MANAGING YOUR TAX OBLIGATIONS – TRAINING
Taxation is one of the ways individuals give back to their government, for providing all the necessary business environment that business is able to run. If you are starting up a business, you are yet to start up one and yet you always hear other business men complaining of how the tax burden is too much on them, and you are probably afraid of starting, may be because you have a small income base and you think it won’t be enough, we are here to give you a better look at the issue, and help you appreciate running a business in your local area. This time round we bring you notes from a brilliant and wonderful conversation we had with one Kevin Asinde, she is the founder and CEO of AMARIN FINANCIAL group which actually deals in helping SMEs with bookkeeping, providing the necessary advice on taxes, what they term as tax support especially in and among the startups. So we believe her experience in this work will best address your problems, fears and challenges around taxation as a SME, or a startup.
Among the very many things that included that conversation is, the types of statutory obligations that an SME, or a startup has in terms of taxes, why should a startup comply in any case? What is your role as a startup in compliance? What are the important timelines in taxation that a startup and an SME must know about? We tried to understand income tax as a small business entity, compliance as a director or shareholder of a business. There after we div right into it;
Statutory obligations, what are some of the statutory obligations that an SME must take care of?
From the word statutory, barely means by law. So by law what are some of the obligations that are inferred onto business. These are what we are to look at in this part, however we shall not delve into the law itself and the amendments that have been recently put in place.
- Permission. The state ought to give you permission to run your business in that particular state, therefore the permission is granted in the form of licenses and registration certificates by the authorities put in place these include, URA, URSB among others given the line of business you are running.
Obligations therefore to verify your papers with the tax bodies, that is through PAYE, NSSF.
- Direction returns with the URA, URSB,
- An obligation to pay VAT when eligible.
- After knowing our statutory obligations the question RISES, why should we comply.
- The cost of hidden liabilities.
The more you grow the more you get known by the tax man. I shall explain all these two in one single paragraph since they go hand in hand. Many businesses, especially when still young, always give a reason that they don’t have money and that they can’t pay all the rest. The only piece of advice I have for you is, you better reconcile with the fact that you ought to pay and it’s your responsibility. Because like it or not your business is growing and every time you get this media, or publicity all around you and you think you are expanding, the tax man is also watching from the Conner, waiting for the appropriate time. In other words, giving it a blind eye does not remove the fact that they keep accumulating. You don’t want to be slapped with a hidden tax liability that you always knew about and never really took care of while still growing that it can tarnish your company reputation. Besides that, the cost attached to evading taxes is really high, so compliance is always better.
For ease of getting into informal businesses with other entities, like when drafting your proposal, an investor may want to know whether you are trustworthy in your business and so asks to look at your financial strategy. If it included tax invoices and tax numbers then they know it’s not a counterfeit kind of business. Knowing why we should comply we need to understand what our roles in compliance are.
What are your roles in compliance?
- You have to file and collect on behalf of the government. For example, when it comes to the PAYE, VAT. This is by law that you have to do collect this information and file it on behalf of the Government.
- Updating the tax man on your tax position. You update the tax and by filing, not by paying. Now many people think that payment is very important, well yes it is, but timely filing your tax position with the tax man is equally important especially for small business owners. Much as there is a fee attached to late payment, but they are not as high as total evasion of taxes. So by filing you are simply giving the tax man your position on the taxes.
- Making payments. Obviously this is every business’s role to make timely payments as expected by the tax man. That is why a late payment fee is attached to those who don’t do it in time.
- Making the necessary responses especially when inquiries are made by the tax man. Usually the tax authorities like being informed and updated on the business and how the business is doing in terms of compliance and their ability to do so, some inquiries are made and as a business owner you have to respond. Avoiding them is not usually good.
What are the timelines in taxation?
Here we are going to look at the taxation timings, asking the question when am I supposed to pay my taxes and when to file to the tax man. So we have to know what a financial year is.
As a business owner you must communicate with the tax authority every after 6months in relation to your business tax. This also applies to the income tax.
Secondly you must communicate with the taxman monthly in relation to the paye and withholding tax for any business that is in operation.
The Uganda financial year is also referred to as the fiscal year; there are generally two different sectors of this year depending on your business registration.
The July – June period or financial year. This period or financial year is most common to many businesses. Actually the majority of the business fall under this timing of the financial year. In this financial year, between July and December, final returns of the previous year and the provisional returns of the current year are meant to be filled by the business owner. After filing there after payments are made. For example you state that last year’s projection was like 100 million shilling but the actual returns are 800 millions, and that this year you project to have 1bn as returns to your business. Something like that.
Then in the January to June quarter, the business owner files an amendment of this financial year’s projections. This is in the July to June financial year schedule.
The Jan to June financial year schedule. This is uncommon to many businesses. The few that follow this schedule actually register for it. They apply to get registered in this kind of schedule with the tax authority.
So between jan to jun of the current year, the business owner is expected to file the final returns of the previous year and the provisional returns and projections of the current year.
Then from july to December, amendment of the provisional returns of the current year is what constitutes the filing with the tax body.
Income tax; all you need to know about the income tax in Uganda.
Small business income tax administration. What happened is that the recent years government realized that the taxes are quite to much and many were finding it a big challenge especially for the SME’s , to hire and pay for the services of an accountant, so government reconsidered that for such businesses worth 50 million and below, just file the overall turnover and pay a small amount.
And that after the 50million threshold, business should pay the 30% corporate tax on the net profits.
As a business owner you must differentiate between income tax and the permission. Not paying income tax does not mean you don’t file your returns. In other words having nil taxes on returns does not necessarily mean that you don’t communicate with the tax man. And you only communicate with him through filling.
Permission is the license part of it, that you are allowed to operate your business, so your business is allowed and recognized by law to keep running. Income tax on the other hand is related to earned income as related to individuals working in a company including the director working within the business and the shareholders earning dividends. In brief the benchmark is that whether or not you have earned income, if yes then you ought to pay income tax. Income tax is generated only and only from the income statement.
It’s always the gross sales as compared to the cost or expenditures.
- Sales, all the incomes earned from the product that the company or business has sold throughout a financial year.
- Direct costs/ cost of sales; these include the costs incurred in selling the product, like marketing product development among others.
- Indirect costs; these are those costs and expenditures that stand out irrespective of whether you have sold a product or not, for example, rent, airtime etc.
- Gross profits, refers to the wholesome profits including all the expenses that you incurred.
- Net profits before tax include exactly those profits that you attain as a company before you have deducted the taxes.