The year is underway and money has started moving. Inflow and outflow have started building.
For those of us who run small businesses, it is easy to just move the money around as and when the need arises.
You receive inflow from clients and immediately pay utilities and your personal needs.
But do you know you can wake up one day and receive a letter from the taxman?
Yes. They could just send a letter to your office, paste a notice of default on your doors or even just freeze your accounts for non-compliance.
In the absence of all the above, they are most likely waiting for you in your records at the Corporate Affairs Commission to ensure you pay up and file your annual returns before you can do anything on your file with the CAC
At that point, the tax would be placed arbitrarily on your account based on certain parameters such as the kind of business you run or how long you have been in business.
So if that is not your reality (which usually it is not) How do you challenge it. What are you going to use to show otherwise?
Let me show you 4 ways to prepare for the tax man.
- Label your transfers accurately. Endeavor to use the bank app for transfers and label it accurately because the label will show in bank statements.
This is crucial because some outflows may entitle you to tax rebates that you would not get if there is no proof that you pay them.
So instead of just writing ‘transfer’ or ‘withdrawal’, state what it is for: ‘Medicals for mummy’, ‘school fees’ etc.
Of course, I am assuming that all your transactions are for legal activities.
- Keep records. All your agreements, certificate of job completion, letters of engagement, thank you letters, keep them all. You don’t know when it will be handy.
As a lawyer, we have been trained to keep a lot of records. We have documents of over 15 years ago in our records.
They can be used to prove whatever you claim your financial position is when the need arises.
So, keep proper records
- Fill your check stumps. You cannot explain the details of cheque transactions on the cheque for bank statement purposes. But you can fill in the bank stubs of the cheques.
Fill in the date, amount, who it was given to, and for what purposes.
The more the cheque stub ages, the more credibility it garners, especially when the information on it ties in with what is on your bank statement. Especially also when you have other documents to support the details on the bank stubs.
Can you see the connection?
- Endeavor to put a token aside often for the tax man. Put it in an account you don’t access often. Or in mutual funds.
No matter how small it is when D-day comes, it will ease the pressure off you in no small measure.
Remember that it is in your best interest to keep your books of account in order. And to do that, you will need an accountant to help you set it up.
Alternatively, you can use accounting software to start yourself up, pending when you be able to afford an accountant.
Finally, best practices dictate that you separate yourself from the business so that you just pay yourself a salary
This is particularly crucial for the long-term sustainability of your business.
You also cannot put business structures in place until you have separated yourself from your business.
I hope you found this useful.
Got questions?
Go ahead and ask me.