ABOUT 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.

PAYE is not a method of assessment of income tax, but merely a system of withholding tax from emoluments as they are paid. Therefore, although tax has been deducted by way of PAYE from emoluments, an employee must, nevertheless, file an Income Tax Return.

“Emoluments” means all salary, wages, bonus, overtime, perquisites or privileges which include house allowance and entertainment, commission or other amounts for services, director’s fees, pensions arising or accruing in, derived from or received in St. Lucia, and which is liable to income tax.

This does not include, however, salary or share of profits arising from a trade, profession or vocation carried on by any person either by himself or in partnership with another person.

COMPUTING PAYE

The Tax Deduction Table is designed to show the tax to be deducted from employees’ emoluments. The Tables are divided into columns showing amounts of pay and the amount of tax to be deducted by reference to Code Numbers each number consisting of a number and a letter.

Example 1:

Code Number 184M - Monthly Pay $1,500.00

Monthly                                                    $ 1,500.00

less       Employee’s contribution to NIC  $      75.00

                                                                  $ 1,425.00

a) Refer to “Monthly Tax Deduction”

b) Look down the left hand “Monthly Pay” column for $1,525 or next higher amount.

c) Follow this line across to Code 184M. The tax to be deducted that month is where these two columns intersect.

If the Monthly, Fortnightly and Weekly pay of an employee exceeds $8,015, $4,000 and $2,005 respectively deduct thirty cents (30c) from every dollar in excess of these amounts calculated on $8,015, $4,005 and $2,005.

Where the Code Number exceeds that shown on the tables use the annual tables.

Example 2:

Code Number 320M - Monthly Pay $7,000.00

a) Multiply pay by number of pay periods in a year i.e. $7000.00 x 12 = $84,000. In the case of monthly paid employees multiply by 12 pay periods. In the case of fortnightly paid employees multiply by 26 pay periods. In the case of weekly paid employees multiply by 52 pay periods.

b) Deduct allowances according to the employee’s Code number

                320 x 100 = 32,000

                84,000 - 3,000 (NIC for the year) = 81,000

                84,000 - 32,000= 49,000 (chargeable income)

c) Look down the annual table and use the nearest amount in column 1, i.e. $49,000

d) Follow across to column 2 “Tax for Year” for the amount to be deducted yearly - ($10,200). The next column gives the amount to be deducted monthly.

                Deduct Monthly: $850

EMPLOYEES

An “employee” is any person who, in respect of employment, receives remuneration from an employer, and includes any person to whom remuneration accrues:

• as a director of a company;
• from a former employer or trustee of a pension fund, as a consequence of a former employment; or
• as a dependent of a deceased person where such remuneration accrued to that dependent as a consequence of the former employment of the deceased.

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. 

CONTRACTORS

A “contractor” is anyone 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

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 as contract or 10% withholding tax, depending on the nature of the task. 

DIFFERENCES BETWEEN THE TWO

An employee typically performs duties dictated or controlled by company superiors (managers and supervisors) and, in many cases, an employee is provided training to do the job.

An independent contractor, however, generally has several clients. A contractor also has his or her own tools and sets his or her own hours. Furthermore, a contractor invoices for the completed work while an employee receives a periodic wage or salary.

In St. Lucia, a contractor is taxed based on one fixed rate, which is 10% of gross earnings, an employee is taxed based on a tax code, which is determined by a declaration of deductions and allowances. 

SELF-EMPLOYED

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 himself 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.

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.

TAX DECLARATION FORM (TD FORM AU - 1)

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.

GUIDELINES TO BE FOLLOWED WHEN SUBMITTING A TD FORM AU-1 FOR APPROVAL.

The following documents are required in respect of the under mentioned claims:

a) Mortgage Interest

Mortgage interest statement payable for the relevant income year.

b) Alimony/Maintenance Payments

         i.            Copy of Court Order or Deed of Separation

        ii.            This deduction is granted only to a former spouse. It does not refer to nor include common law relationships.

c) Higher Education Allowance

Letter from university verifying full time attendance of individual and proof of related expenditure e.g. tuition paid.

d) Cooperative Society

Statement of shares purchased for the relevant income year.

Where the taxpayer has income from two or more sources, it is advisable that the person come to the Department, in order for guidance to be given to the respective employers, informing them of the amount of PAYE to be deducted.

An individual in receipt of a pension should file a declaration with the person paying the pension. If however, he also receives income from employment, one Declaration should be filed with employer or the person paying the pension.

Where there is doubt concerning any claim or the procedure to be followed, please call and clarify before visiting the Taxpayer Assistance Unit.

Individual Taxpayer