Unless you are tax consultant or you are a professional in that same niche, no one enjoys the whole process of filing their tax returns. But the tax filing season is here and the deadline will be fast approaching before you know it. For big corporates, this might not be a headache, as most have the capacity to allocate the necessary resources and personnel to handle that. But for small business, it’s not an option not to be familiarized with the tax filing process and it’s important to gather all the information needed. It is a challenge for small businesses and most are prone to make grave mistakes. Here are the 5 most common mistakes that small businesses are prone to make:
Mixing Business Expenses with personal expenses
When starting a business, it is important from the onset to separate your personal expenses from your business. And this applies whether you are running a sole proprietor or a limited company failure to which you end up filing erroneous tax returns since your balance sheet is inaccurate.
Always remember that if your business is a limited company, it is considered a separate entity and finances must be completely separated to protect your personal assets while with a sole proprietorship, the business is not a separate entity, as you are entitled to all its profits and are also responsible for all its debts, losses and any kind of liabilities.
Underpayment / Erroneous tax calculations
Careless mistakes in calculating your taxes might lead to underpayment when filing return which will cost you additional penalties. This could be as a result of poor book-keeping or event not declaring all the sources income you are receiving. With the option of either filing electronically or manually, it is advised that you choose the former.
Because filing electronically will help a lot since the application will do most of the calculations and significantly reduces the likelihood of errors in your returns.
Choosing the wrong business structure or legal entity
The kind of legal entity you choose for your business determines the kind of tax obligations you will meet. Whether you are a sole proprietor, in a partnership or a limited company, there’s a different tax requirement when filing returns.
A sole proprietorship is not formally registered as a separate entity from the business owner for taxation purposes and so the tax registration of the business owner is the one used for the overall business taxation purposes while a limited company’s tax is in form of income tax charged at a rate of 30%. Always seek counsel from a tax expert.
Late submission of taxes or not filing at all
Filing of tax returns must be done before or by 30th June every year or by 20th if you are registered as a VAT. The tax authority usually notifies the public in advance which is sufficient time to file your tax returns.
While taxpayers might naturally be tempted to delay filing their returns until it is almost due date, this could be detrimental as failure to file the returns before the due date attracts a penalty which could cost your business. The penalties were enacted under the Tax Procedures Act number 29 of 2015.
Lack of information
Tax information is free and available to everyone. Every year, the Kenya Revenue Authority shares and updates the public on news concerning the filing of taxes and it is upon the individual to seek this information before submitting their tax returns. Lack of this information, therefore, could lead to incurring of unexpected penalties and interests.
Visit the KRA website and learn about everything relating to taxes including how to file returns or getting your PIN among other vital information.