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Employees
An employee is a contributor of labor and/or expertise to the operation of a business or employer. An employee is generally hired to perform specific duties that are packaged into a job. An employee provides services to his or her employer on a regular basis in exchange for compensation and who does not provide these services as part of an independent business.
A combination of conditions differentiates an employee from other type of workers, mainly: whether the worker is paid regularly, follows set work schedule, is provided with tools by the employer, is closely supervised by the employer, is acting on behalf of the employer, only works for one employer at a time, et. al Additionally, the employer will generally be liable for the worker’s actions and be obligated to provide some benefits.
Based on certain factors, an employee’s income is subject to income tax, referred to as PAYE in Saint Lucia. It is the employee’s responsibility to ensure that the right amount of tax is being deducted if his or her income is taxable.
Personal Income Tax
The IRD imposes a personal income tax on the income after allowances and deductions of residents and non-residents earning income in St. Lucia. This tax is levied only on income over $18,400 per annum received by resident or non-resident individuals who earn income in St. Lucia, whether those income sources are located in or out of St. Lucia.
A tax return must be filed by individual taxpayers by the due date for filing income tax returns. The due date for filing income tax returns for individuals is 31st March of each year. There is a penalty charged for late submissions, this is 5% on chargeable income. “Chargeable Income,” for the purposes of Income Tax, means the aggregate or total amount of income of any person that is remaining after the appropriate deductions and allowances have been allowed.
Pay As You Earn (PAYE)
The Pay-As-You-Earn System, popularly referred to as PAYE, was introduced in St. Lucia in 1965. The legislation dealing with its operation is contained in the Fourth Schedule of the Income Tax Act Chap. 15.02, as well as sections 75, 76, 77, 78 and 143.
With the Pay As You Earn (PAYE) system, money is deducted from paychecks by the employer and remitted to the Government with regular paychecks as they are earned. Any sum taken in excess of the amount of tax due it repaid to the taxpayer. If there is a shortfall between how much tax was paid and how much was actually due, the taxpayer will have to make up the difference once they file their annual Income Tax Return. PAYE is not a method of assessment of income tax, but merely a system of deducting tax from earnings as they are paid. Therefore, although tax has been deducted by way of PAYE from emoluments (earnings), an employee must, nevertheless, file an Income Tax Return.
The Contractor
A contractor is an individual, usually specialized or expert in a particular field, hired by a company or organization for a specified time period, a fixed price, and/or a particular project. Subsequent to this agreement, a company is usually not responsible for providing traditional employer benefits afforded to regular employees, including: personal taxes, social security, sick leave, vacation time and pay, et al.
The contractor is generally responsible for the overall coordination of a project. Depending on the project delivery method, the contractor submits a fixed price proposal or bid, cost-plus price or an estimate. The overall price of the project entails the contractor’s cost of home office overheads and general conditions, materials, equipment, the cost of labor, as well as other expenses incurred in the project.
The contractor would be subject to income tax, referred to contract or 10% withholding tax, depending on the nature of the task.
Employee Articles
Contract & Withholding Tax
Although the two taxes are similar, there are marked differences between them:
Contract Tax
Contract tax is levied on income earned from a contractor. A contractor is anyone who is a resident of Saint Lucia who provides or supplies independent personal services in exchange for compensation. A contractor is not considered an employee and is also not any of the following:
• accountants, auditors or tax consultants
• business or management consultants
• lawyers
• doctors, dentists, pharmacists or nurses
• engineers
• funeral undertaking services
Contract tax is levied on payments made to a contractor either directly or indirectly through a financial institution for the supply of labour or for the hiring of equipment.
Withholding Tax
The withholding tax is an income tax “withheld” from the earning of employees which is then paid directly to the Department.
Additionally, withholding tax is charged on benefits obtained from pension funds and insurance policies. 10% Withholding tax should be deducted on any cash benefits to members who have withdrawn from an approved pension fund or an insurance policy that is less than ten (10) years old.
Withholding tax is also levied on certain payments of an income nature – e.g. royalties, management charges, commissions, fees – at a rate of 10% to local residents; 15% to regional residents belonging to CARICOM states; and, 25% to non-residents.
The Income State & The Tax Return
Net Income on Your Tax Return
As a contract worker, most likely you would need to file your Tax Return Form as a self employed individual. How you account for your income to enter on the return form is by attaching an income statement. What is an income statement?
The Income Statement is one of a company’s core financial statements that shows its "net income" (profit and loss) over a period of time. The net income is determined by taking all revenues and subtracting all expenses from both operating and non-operating activities.
The income statement is one of three statements used in both corporate finance (including financial modeling) and accounting. The statement displays the company’s revenue, costs, gross profit, selling and administrative expenses, other expenses and income, taxes paid, and net profit, in a coherent and logical manner.
Components of an Income Statement
The income statement may have minor variations between different companies, as expenses and income will be dependent on the type of operations or business conducted. There are several basic items to include on any income statement:
Revenue/Sales
Sales Revenue is the your revenue from sales or services, displayed at the very top of the statement. This value will be the gross of the costs associated with creating the goods sold or in providing services.
Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) is an aggregation of the direct costs associated with selling products to generate revenue. This can also be called Cost of Sales. Direct costs can include labor, parts, materials, and an allocation of other expenses.
Gross Profit
Gross Profit Gross profit is calculated by subtracting Cost of Goods Sold (or Cost of Sales) from Sales Revenue.
Marketing, Advertising, and Promotion Expenses
You may incur expenses related to your service. Marketing, advertising, and promotion expenses are often grouped together as they are similar.
General and Administrative (G&A) Expenses
SG&A Expenses include the selling, general, and the administrative section that contains all other indirect costs associated with providing your service. This includes salaries and wages, rent and office expenses, insurance, travel expenses, and sometimes depreciation and amortization, along with other operational expenses.
EBT (Pre-Tax Income)
EBT stands for Earnings Before Tax, also known as pre-tax income, and is found by subtracting interest expense from Operating Income. This is the final subtotal before arriving at net income.
Depreciation & Amortization Expense
Depreciation and amortization are non-cash expenses that are created by accountants to spread out the cost of capital assets such as Property, Plant, and Equipment (PP&E).
Operating Income (or EBIT)
Operating Income represents what’s earned from regular business operations. In other words, it’s the profit before any non-operating income, non-operating expenses, interest, or taxes are subtracted from revenues. EBIT is a term commonly used in finance and stands for Earnings Before Interest and Taxes.
Interest
Interest Expense. It is common for companies to split out interest expense and interest income as a separate line item in the income statement. This is done in order to reconcile the difference between EBIT and EBT. Interest expense is determined by the debt schedule.
Other Expenses
You may have other expenses that include things such as fulfillment, technology, research and development (R&D), stock-based compensation (SBC), impairment charges, gains/losses on the sale of investments, foreign exchange impacts, and many other expenses that are industry or company-specific.
Net Income
Net Income is calculated by deducting income taxes from pre-tax income. This is the amount that flows into retained earnings on the balance sheet, after deductions for any dividends.
The Self Employed Individual
A self-employed individual is someone who works for him or herself rather than an employer.
The Department generally recognises a person as self-employed if the individual declares him- or herself as such, or is generating enough income that the individual is required to file a tax return under the Tax Act. Self-employed individuals generally pursue work rather than be provided with work by an employer. Self-employed individuals can be contractors or can own and operate business with steady cash flows.
There are related terms to the self-employed that are sometimes used interchangeably, and these are entrepreneurship and start-ups. In examining their differences it should be noted that: Self-employment entails the founding of an entity with the primary intent to provide work and income to its founders. Entrepreneurship refers to the founding of all new entities and entails the self-employed and businesses not anticipated to grow big or become registered. Startups are temporary new entities founded with the expectation to grow and expand, as well as grow its staff.
Employee Articles
Personal Income Tax
The IRD imposes a personal income tax on the income after allowances and deductions of residents and non-residents earning income in St. Lucia. This tax is levied only on income over $18,400 per annum received by resident or non-resident individuals who earn income in St. Lucia, whether those income sources are located in or out of St. Lucia.
A tax return must be filed by individual taxpayers by the due date for filing income tax returns. The due date for filing income tax returns for individuals is 31st March of each year. There is a penalty charged for late submissions, this is 5% on chargeable income. “Chargeable Income,” for the purposes of Income Tax, means the aggregate or total amount of income of any person that is remaining after the appropriate deductions and allowances have been allowed.
Contract & Withholding Taxes
As a self-employed individual, your business would most likely incure contract tax or withholding tax when a client pays you for services rendered. Note the difference between the two:
Contract
Contract tax is levied on income earned from a contractor. A contractor is anyone who is a resident of Saint Lucia who provides or supplies independent personal services in exchange for compensation. A contractor is not considered an employee and is also not any of the following:
• accountants, auditors or tax consultants
• business or management consultants
• lawyers
• doctors, dentists, pharmacists or nurses
• engineers
• funeral undertaking services
Contract tax is levied on payments made to a contractor either directly or indirectly through a financial institution for the supply of labour or for the hiring of equipment.
Withholding Txes
The withholding tax is an income tax “withheld” from the earning of employees which is then paid directly to the Department.
Additionally, withholding tax is charged on benefits obtained from pension funds and insurance policies. 10% Withholding tax should be deducted on any cash benefits to members who have withdrawn from an approved pension fund or an insurance policy that is less than ten (10) years old.
Withholding tax is also levied on certain payments of an income nature – e.g. royalties, management charges, commissions, fees – at a rate of 10% to local residents; 15% to regional residents belonging to CARICOM states; and, 25% to non-residents.
Record-Keeping for Businesses
- Keeping Records
- Why You SHould Keep Accurate Records
- Tips for Good Book-Keeping
- Length of Time to Maintain Records
- How to Keep Your Records
- Need Assistance / Advice?
Keeping Records
Many self-employed persons have the misconception that it is not important to keep proper records of their business transactions. The reality that proper records are absolutely essential and usually come at a time when a loan is being negotiated with the bank or when dealing with the Inland Revenue Department.
Why You SHould Keep Accurate Records
WHY YOU SHOULD KEEP ACCURATE RECORDS
The Income Tax Act Chap. 15.02, makes it an offence not to keep accurate records and you can be penalised for not doing so. It is also sound business practice to keep accurate records.
OTHER REASONS FOR KEEPING ACCURATE RECORDS
The following provide some compelling reasons for keeping accurate business records:
• Accurate records allow you to be in better control of your business - This will help you in business planning and decision making. You will be better able to monitor cash receipts and payment and budget for major expenditures, income and tax payments.
• Develop a more professional image - Good record-keeping makes it easier to deal with your bank and other financial institutions, especially if you’re trying to finance a project; seeking to expand; or obtaining an overdraft, etc. for your business.
• Reduced costs to you from an IRD audit - Time is worth money and the less time spent searching for records for an audit or for your accountant means money saved!
• You will be able to file an accurate tax return - This means your returns and tax refunds are processed quicker!
• Use your Accountant’s time profitably - Good record-keeping will prevent your accountant from having to do your basic bookkeeping for you. Instead, you can use the accountant’s services for specialized tax, and financial planning advice. Your accountant will not need to keep asking you to verify certain transactions after you send your books in. Your accountant will charge you for any time spent in having to contact you. This also delays the preparation of your business accounts and tax returns.
• Reduce your tax compliance costs - Keeping accurate records from the start can save you time and money in complying with your tax obligations.
You will be able to spend more time on other essential business aspects such as:
a. Sales and Marketing
b. Staff Management and Training
c. Production Improvement
Tips for Good Book-Keeping
TIPS FOR GOOD BOOKKEEPING PRACTICE
The following tips will create a beneficial habit in good bookkeeping practice:
• Make bookkeeping part of your every day tasks. When you’ve established a routine it would be much quicker to work through.
• Keep your bookkeeping up to date. Don’t leave things till the last minute (e.g. filing deadline).
• Avoid interruptions when doing your bookkeeping.
• Try to complete each bookkeeping task in one sitting. For example, when filling in your PAYE remittance make sure you finish it before doing something else.
• Keep your books in an organized manner. You will find yourself working quicker. If you can find the information you need easily.
• Keep trying to find new and improved ways of keeping your books.
Length of Time to Maintain Records
HOW LONG MUST YOU KEEP YOUR BUSINESS RECORDS FOR?
The Income Tax Act No. 1 1989 requires that you keep all business records for a period of six years after the year in which the transaction(s) occurred; they must also be in English and kept in St. Lucia.
Even after you cease trading you still have record-keeping obligations. You must keep all your records for a period of six years after the end of the income year to which such books of account or records relate.
WHEN REFERRING TO “BUSINESS RECORDS,” WHAT DO WE MEAN?
Business records are accounting books and source documents which are kept by the business to document its day-to-day income and expenses. The list below includes some of the most commonly used; however, the nature of your business may require the use of others that are not included in the following:
• Receipts and invoices
• Bank Statements and cancelled cheques
• Work Contracts
• Accounting books (including petty cash, cash receipt and payments)
• List of business assets detailing date of acquisition and costs
• Legal documents for the sale and purchase of fixed assets
• Listing of debtors (i.e. people that owe you) and creditors (i.e. people you owe) at year end
These records will be used to prepare your accounting statements, from which your taxable income will be derived.
How to Keep Your Records
THE TWO METHODS OF RECORD-KEEPING
I. The Paper based Method
This is a method of keeping all invoices for sales and for purchases as well as all your cheque stubs and bank statements. It would probably be wise to use a cashbook to record all your sales and income.
If this method of record-keeping is chosen make sure that all records are kept in a safe and organized way e.g. keeping your paid invoices in the order that they are paid or in the cheque stub order. All your records must be clearly written and easy to read.
It is also recommended that records be kept in a filing cabinet but you could also keep them in any other safe place that is easily accessible.
II. The Computer Method
The second method of keeping records is by using a computer. Depending on the nature and size of your business, using a computer bookkeeping program (such as Quicken) can improve your record keeping. A number of benefits can be derived in using a computer in your business:
• information is easy to find.
• records can be updated quickly
• less storage space is needed as less paper is required.
• you can keep a check on the accuracy of records you’ve kept and you can produce accounts
Today there are a number of accounting and bookkeeping packages to choose from. The major software manufactures also provide standardized business software that include spreadsheets, databases and word-processing packages.
Before buying a computer seek advice on the hardware and software which would be most suitable for your business needs. Speak to people who already use a computer in their business.
Remember that, even though you keep records on computer, you must still keep your source documents i.e. cheque stubs, invoices and bank statements to substantiate your income and expenses.
It should be noted that computers do have weaknesses, and it is always wise to back-up all information you have on computer, in case of power failure, fire, floods, theft etc. This means copying the information on your hard drive onto a diskette or ensuring that you have a print-out of vital information on a regular basis. Keep these copies on the disk at another location e.g. another building.
Need Assistance / Advice?
IRD ASSISTANCE SERVICE
The Inland Revenue Department has a Taxpayer Service Unit that would answer any tax queries regarding:
• What records to keep
• How to complete your income tax return form and PAYE remittance form.
• When to file returns and make payments
• Any other queries.
Employer Guides
As a self-employed individual, you may hire employees to help your business thrive. As an Employer you have certain tax responsibilities:
Tax Deductions
RESPONSIBILITIES OF AN EMPLOYER
Where persons other than the owner are employed in the business, the owner (Employer) has the responsibility of administering the PAYE System of tax deduction in respect of the employees, and shall deduct PAYE from his employees.
The total amount deducted from the emoluments of employees must be remitted to the Inland Revenue Department by the fifteenth (15th) day of the following month in which the deductions were made.
An employer who remits the amount deducted from his employees after the statutory date will be liable to a penalty of ten percent (10%). The employer will also pay interest on the total of the amount deducted at a rate of 1.04% per month from the date on which it was due to the date of payment.
EMPLOYER DUTIES AND RESPONSIBILITIES REGARDING INCOME TAX
An employer has tax obligations throughout, as well as, at the end of the year in regards to taxation of his or her employees:
End-of-Year Reports
AT THE END OF THE YEAR
The following are obligations of the employer in regards to income tax on employees at the end of the income tax year:
• The company must issue the original and one copy of the TD5 Certificate to each employee showing total emoluments paid during the year and the total tax deducted
• The company must forward to the Inland Revenue Department one copy from the quadruplicate copies of the TD5 form of each employee and an Annual PAYE Remittance Form showing the total emoluments paid and the total tax deducted during the year (forms prescribed for this purpose will be posted to all employers whose businesses are registered with the Department).
• With the Inland Revenue Department, the company must place within its records a copy of the TD 5 Certificate (quadruplicate) of each Employee and a copy of the Annual PAYE Remittance.
Deductions During the Year
THROUGHOUT THE YEAR
The employer must:
• Administer the PAYE System of tax deduction in respect of the employees
• Deduct PAYE from his employees
• Remit the total amount deducted to the Inland Revenue Department by the fifteenth (15th) day of the following month in which the deductions were made.
The employer must inform the Department if there has been:
• Change of Employment of an employee
• Death of the Employee
• Death of an Employer
Every employer is under obligation to deduct tax, where applicable under the following circumstances:
I. Change of Employment
If an employee changes his job, the deduction of tax by the former employer will cease. The employee will have tax deducted by the new employer on the basis of a new Tax Code Number.
II. Death of the Employee
If an employee dies and emoluments are due to him or her after his or her death, deductions are to continue as if he or she were alive.
III. Death of an Employer
If an employer dies, but his business continues, his personal representative must continue to make PAYE deductions.
IV. Change of Ownership
If a business changes hands, the new employer is responsible for the PAYE deductions.
V. Cessation of Business
If an employer ceases to carry on a business, he must, within one month after cessation, issue TD5 Certificates to the Department and to all employees from whose emoluments any tax was deducted.
Where a business ceases operations, PAYE deductions which had not yet been remitted to the Inland Revenue Department must be paid to the Department within fifteen days (15) after the date of cessation of the business.
Forms
IMPORTANT FORMS FOR EMPLOYERS
It is important that the following forms be filled-out accurately and delivered to the department during and at the end of the year:
• Annual Return Form – TD 6
• Return of Remuneration Paid – TD 5
• PAYE Monthly remittance Form – P30
• Particulars of employee leaving employment or deceased – TD4
LATE PAYMENTS
Any employer who remits the amount deducted from his employees, after the statutory date will be liable to a penalty of ten percent (10%). He will also pay interest on the total of the amount deducted at a rate of 1.04% per month from the date on which it was due to the date of payment.
It is an OFFENCE under the Income Tax Act No. 1 of 1989 for an employer not to carry out his/her responsibilities as stated above.
TINs & TANs
Taxpayer Numbers
TAX PAYER NUMBERS
A Tax Payer number is a unique six-digit identification number assigned to an individual taxpayer, a business enterprise, a company (partnership) by way of an automated system. It helps the department in administering the government tax program. A Taxpayer will require this number when transacting business with either of the revenue collecting departments.
The department issue one TPN/TIN to you during your lifetime, even if you change your circumstances.
TPN vs TIN
HOW TO FIND YOUR TPN/TIN
(Tax Payer Number/Tax Identification Number)
Your TPN is unique and identifies you to the tax department. It does not change, even if you change employment, your name or leave the island and return to Saint Lucia it remain the same.
If you have filed returns or carried out certain transactions with the IRD you may already have a TPN
Your TPN can be found on:
• Your income tax notice of assessment
• Most correspondence we send out to you
• Your payment receipt
• Your Annual income statement of total remuneration, allowances and benefits (TD5-slip) from your employer
If you cannot identify your TPN, you can contact the department to get it. However, in order to confirm we are talking to the correct person before discussing any tax matter, we will ask for certain personal details only you or your authorized representative would know.
Registering for a TPN / TIN
APPLYING FOR A TPN/TIN
To do business with the IRD you must have a TPN/TIN. To obtain a TPN/TIN you must register by filing out an Individual Registration form.
You will need to provide the following:-
• An official form of ID (i.e. Passport, Identification card, Driver's license)
• You Social Security Number
• Address residential and postal
• Contact number where you can be reached during the day
• E-mail address
• If married, date of marriage, spouse's name; date of birth; Social security number and, spouse maiden name.
• Children's/child Name, date of birth and school attending if attending school
• Your place of employment and start date of employment
• If you had a change of name you must provide us with a copy of the legal document
Tax Codes
The Tax Code
Tax Codes
Your tax code is an alphanumeric code that is used by your employer or pension provider to determine how much Income Tax is to be deducted from your pay or pension income.
By using the tax code issued from the IRD office, your employer would deduct the most accurate amount of tax from your salary based on what allowances and deductions you are eligible for on your annual tax return. This means that just enough tax will be deducted from your income, resulting in little to no liability or refunds after filing your tax returns with the Department
Your tax code can be changed any time the conditions of your allowances and deductions change, such as your having a child or undertaking a mortgage loan agreement. Just visit The IRD office to obtain a new code.
The IRD does not keep records of tax codes, so it is advised to keep a personal copy of the issued tax code slip for future reference or change of employment, until condition change where you will need a new tax code.
What Your Tax Code Means
Your tax code normally starts with a three-digit number and ends with a letter.184M is the basic tax code currently used for most people who have one monthly job or pension.
The numbers in your tax code take into account your annual, tax-free personal allowance figure of $18,000.00, your annual basic medical allowance of $400.00 if you have no medical insurance, and the other allowances and deductions you can claim in your tax return form. The letter is reflected on how frequent you receive your income (monthly, fortnightly or weekly). Therefore, the basic tax code of 184M denotes an individual’s basic personal allowance of $18,000.00 and basic medical allowance of $400.00 on your monthly salary (M).
A tax officer will happily assist you in determining the right tax code for you, so visit the Department’s office with an official form of ID, a recent payslip that denotes your periodic payments and other salary deductions that would be eligible for inclusion in the tax code; or the details of any monthly payments made on insurance premiums, the actual interest payments (not the rates) on mortgage and student loans, credit union shares contributions, etc.
The Tax Code Form
A TD Form AU-1 (Code Form) is the prescribed form on which claims are declared. It was designed solely for the purpose of making the appropriate deduction of tax from salary or wages. After the Declaration is made the employee will be issued with a Tax Code Number.
Since this information is necessary for the correct amount of tax to be deducted, each employee, on taking up employment, is required by Law to file a declaration of his deductions and allowances with the Department:
• Within fourteen (14) days from the commencement of employment;
• Within seven (7) days, if there is a change in tax deductions/allowances;
• When required to do so by the Inland Revenue Department.
Where an employee has more than one place of employment or is in receipt of both pension and salary or wages, details of each source of income must be stated separately on the same form.
In such cases, a Code Number, must be submitted to each employer by the employee.
Updates to Your Account
Certain information on a taxpayer’s account are subject to change, such as last names after marriage, living and/or mailing addresses, contact numbers, marital status and death. Additionally, statuses regarding operational or tax transaction such as closure or change of name of a business, or the discontinuance of payment of certain taxes. Updates can be made to your TIN account to reflect these changes upon request to the IRD either in person, along with a form of official ID. Corporations must produce a formal request via letter on official letterhead, signed by owner/manager of the entity and a copy of certificate denoting closure of business, in some cases.
