(as published in the Gibraltar Chronicle) 

We covered some basics for self-employed persons in an earlier article (you can view all our articles on our website www.bakertillygibraltar.gi).  With the deadline looming for self-employed persons to file their accounts, returns and payments, I thought I’d deal with some remaining details on this theme.

Yes, according to the Income Tax Act.  There is talk, amongst the accounting profession, of the Tax Office setting a threshold below which they would not apply these rules in practice. However, the Tax Office  will not confirm this; they will only quote the law.

That is the default, yes.  However, you can apply on Form S2 to make a reduced or nil payment on account.  Be careful though – if you turn out to have some self-employed income and have made an underpayment on account of tax as a result of this application, you may well end up with a surcharge.

Generally all expenses incurred “wholly and exclusively” in the production of income can reduce your taxable income.  Be careful with anything that may have a personal element to it, e.g., travel and entertaining.

If this is purchased for the business, there is a 100% allowance in the year of purchase for IT hardware and software of up to £50,000 and for other equipment, furniture, fittings and machinery of up to £30,000.  In both cases this is restricted to the amount spent in the year.  Any excess of expenditure over these limits goes into a pool, and each year 15% of the balance on the pool is given as an additional deduction against income.

Under the old system tax payable for a given tax year was generally based on income in the previous year.  So, for example, income made in the year ended 30 June 2008 was taxed in tax year 2008/09 and so on.  With the new system tax payable for a tax year is the income in that year.  

To get from one system to another special rules apply.  Tax year 2009/10 will now tax the higher of income in year ended 30 June 2009 and income in year ended 30 June 2010.  Tax year 2010/11 will tax income from 1 July 2010 to 30 June 2011 (half under the old Income Tax Act, half under the new Act).  This means that 12 months of income are not taxed.  Once those tax years are re-assessed by the Tax Office you may well be due a refund (which, being realistic, you can use to offset against a future tax payment).  There are some exceptions to the above, for example, where a business recently started trading.