Operating Formally and paying Taxes

There’s this mentality among most small business owners, my business is still small when I grow big I’ll start operating formally and more so being tax complaint. This is a very naive way or thinking if you ask me. You don’t start doing something when you grow big. Doing those things is what makes you grow big. It’s like saying I’ll start saving and investing when I get rich, saving and investing is what will get you. You can’t put the cart before the horse when it’s the horse that’s supposed to pull the cart to move forward.

I know many small business owners fear taxes because they don’t understand taxes and naturally people fear what they don’t understand. Alot of what many business owners know about taxes is hear say and not necessarily right or the practice. When we look at taxes from a business point of view we are talking fixed licensing fees, we are talking taxes on labour (PAYE) and taxes on the income generated by the business.Fixed taxes like licensing fees are paid for operation regardless of how the business is doing its why they fixed and the same for all businesses under the same category.

Taxes on labour (PAYE) are paid by employees off their income from being employed. These taxes aren’t paid by the business but the employee and all the busines does is collect it on behalf of the tax man and remit it to him. Income tax is paid off the income of the business and this income has to be positive. The business should have posted a profit. No one is taxed for making losses however it’s the responsibility of the business to show that they’re making losses or profits and here is where book/record keeping comes in.

The burden of proof lies on the business owner. If you say you’re not making money prove it. If you can prove it then no one will bother asking you to pay anything. Issues come when you can’t prove it and expect that people should just take your word for gospel truth. I repeat if you can prove that you’re left with nothing on the incomes generated after expenses then no one will ask you to pay taxes because taxes aren’t there to punish you for making losses/not making money. Unfortunately most small businesses owners don’t take record keeping seriously even for their own benefit of knowing how the business is fairing and not waiting to be surprised by collapse due to some thing that could have been identified ealier looking at the records. The devil is always in the details like they say.

The good thing about income tax is there’s no limit to how much you can spend as a business.You can spend all the money you made to zero balance if you so wish no one, not even the tax man will say your over spending. What the tax man is interested in is a piece of what remains after you’ve spent and if there’s nothing left then there’s nothing for him. That’s how the game goes, those are the rules. However, not making money is one thing, not notifying the tax man that you didn’t make money is another thing all together. It’s okay not to make money but it’s punishable by fines not to notify the tax man that you didn’t make money. How do you notify the tax man? By filing NIL returns meaning there’s nothing to report. You are obligated to do this atleast twice a year compulsory and as many times as you wish voluntarily.

Many small businesses are choking not on taxes because they’re barely making money but on fines because they’re not filing and are being punished. The fine for not filing is 200,000 per month from date of supposed first filing. You’ll find a business has a tax liability of 10 million and 7 million of that money are avoidable fines. Remember you can contest a tax assessment if you feel it’s wrong or unfair but can’t contest a fine.That’s why I tell small business owners your better of filing the two required times even if your filing wrong figures as long as your filing to avoid the fines.. The rest can be rectified and explained later but not non filing/complaince.

If your going to do business embrace the idea of taxes even when you hate it. Take it like that spouse you’re tired living with but have to bare for the sake of the kids, what you have together or whatever reason you’re still together. Make sure when you’re pricing your goods or services factor in taxes let the buyers pay the taxes not you. That’s how it works world over the clients pay the tax. If you don’t include it you’ll have to pay it on their behalf off your profits.

The tax man will not look for you. Your just a small business not worth running after but some day you’ll grow or will need something from him and when you do that’s when the tax man will come for you punishing you for your sins of 10 years ago to date. So don’t say am small or not making money to pay taxes, when you grow big it will catch up with you and at that stage it could be so bad it could kill you off.

If you need help and support with handling your taxes don’t hesitate to reach out for help. Don’t wait for things to get out of hand, handle it when you still reasonably can..Otherwise some day you’ll be like WBS when your past will come back to haunt you and even kill you.