Tax tips for small informal business owners

By Simon Peter Rukorera

With just a few days in to the new financial year, now is the time many businesses focus on a variety of key important aspects in line with overall performance reviews, business projections and independent audits.

But one of the most important and unavoidable evaluations every business and business owner will make during the year is their taxes. This can help businesses make better tax filing decisions, especially for small informal business owners who like to remain informed and in control of their respective taxes.

Here are tax tips for small business owners:

Ensure to obtain a Tax Identification Number (TIN), which provides a link between your business and the Uganda Revenue Authority (URA). This provides a platform to file and receive any notifications from the authority on tax matters in relation to your business.

Small businesses are often not aware that any expenses that are incurred before the first sale are called "start-up costs". These costs cannot be deducted until the first sale. Careful tax planning is needed in this area. Many small businesses assume they can deduct all of their costs in starting a new business but they cannot until they have their first sale. Then costs are deductible based on the laws for that deduction.

Small business owners often become overwhelmed with all of the paperwork and resort to taking shortcuts. Cloud-storage technology offers a large range of easy to use techniques for business owners to keep track of their financials. Having an efficient electronic organisation system allows you easily and securely file your financial records. Your financial records and reporting numbers should parallel what you are reporting on your tax records.

Practicing the proper due diligence as a small business owner reflects throughout your whole company. It is essential that every claim and number reported has a substantiating document to back up the numbers. Due diligence requires that you not only file the proper documents but that you do so in a timely fashion. Operating your business around the tax filing deadlines is a common and recommended practice to avoid forced tax assessments and penalty fees from untimely filings.

Hire the right tax adviser and tax preparer and tax experts who have practiced tax. This should be the same person. Do not ever hire tax preparer that is different than your primary tax adviser. People make the mistake of thinking that tax preparation is merely paperwork. While there is a lot of paperwork involved, your tax return can function as the final step of your tax planning. In addition, a good tax preparer will significantly reduce your chances (and potential cost) of an URA audit.

Keep personal expenses and business expenses separate! In line with the day today business operations tax computation is solely attributed to either Non individual or individual person as defined in the     Income tax Act cap.340.

Do not be afraid to take a deduction you feel is legitimate because you are afraid of being audited. URA will never come back and tell you about deductions you should have or could have taken, and if you have properly documented everything and kept all of your receipts, there is really nothing to fear.

Document all of your financial transactions as this is key. Small business owners tend to spend first, and document later. This leads them to forget significant deductible expenses like mileage, and as a result, have no record at all of the expenditure.

Ensure all of your tax filings reconcile. This includes all applicable tax returns, documents and other tax-related records sent to the URA. In addition to personal tax returns, all quarterly filings for their business should reconcile perfectly with the annual tax return.

The writer is a specialist on taxation issues