at your SO4A tax filings as a self-employed person to determine whether you’re eligible for a mortgage. The NIS pension may be small but a little goes a long way.
So, file your taxes because there are many benefits. The benefits may seem small now but I guarantee they will pay off in the long run.
There are many benefits to filing taxes in Jamaica. You’ll have a legal business, be more likely to access loans and grants, be able to open a bank account, benefit from the NHT and NIS, and open your business to several opportunities.
Need help filing your taxes in Jamaica? Connect with Shana by visiting her website.
Learn more about how to start a successful business in Jamaica by purchasing a copy of The Business Playbook: A Guide for Jamaican Startups.