.png)
Business, like "a garden requires patient labor and attention. Plants do not grow merely to satisfy ambitions or to fulfill good intentions. They thrive because someone expended effort on them.~Liberty Hyde Bailey"
Research indicates that 9 out of 10 businesses do not
celebrate their 1st anniversary. One of the key factors that contribute to this
high mortality rate is lack of systems and founder syndrome. Many
small and medium enterprises are setup with founders who have no holistic
business management skills. It is reported that the typical owner or
managers of small businesses develop their own approach to management,
through a process of trial and error. As a result their management style is
likely to be more intuitive than analytical, more concerned with
day-to-day operations than long-term issues, and more opportunistic than
strategic in its concept. We have a passion for supporting such enterprises and
seeing them thrive and be sustainable ventures.
To this end, we support business owners and mentor them to
set up sustainable financial and business management systems. Other services
include: Advising, installing, customising and training in computerised
accounting packages – with a specialization in QuickBooks Accounting Package.
Recruiting and mentoring Finance and Accounting personnel.
Visit the Facebook page The Accountancy
and Business Clinic. On the page we run the weekly #professionalizeyourbusiness series whose aim is to give advice to and train Micro, Small and Medium Enterprises
on how to Professionalize their businesses.
Here are some of the #professionalizeyourbusiness series articles:
8. #professionalizeyourbusiness series: False profits due to hidden expenses-Part 4
At start-up or when a business is still small, it may not afford a business vehicle. Therefore many a times we drive our own cars to make deliveries of either the product or provide a service. This is usually done while also running other that are not business related errands.
This presents two potential challenges:
1) Expenses being overstated. I have seen some business owners buying fuel for their personal cars and charging the entire fuel on the business whereas they also use the same car for other non-business related errands. The same case applies to servicing and repair of personal vehicles
2) Expenses being understated. Some business owners do not remember to include the transport element in their business when they use their personal cars for business related errands such as marketing or distribution.
In the spirit of professionalizing your business and also avoiding challenges with the tax man for unallowable business expenses, among the options to consider are:
1) If the business cannot afford business car, you could maintain a mileage log for the business related use of private/personal car. The mileage log sheet would indicate the distance covered from point A to B and the purpose for the trip. A mileage rate is then applied to the distance covered to give you the transport expense incurred. This option means that the business will not incur fuel, servicing, repairs and maintenance expenses but only the mileage.
2) If the business can afford a business car, then by all means buy one and the business can fuel the car, repair and maintain it and even have it insured. In this case then you may only need to track your private use of the car or come up with some method of apportioning it.
What do you do when you use your personal car to make deliveries or go buy stock or provide a service?
To your success!
professionalizeyourbusiness@gm
8. #professionalizeyourbusiness series: False profits due to hidden expenses-Part 4
At start-up or when a business is still small, it may not afford a business vehicle. Therefore many a times we drive our own cars to make deliveries of either the product or provide a service. This is usually done while also running other that are not business related errands.
This presents two potential challenges:
1) Expenses being overstated. I have seen some business owners buying fuel for their personal cars and charging the entire fuel on the business whereas they also use the same car for other non-business related errands. The same case applies to servicing and repair of personal vehicles
2) Expenses being understated. Some business owners do not remember to include the transport element in their business when they use their personal cars for business related errands such as marketing or distribution.
In the spirit of professionalizing your business and also avoiding challenges with the tax man for unallowable business expenses, among the options to consider are:
1) If the business cannot afford business car, you could maintain a mileage log for the business related use of private/personal car. The mileage log sheet would indicate the distance covered from point A to B and the purpose for the trip. A mileage rate is then applied to the distance covered to give you the transport expense incurred. This option means that the business will not incur fuel, servicing, repairs and maintenance expenses but only the mileage.
2) If the business can afford a business car, then by all means buy one and the business can fuel the car, repair and maintain it and even have it insured. In this case then you may only need to track your private use of the car or come up with some method of apportioning it.
What do you do when you use your personal car to make deliveries or go buy stock or provide a service?
To your success!
professionalizeyourbusiness@gm
7. #professionalizeyourbusiness series: False profits due to hidden expenses-Part 3
“Why don’t you pay yourself a salary?” I asked. “This business cannot afford to pay me a salary!” was the response I received from this client. Interestingly I have this response from many MSMEs. From analyzing his accounts, he could actually afford a salary because his average drawings were Ugx1.5M a month.
This client had engaged me to set up the accounting structure for him to help him track his finances because he needed to know where all the money he was making was disappearing to. After installing QuickBooks and setting up the account codes, I guided the Book keeper on how to do the data entry. When it came to the Cashbook and Petty cash book, all the monies that went out of the business had to be posted into the respective financial accounts.
This process revealed that the business owner was frequently but haphazardly getting money from his business for his family running and personal upkeep. As individual transactions (e.g. Ugx20k or Ugx50k) they looked little but when aggregated the sums were sizable comparative to the size of the business. Now in Accounting, all the monies that a business owner gets out of the business for personal use which is not a salary are ideally categorized as drawings.
Drawings go to reduce the owner’s capital or equity in the business balance sheet (statement of financial position). Whereas salary would be a business expense and would be reflected in the profit and loss or income statement (statement of comprehensive income). The latter will reduce the business profits, which is not only a tax advantage, but is also very useful information on the true cost of running the operations. The 3rd hidden expense in this series is business owner’s or director’s drawings.
The question a business owner should ask: If you were not playing the role you are playing in your business at the moment, how much would you remunerate someone to do it for? If this cost of doing business is not reflected in your accounts, it means that the profits or loss declared for that period are not true.
Are you paying yourself a salary or drawing down your capital?
To your success!
professionalizeyourbusiness@gm
“Why don’t you pay yourself a salary?” I asked. “This business cannot afford to pay me a salary!” was the response I received from this client. Interestingly I have this response from many MSMEs. From analyzing his accounts, he could actually afford a salary because his average drawings were Ugx1.5M a month.
This client had engaged me to set up the accounting structure for him to help him track his finances because he needed to know where all the money he was making was disappearing to. After installing QuickBooks and setting up the account codes, I guided the Book keeper on how to do the data entry. When it came to the Cashbook and Petty cash book, all the monies that went out of the business had to be posted into the respective financial accounts.
This process revealed that the business owner was frequently but haphazardly getting money from his business for his family running and personal upkeep. As individual transactions (e.g. Ugx20k or Ugx50k) they looked little but when aggregated the sums were sizable comparative to the size of the business. Now in Accounting, all the monies that a business owner gets out of the business for personal use which is not a salary are ideally categorized as drawings.
Drawings go to reduce the owner’s capital or equity in the business balance sheet (statement of financial position). Whereas salary would be a business expense and would be reflected in the profit and loss or income statement (statement of comprehensive income). The latter will reduce the business profits, which is not only a tax advantage, but is also very useful information on the true cost of running the operations. The 3rd hidden expense in this series is business owner’s or director’s drawings.
The question a business owner should ask: If you were not playing the role you are playing in your business at the moment, how much would you remunerate someone to do it for? If this cost of doing business is not reflected in your accounts, it means that the profits or loss declared for that period are not true.
Are you paying yourself a salary or drawing down your capital?
To your success!
professionalizeyourbusiness@gm
6. #professionalizeyourbusiness series: False profits due to hidden expenses-Part 2
As many an MSME would have it, we started out our first business in one of the bedrooms in our house. We made it a complete office, with office furniture, computer, printer and all the basics of functional office. From the onset, we were determined to professionalize the business. We registered the business name with the registrar of companies, applied for a TIN number with URA etc. We even applied for a VAT (this was before the e-tax era so there was a difference between the TIN number and the VAT number. I remember the URA officials had to come to visit the business premises to verify existence.
Being an Accountant, I was keen to record on record keeping and accounting. I had set up the accounting structure and all the expenses that I deemed relevant to the type of business. When reviewing the initial financial report I noticed that the office rent expense had a zero amount. We therefore had to come up with a way of attaching value to the space the business was occupying and charge the business ‘rent’. The 2nd hidden expense in this series is business or office rent expense.
Since the rent is not being charged directly to the business because it is housed in a business owner’s home or premises, this expense item tend to be forgotten by many start up businesses. If your business is occupying a space somewhere and it is not paying rent, do you realize that the full cost of running that business is not reflected in your income and expenditure statement? This means that your profits or losses are not giving the true performance of the business?
I have come across a similar scenarios to the clients that I have mentored and there businesses are being incubated by institutions that provide for them both the factory and office space. These businesses tend to give impression that they are profitable but once the incubation period (ranging 2-3 years depending on the institution) is over, they realize that they cannot afford rent. In our case, as the business grew, it was easy to move out to an office in town, we had a good starting point to set a range of the rental space the business could afford and went office-space-hunting within that range.
Have you considered rent expense for your business?
To your success!
professionalizeyourbusiness@gm
As many an MSME would have it, we started out our first business in one of the bedrooms in our house. We made it a complete office, with office furniture, computer, printer and all the basics of functional office. From the onset, we were determined to professionalize the business. We registered the business name with the registrar of companies, applied for a TIN number with URA etc. We even applied for a VAT (this was before the e-tax era so there was a difference between the TIN number and the VAT number. I remember the URA officials had to come to visit the business premises to verify existence.
Being an Accountant, I was keen to record on record keeping and accounting. I had set up the accounting structure and all the expenses that I deemed relevant to the type of business. When reviewing the initial financial report I noticed that the office rent expense had a zero amount. We therefore had to come up with a way of attaching value to the space the business was occupying and charge the business ‘rent’. The 2nd hidden expense in this series is business or office rent expense.
Since the rent is not being charged directly to the business because it is housed in a business owner’s home or premises, this expense item tend to be forgotten by many start up businesses. If your business is occupying a space somewhere and it is not paying rent, do you realize that the full cost of running that business is not reflected in your income and expenditure statement? This means that your profits or losses are not giving the true performance of the business?
I have come across a similar scenarios to the clients that I have mentored and there businesses are being incubated by institutions that provide for them both the factory and office space. These businesses tend to give impression that they are profitable but once the incubation period (ranging 2-3 years depending on the institution) is over, they realize that they cannot afford rent. In our case, as the business grew, it was easy to move out to an office in town, we had a good starting point to set a range of the rental space the business could afford and went office-space-hunting within that range.
Have you considered rent expense for your business?
To your success!
professionalizeyourbusiness@gm
5. #professionalizeyourbusiness series: False profits due to hidden expenses-Part 1
When I set up a business or a company’s accounting and financial management system, I also advise them on best practice or point out some of the issues they need to put into consideration. What I discover is that there are some expenses that are ‘hidden’ because cash does not flow out from the business and therefore easily forgotten . The 1st one in this series is depreciation.
I computerized the accounting system for a client and in the process I advised the accounting personnel that they have to include depreciation on the fixed assets as an expense in their accounts. At the end of the exercise, the income and expenditure statement indicated that the business had made a loss. The Boss/Owner insisted that the business could not have made a loss because the sales had gone up than the prior year.
When we went through the report in detail, we came across depreciation as the one that tilted the scales. She had made a profit of Ugx20 million before depreciation. However, based on the fixed assets the depreciation charge for the year was Ugx25 million which meant a loss of Ugx5 million.
They had made a new purchase of a motor vehicle of Ugx80M to be used for distribution of there products. This was not in their fixed assets register in the previous year but it resulted to an additional Ugx16M depreciation expense charge in the financial year.
Depreciation is a method of allocating the cost of a tangible (fixed) asset over its useful life. For accounting purposes, depreciation indicates how much of an asset's value has been used up. The are various methods:
1) Depreciation methods based on time
Straight line method
Declining balance method
Sum-of-the-years'-digits method
2) Depreciation based on use (activity)
Depreciation is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. For example, if a company buys a piece of equipment for Ugx10 million and expects it to have a useful life of 10 years, it will be depreciated over 10 years. Every accounting year, the company will expense Ugx1 million (assuming straight-line depreciation), which will be matched with the money that the equipment helps to make each year.
The learning point is that the higher the value of your fixed assets the higher the annual depreciation charge over its useful life.
For example using straight line depreciation: If Business A buys a Motor Vehicle at 80M which they anticipate to use over 5 years, the annual depreciation charge will be 16M. If Business B buys a Motor Vehicle at 40M which they anticipate to use over 5 years, the annual depreciation charge will be 8M
Have you considered depreciation in your business?
To your success!
professionalizeyourbusiness@gm
When I set up a business or a company’s accounting and financial management system, I also advise them on best practice or point out some of the issues they need to put into consideration. What I discover is that there are some expenses that are ‘hidden’ because cash does not flow out from the business and therefore easily forgotten . The 1st one in this series is depreciation.
I computerized the accounting system for a client and in the process I advised the accounting personnel that they have to include depreciation on the fixed assets as an expense in their accounts. At the end of the exercise, the income and expenditure statement indicated that the business had made a loss. The Boss/Owner insisted that the business could not have made a loss because the sales had gone up than the prior year.
When we went through the report in detail, we came across depreciation as the one that tilted the scales. She had made a profit of Ugx20 million before depreciation. However, based on the fixed assets the depreciation charge for the year was Ugx25 million which meant a loss of Ugx5 million.
They had made a new purchase of a motor vehicle of Ugx80M to be used for distribution of there products. This was not in their fixed assets register in the previous year but it resulted to an additional Ugx16M depreciation expense charge in the financial year.
Depreciation is a method of allocating the cost of a tangible (fixed) asset over its useful life. For accounting purposes, depreciation indicates how much of an asset's value has been used up. The are various methods:
1) Depreciation methods based on time
Straight line method
Declining balance method
Sum-of-the-years'-digits method
2) Depreciation based on use (activity)
Depreciation is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. For example, if a company buys a piece of equipment for Ugx10 million and expects it to have a useful life of 10 years, it will be depreciated over 10 years. Every accounting year, the company will expense Ugx1 million (assuming straight-line depreciation), which will be matched with the money that the equipment helps to make each year.
The learning point is that the higher the value of your fixed assets the higher the annual depreciation charge over its useful life.
For example using straight line depreciation: If Business A buys a Motor Vehicle at 80M which they anticipate to use over 5 years, the annual depreciation charge will be 16M. If Business B buys a Motor Vehicle at 40M which they anticipate to use over 5 years, the annual depreciation charge will be 8M
Have you considered depreciation in your business?
To your success!
professionalizeyourbusiness@gm
4. #professionalizeyourbusiness series: Essentials of book keeping
Essentials of book keeping
As an entrepreneure, can you differentiate income from profit? You can be able to analyse and get this information by having apropriate and adequate records. One of the fundamentals of a business is having the record keeping, accounting and financial management aspects right. I am passionate about this subject because it is the key to how many anniversaries your business will celebrate.
As a very basic guide consider having a system (manual or computerized) for:
1) All money in and out of the business
2) All sales whether cash or credit
3) All purchases whether cash or credit
4) All Expenses analyzed in some logical manner
5) All Debtors with their names and amount owing
6) All Creditors with their names and amounts owed
7) All items of stock, as they come in and go
8) All tangible valuable non stock items
9) All Loans or overdrafts
10) All Directors equity, owners capital or contribution, drawings
11) All your tax and other statutory obligations like Corporation Tax, VAT, PAYE, NSSF, LST, WHT
12) Separate personal and business money
All these can be done manually, excel spreadsheet or using an Accounting software like QuickBooks Accounting Software.
We help with setting up both manual and computerized accounting systems, specializing in QuickBooks Accounting Software. We install, set up and customize and hand-on train on how to use and trouble shoot.
To your success!
Essentials of book keeping
As an entrepreneure, can you differentiate income from profit? You can be able to analyse and get this information by having apropriate and adequate records. One of the fundamentals of a business is having the record keeping, accounting and financial management aspects right. I am passionate about this subject because it is the key to how many anniversaries your business will celebrate.
As a very basic guide consider having a system (manual or computerized) for:
1) All money in and out of the business
2) All sales whether cash or credit
3) All purchases whether cash or credit
4) All Expenses analyzed in some logical manner
5) All Debtors with their names and amount owing
6) All Creditors with their names and amounts owed
7) All items of stock, as they come in and go
8) All tangible valuable non stock items
9) All Loans or overdrafts
10) All Directors equity, owners capital or contribution, drawings
11) All your tax and other statutory obligations like Corporation Tax, VAT, PAYE, NSSF, LST, WHT
12) Separate personal and business money
All these can be done manually, excel spreadsheet or using an Accounting software like QuickBooks Accounting Software.
We help with setting up both manual and computerized accounting systems, specializing in QuickBooks Accounting Software. We install, set up and customize and hand-on train on how to use and trouble shoot.
To your success!
professionalizeyourbusiness@gm
3. #professionalizeyourbusiness series: What is VAT?
A member of the FWWCB Business Forum requested to know more about VAT following last week’s post on Taxation of small businesses. Advantages of being VAT registered is that those you deal with assume that your business is of age and stable because you may not qualify for VAT registration if: you have no fixed place of abode or business; do not keep proper accounting records; have no bank account; have previously been registered for VAT purposes but failed to perform his duties under the VAT law; are not a fit and proper person to be registered or your annual turnover is less than Ushs50M. Kindly note the mandatory thresholds and the penalty for failure to comply.
WHAT IS VAT
VAT is a tax on consumption. In Uganda, VAT is imposed on the supply of goods and services (taxable supplies) made by a taxable person, other than exempt supplies; and imports other than exempt imports.
WHO IS REQUIRED TO REGISTER FOR VAT?
1. A person who carries on business activities or intending to carry on business activities is required to apply to be registered for VAT, if the turnover of taxable supplies of the enterprise for three consecutive calendar months exceeds or is likely to exceed Shs12.5 million. The annual registration threshold is 50 million shillings.
2. A person being a national, regional, local or public authority or body which carries on business activities or intending to carry on business activities is required to apply to be registered for VAT regardless of the turnover.
WHAT IS A TAXABLE SUPPLY?
This is a supply of goods or services made by a taxable person, that are not exempted from VAT. These fall in two categories namely; standard rated supplies (at 18%) and zero rated supplies at (0%)
WHAT IS EXEMPT FROM VAT?
Exempt supplies are supplies of goods and services which do not attract VAT. These are specified in the second schedule to the VAT Act.
A person dealing only in exempt supplies is not expected to register for VAT while one dealing in zero rated supplies is expected to register In case they meet the registration requirements.
WHO IS A PERSON?
The term person for purposes of VAT registration includes:
•An individual • A Company • A partnership •A trust• A Government• Any public or local authority
WHO IS A TAXABLE PERSON?
A taxable person is:
1. A person who is registered for VAT.
2. A person who is not registered but is required to register or pay VAT.
WHAT IS INPUT TAX?
Input tax means the tax paid or payable in respect of a taxable supply to or an import of goods or services by a taxable person.
WHAT IS OUTPUT TAX?
This is the VAT charged to the customer by a taxable person making taxable supplies. When you are registered, you charge VAT on all the taxable supplies you make. This VAT is your output tax.
WHAT OTHER TAXABLE SUPPLIES MAY BE LIABLE TO VAT?
a) Sales of business assets (e.g. equipment, furniture, commercial vehicles);
b) Hire or loan of goods to someone else for consideration;
c) Gifts to friends or business representatives;
d) Goods which you or your families have taken from the business for own use;
e) Commission received in return for selling something on behalf of someone else.
f) Sales to your staff or relatives (e.g. your products supplied free of charge, or at reduced prices);
g) Sales from vending machines;
HOW DO I ACCOUNT FOR VAT IF NO MONEY IS PAID?
VAT on any goods or services where no money will be paid or received should be accounted for basing on the fair market value at the time the supply is made; e.g. barter trade, gifts, own use.
WHAT I NEED TO CONSIDER BEFORE REGISTERING?
If during the past 3 calendar months you made taxable supplies whose gross value, exclusive of any tax, exceeded Shs.12. 5 million then you have to register for VAT immediately. Or, if you reasonably expect that during the next 3 calendar months the total value of your taxable supplies is likely to exceed Shs.12.5 million then you must register for VAT. Remember that even if you don’t qualify to register at present, and in future your taxable turnover increases to the level mentioned above, you must register at that point as required by the law.
Please note that your taxable turnover is the total value of all your taxable supplies (including exports) made in Uganda. They include zero-rated and standard-rated supplies (sales – not profit)
HOW DO I CALCULATE MY TURNOVER?
Your turnover is calculated on an ongoing basis. Two periods should be considered - the past 3 calendar months and the next 3 calendar months, on a month by month basis.
You should ascertain at the end of each calendar month the total value of taxable goods and services supplied by each of your businesses (if you have more than one business) for the past 3 months. Where the total exceeds Shs12. 5 million you are required to register for VAT. Or if after estimating the total value of supplies for the next 3 months you expect your turnover to exceed Shs12. 5 million then you are required to register.
CAN I BE REGISTERED IF MY TURNOVER IS BELOW THE LIMIT I.E. VOLUNTARY REGISTRATION?
Yes, if your taxable turnover is below the 12. 5 million limit in any 3 calendar months of business activity, you may apply for voluntary registration. You will, however, have to satisfy the Uganda Revenue Authority that you make taxable supplies.
Voluntary registration is at the discretion of the Commissioner General. In case your application is rejected, you will be notified and the reasons for the refusal given. The Commissioner General can refuse to register any person who:-
• Has no fixed place of abode or business;
• does not keep proper accounting records;
• Has no bank account.
• Has previously been registered for VAT purposes but failed to perform his duties under the VAT law.
• Is not a fit and proper person to be registered
AFTER I HAVE BEEN REGISTERED FOR VAT, WHAT ARE MY OBLIGATIONS?
• Charge and collect VAT on your supplies by issuing a Tax Invoice
• To file a VAT return within 15 Days after the end of the month.
• Pay VAT due as assessed in your return within 15 days after the end of the month.
• To Maintain Proper Records.
• Avoid making reckless, false and misleading statements.
NB: Failure to comply with the above culminates into Penalties and Interest under (Sec.65) of the VAT Act. It is important to note; that if you are liable to register but you do not apply for registration at the right time, you will have committed an offence under section 51 of the VAT Act and you would be liable to a penalty of up to Shs. 500, 000 or imprisonment for a period not exceeding 2 years or both. Your registration shall be deemed to have taken effect from the beginning of the month immediately following the month in which the duty to apply for registration arose.
Adapted from the URA WHAT VALUE ADDED TAX (VAT)? Vol. 2 Issue 2 FY 2013-14, Updated with the 2014/2015 Budget Highlights.
To your success!
professionalizeyourbusiness@gm
A member of the FWWCB Business Forum requested to know more about VAT following last week’s post on Taxation of small businesses. Advantages of being VAT registered is that those you deal with assume that your business is of age and stable because you may not qualify for VAT registration if: you have no fixed place of abode or business; do not keep proper accounting records; have no bank account; have previously been registered for VAT purposes but failed to perform his duties under the VAT law; are not a fit and proper person to be registered or your annual turnover is less than Ushs50M. Kindly note the mandatory thresholds and the penalty for failure to comply.
WHAT IS VAT
VAT is a tax on consumption. In Uganda, VAT is imposed on the supply of goods and services (taxable supplies) made by a taxable person, other than exempt supplies; and imports other than exempt imports.
WHO IS REQUIRED TO REGISTER FOR VAT?
1. A person who carries on business activities or intending to carry on business activities is required to apply to be registered for VAT, if the turnover of taxable supplies of the enterprise for three consecutive calendar months exceeds or is likely to exceed Shs12.5 million. The annual registration threshold is 50 million shillings.
2. A person being a national, regional, local or public authority or body which carries on business activities or intending to carry on business activities is required to apply to be registered for VAT regardless of the turnover.
WHAT IS A TAXABLE SUPPLY?
This is a supply of goods or services made by a taxable person, that are not exempted from VAT. These fall in two categories namely; standard rated supplies (at 18%) and zero rated supplies at (0%)
WHAT IS EXEMPT FROM VAT?
Exempt supplies are supplies of goods and services which do not attract VAT. These are specified in the second schedule to the VAT Act.
A person dealing only in exempt supplies is not expected to register for VAT while one dealing in zero rated supplies is expected to register In case they meet the registration requirements.
WHO IS A PERSON?
The term person for purposes of VAT registration includes:
•An individual • A Company • A partnership •A trust• A Government• Any public or local authority
WHO IS A TAXABLE PERSON?
A taxable person is:
1. A person who is registered for VAT.
2. A person who is not registered but is required to register or pay VAT.
WHAT IS INPUT TAX?
Input tax means the tax paid or payable in respect of a taxable supply to or an import of goods or services by a taxable person.
WHAT IS OUTPUT TAX?
This is the VAT charged to the customer by a taxable person making taxable supplies. When you are registered, you charge VAT on all the taxable supplies you make. This VAT is your output tax.
WHAT OTHER TAXABLE SUPPLIES MAY BE LIABLE TO VAT?
a) Sales of business assets (e.g. equipment, furniture, commercial vehicles);
b) Hire or loan of goods to someone else for consideration;
c) Gifts to friends or business representatives;
d) Goods which you or your families have taken from the business for own use;
e) Commission received in return for selling something on behalf of someone else.
f) Sales to your staff or relatives (e.g. your products supplied free of charge, or at reduced prices);
g) Sales from vending machines;
HOW DO I ACCOUNT FOR VAT IF NO MONEY IS PAID?
VAT on any goods or services where no money will be paid or received should be accounted for basing on the fair market value at the time the supply is made; e.g. barter trade, gifts, own use.
WHAT I NEED TO CONSIDER BEFORE REGISTERING?
If during the past 3 calendar months you made taxable supplies whose gross value, exclusive of any tax, exceeded Shs.12. 5 million then you have to register for VAT immediately. Or, if you reasonably expect that during the next 3 calendar months the total value of your taxable supplies is likely to exceed Shs.12.5 million then you must register for VAT. Remember that even if you don’t qualify to register at present, and in future your taxable turnover increases to the level mentioned above, you must register at that point as required by the law.
Please note that your taxable turnover is the total value of all your taxable supplies (including exports) made in Uganda. They include zero-rated and standard-rated supplies (sales – not profit)
HOW DO I CALCULATE MY TURNOVER?
Your turnover is calculated on an ongoing basis. Two periods should be considered - the past 3 calendar months and the next 3 calendar months, on a month by month basis.
You should ascertain at the end of each calendar month the total value of taxable goods and services supplied by each of your businesses (if you have more than one business) for the past 3 months. Where the total exceeds Shs12. 5 million you are required to register for VAT. Or if after estimating the total value of supplies for the next 3 months you expect your turnover to exceed Shs12. 5 million then you are required to register.
CAN I BE REGISTERED IF MY TURNOVER IS BELOW THE LIMIT I.E. VOLUNTARY REGISTRATION?
Yes, if your taxable turnover is below the 12. 5 million limit in any 3 calendar months of business activity, you may apply for voluntary registration. You will, however, have to satisfy the Uganda Revenue Authority that you make taxable supplies.
Voluntary registration is at the discretion of the Commissioner General. In case your application is rejected, you will be notified and the reasons for the refusal given. The Commissioner General can refuse to register any person who:-
• Has no fixed place of abode or business;
• does not keep proper accounting records;
• Has no bank account.
• Has previously been registered for VAT purposes but failed to perform his duties under the VAT law.
• Is not a fit and proper person to be registered
AFTER I HAVE BEEN REGISTERED FOR VAT, WHAT ARE MY OBLIGATIONS?
• Charge and collect VAT on your supplies by issuing a Tax Invoice
• To file a VAT return within 15 Days after the end of the month.
• Pay VAT due as assessed in your return within 15 days after the end of the month.
• To Maintain Proper Records.
• Avoid making reckless, false and misleading statements.
NB: Failure to comply with the above culminates into Penalties and Interest under (Sec.65) of the VAT Act. It is important to note; that if you are liable to register but you do not apply for registration at the right time, you will have committed an offence under section 51 of the VAT Act and you would be liable to a penalty of up to Shs. 500, 000 or imprisonment for a period not exceeding 2 years or both. Your registration shall be deemed to have taken effect from the beginning of the month immediately following the month in which the duty to apply for registration arose.
Adapted from the URA WHAT VALUE ADDED TAX (VAT)? Vol. 2 Issue 2 FY 2013-14, Updated with the 2014/2015 Budget Highlights.
To your success!
professionalizeyourbusiness@gm
2. #professionalizeyourbusiness series: Taxation of small businesses
Last week series focused on business registration, this gave rise to concerns about the tax implications on the different legal entities. I mentioned that a limited company will be subjected to corporation tax whereas the sole proprietorship, to which most small businesses register under, are subject to presumptive taxes. This week’s #professionalizeyourbusiness series therefore focuses on Taxation of small businesses.
TAXATION OF SMALL BUSINESS TAXPAYERS
After the reading of the 2014/2015 budget, some tax measures were proposed in Uganda affecting the small businesses. Presumptive tax rates applicable to “small business persons”(with annual gross turnover of less than shs.50M) have been increased from a minimum of Ushs.100,000 to a minimum of Ushs.450,000; and from a maximum of Ushs.450,000 to a maximum of Ushs.1,350,000; or 3% of the person’s annual turnover. The threshold has been raised from a minimum of Ushs. 5M to Ushs. 10M.
1. WHO IS A SMALL BUSINESS TAXPAYER?
A Small Business Taxpayer for income tax purposes is a resident taxpayer whose gross turnover from all businesses owned by such a person in a year is more than ten million but does not exceed FIFTY MILLION SHILLINGS. The term TURNOVER refers to one’s total sales in a year.
2. PERSONS NOT INCLUDED
Not included in this category of taxpayers even when the turnover is less than 50 million shillings are persons carrying on the following businesses:
(a) Medical practice
(b)Dental practice
(c) Architectural service
(d) Engineering service
(e) Accounting practice
(f) Legal practice
(g) Any other professional service
(h) Public entertainment service
(i) Public utility service
(j) Construction service
NOTE: Persons falling under the above listed business categories OR whose gross turnover is above FIFTY MILLION shillings in a year are required by law to file final and provisional income tax returns and be assessed to tax the normal way which is based on net income for the year and progressive rates of tax.
3. COMPUTATION OF THE TAX LIABILITY
The tax payable is calculated and determined on the basis of the different thresholds provided in the Second Schedule or three percent of the gross turnover. In the case of a taxpayer whose gross turnover is above ten million shillings but does not exceed Twenty Million Shillings a year, the tax payable is fixed at shs.450, 000 a year.
Tax rates for Small Business Taxpayers are contained in Table I below (revised after 2014/2015 Budget):
Gross turnover exceeds shs 5 million but does not exceed shs 10 million: (Tax Payable = Nil)
Gross turnover exceeds shs 10 million but does not exceed shs 20 million: (Tax Payable = shs 450,000 or 3% of gross turnover whichever is lower)
Gross turnover exceeds shs 20 million but does not exceed shs 30 million: (Tax Payable = shs 750,000 or 3% of gross turnover whichever is lower)
Gross turnover exceeds shs 30 million but does not exceed shs 40 million: (Tax Payable = shs 1,050,000 or 3% of gross turnover whichever is lower)
Gross turnover exceeds shs 40 million but does not exceed shs 50 million: (Tax Payable = shs 1,350,000 or 3% of gross turnover whichever is lower)
4. RETURN OF GROSS TURNOVER
In order to enjoy the benefit of paying the LOWER tax in each bracket, a taxpayer is required to file a return of Gross turnover for a given year.
Otherwise, a taxpayer will automatically be assessed to the standard tax in the tax bracket in which such taxpayer falls as contained in the Table I above.
5. (a) FINALITY OF TAX
The tax computed on the basis of GROSS TURNOVER is a final tax on the taxpayer’s business income.
Also note that no deductions are allowed in respect of any expenditure or losses incurred.
(b) TAX CREDIT
No tax credit is allowed to be set off against the final tax except a tax credit arising out of withholding tax paid in respect of amounts included in the gross turnover of the taxpayer for example, Withholding tax paid at importation or supplies to government or other withholding tax agents.
6. ELECTION (OPTION) FOR INCOME TAX ASSESSMENT
(i) The law provides for an option in writing notifying the commissioner that the tax payer prefers (opts) his/her income tax payable to be calculated by applying the relevant rates of tax determined under the Income Tax Act to the chargeable income of the taxpayer for the year of income.
(ii) Note that any tax credits allowed to the taxpayer would then be subtracted from the income tax determined in (i) above.
(iii) In order to qualify, a taxpayer is required to submit the election notice together with his/her Annual Income Tax Return for that year by the due date of filing such return.
Adapted from the URA TAXATION OF SMALL BUSINESS TAXPAYERS Vol. 2 Issue 1 F/Y: 2012/13, Updated with the 2014/2015 Budget Highlights.
Last week series focused on business registration, this gave rise to concerns about the tax implications on the different legal entities. I mentioned that a limited company will be subjected to corporation tax whereas the sole proprietorship, to which most small businesses register under, are subject to presumptive taxes. This week’s #professionalizeyourbusiness series therefore focuses on Taxation of small businesses.
TAXATION OF SMALL BUSINESS TAXPAYERS
After the reading of the 2014/2015 budget, some tax measures were proposed in Uganda affecting the small businesses. Presumptive tax rates applicable to “small business persons”(with annual gross turnover of less than shs.50M) have been increased from a minimum of Ushs.100,000 to a minimum of Ushs.450,000; and from a maximum of Ushs.450,000 to a maximum of Ushs.1,350,000; or 3% of the person’s annual turnover. The threshold has been raised from a minimum of Ushs. 5M to Ushs. 10M.
1. WHO IS A SMALL BUSINESS TAXPAYER?
A Small Business Taxpayer for income tax purposes is a resident taxpayer whose gross turnover from all businesses owned by such a person in a year is more than ten million but does not exceed FIFTY MILLION SHILLINGS. The term TURNOVER refers to one’s total sales in a year.
2. PERSONS NOT INCLUDED
Not included in this category of taxpayers even when the turnover is less than 50 million shillings are persons carrying on the following businesses:
(a) Medical practice
(b)Dental practice
(c) Architectural service
(d) Engineering service
(e) Accounting practice
(f) Legal practice
(g) Any other professional service
(h) Public entertainment service
(i) Public utility service
(j) Construction service
NOTE: Persons falling under the above listed business categories OR whose gross turnover is above FIFTY MILLION shillings in a year are required by law to file final and provisional income tax returns and be assessed to tax the normal way which is based on net income for the year and progressive rates of tax.
3. COMPUTATION OF THE TAX LIABILITY
The tax payable is calculated and determined on the basis of the different thresholds provided in the Second Schedule or three percent of the gross turnover. In the case of a taxpayer whose gross turnover is above ten million shillings but does not exceed Twenty Million Shillings a year, the tax payable is fixed at shs.450, 000 a year.
Tax rates for Small Business Taxpayers are contained in Table I below (revised after 2014/2015 Budget):
Gross turnover exceeds shs 5 million but does not exceed shs 10 million: (Tax Payable = Nil)
Gross turnover exceeds shs 10 million but does not exceed shs 20 million: (Tax Payable = shs 450,000 or 3% of gross turnover whichever is lower)
Gross turnover exceeds shs 20 million but does not exceed shs 30 million: (Tax Payable = shs 750,000 or 3% of gross turnover whichever is lower)
Gross turnover exceeds shs 30 million but does not exceed shs 40 million: (Tax Payable = shs 1,050,000 or 3% of gross turnover whichever is lower)
Gross turnover exceeds shs 40 million but does not exceed shs 50 million: (Tax Payable = shs 1,350,000 or 3% of gross turnover whichever is lower)
4. RETURN OF GROSS TURNOVER
In order to enjoy the benefit of paying the LOWER tax in each bracket, a taxpayer is required to file a return of Gross turnover for a given year.
Otherwise, a taxpayer will automatically be assessed to the standard tax in the tax bracket in which such taxpayer falls as contained in the Table I above.
5. (a) FINALITY OF TAX
The tax computed on the basis of GROSS TURNOVER is a final tax on the taxpayer’s business income.
Also note that no deductions are allowed in respect of any expenditure or losses incurred.
(b) TAX CREDIT
No tax credit is allowed to be set off against the final tax except a tax credit arising out of withholding tax paid in respect of amounts included in the gross turnover of the taxpayer for example, Withholding tax paid at importation or supplies to government or other withholding tax agents.
6. ELECTION (OPTION) FOR INCOME TAX ASSESSMENT
(i) The law provides for an option in writing notifying the commissioner that the tax payer prefers (opts) his/her income tax payable to be calculated by applying the relevant rates of tax determined under the Income Tax Act to the chargeable income of the taxpayer for the year of income.
(ii) Note that any tax credits allowed to the taxpayer would then be subtracted from the income tax determined in (i) above.
(iii) In order to qualify, a taxpayer is required to submit the election notice together with his/her Annual Income Tax Return for that year by the due date of filing such return.
Adapted from the URA TAXATION OF SMALL BUSINESS TAXPAYERS Vol. 2 Issue 1 F/Y: 2012/13, Updated with the 2014/2015 Budget Highlights.
1. #professionalizeyourbusiness series: Business Registration and Formalization
Have you formalized your business?
Most businesses operating in Uganda start informally as a family business, formalization of the business only becomes necessitated by the need to obtain external support services like finance, operating license, opening of business bank accounts, and the need to separate the business operation from personal finances.
The steps required to formalize a business in Uganda have been greatly simplified with specialized institutions providing these basic services that are found at district offices as well as at central government. To form a business one can either register a sole proprietorship, partnership or a limited liability company. It’s advisable to register the business entity no matter the size of operation. Logical steps to setting up a company include:
1. Forming a company/ type of business organization
2. Identify a company name
3. Registration with Uganda Registration Services Bureau
4. Obtaining necessary secondary licenses from line ministries (for instance, in fishing you need a fishing permit; you may need clearance from NEMA). It’s advisable to seek guidance from business support institutions like UIA, Trade offices at the District levels or your business association.
5. Register with local authorities/councils/ for operating permits e.g. Trading Licence
6. Register with NSSF if you employ more than 5 people
7. Register with Uganda Revenue Authority and obtain a Tax Identification Number (TIN), VAT number if your annual turnover exceeds Ushs 50 million
8. Register with Utility providers like UMEME, NWSC, and obtain an account number.
Business Registration: Below are the options of the nature of business on can register.
• Sole proprietorship; is an individual engaged in a business on his own account and is personally liable for the business debt.
• Partnership; this form of business is used for professional, small and family owned firms and all partners are jointly and severally liable for the obligations of the partnership.
• Private limited liability company; is a type of company that enjoys a legal personality fully distinguished from the people who run it.
• Public limited liability company; to incorporate this, there must be at least seven members owning shares with no maximum limit.
To ease the registration process, there is now a tripartite effort between Uganda Registration Services Bureau (URSB), Uganda Revenue Authority (URA) and Kampala Capital City Authority (KCCA)
Adapted from the UIA SME guide
To your success!
professionalizeyourbusiness@gm
Have you formalized your business?
Most businesses operating in Uganda start informally as a family business, formalization of the business only becomes necessitated by the need to obtain external support services like finance, operating license, opening of business bank accounts, and the need to separate the business operation from personal finances.
The steps required to formalize a business in Uganda have been greatly simplified with specialized institutions providing these basic services that are found at district offices as well as at central government. To form a business one can either register a sole proprietorship, partnership or a limited liability company. It’s advisable to register the business entity no matter the size of operation. Logical steps to setting up a company include:
1. Forming a company/ type of business organization
2. Identify a company name
3. Registration with Uganda Registration Services Bureau
4. Obtaining necessary secondary licenses from line ministries (for instance, in fishing you need a fishing permit; you may need clearance from NEMA). It’s advisable to seek guidance from business support institutions like UIA, Trade offices at the District levels or your business association.
5. Register with local authorities/councils/ for operating permits e.g. Trading Licence
6. Register with NSSF if you employ more than 5 people
7. Register with Uganda Revenue Authority and obtain a Tax Identification Number (TIN), VAT number if your annual turnover exceeds Ushs 50 million
8. Register with Utility providers like UMEME, NWSC, and obtain an account number.
Business Registration: Below are the options of the nature of business on can register.
• Sole proprietorship; is an individual engaged in a business on his own account and is personally liable for the business debt.
• Partnership; this form of business is used for professional, small and family owned firms and all partners are jointly and severally liable for the obligations of the partnership.
• Private limited liability company; is a type of company that enjoys a legal personality fully distinguished from the people who run it.
• Public limited liability company; to incorporate this, there must be at least seven members owning shares with no maximum limit.
To ease the registration process, there is now a tripartite effort between Uganda Registration Services Bureau (URSB), Uganda Revenue Authority (URA) and Kampala Capital City Authority (KCCA)
Adapted from the UIA SME guide
To your success!
professionalizeyourbusiness@gm
Other financial management related articles:
E-ACCOUNTING TRAINING institute in delhi
ReplyDeleteE-ACCOUNTING TRAINING institute in Noida
E-ACCOUNTING TRAINING institute in West Delhi
Good information shared by you
ReplyDeletee accounting traning in delhi
e accounting traning in Noida
If you looking for affordable, easy-to-use accounting programs designed for SMEs kindly check this Accounting Software.
ReplyDeleteThat is a very good tip primarily to those fresh to the blogosphere. Short but very precise info. Thanks for sharing this one. A must read article!
ReplyDeletetax consultant in London
Nice blog..! I really loved reading through this article... Thanks for sharing such an amazing post with us and keep blogging.
ReplyDeleteAccountants for construction workers in London
There are great posts!
ReplyDeleteI guess gardening and taking care of businesses are similar.
You have to nurture and promote growth.
This is Captain Number Cruncher of Numetrica.
smm panel
ReplyDeleteSmm Panel
İs İlanlari
İNSTAGRAM TAKİPÇİ SATIN AL
hirdavatciburada.com
beyazesyateknikservisi.com.tr
servis
Tiktok Hile İndir
tuzla arçelik klima servisi
ReplyDeleteçekmeköy samsung klima servisi
ataşehir samsung klima servisi
çekmeköy mitsubishi klima servisi
ataşehir mitsubishi klima servisi
maltepe vestel klima servisi
kadıköy vestel klima servisi
tuzla toshiba klima servisi
çekmeköy vestel klima servisi
afyon
ReplyDeletebahçelievler
bingöl
karşıyaka
tekirdağ
W87S7
Your blog post on financial management tips is a concise guide to better financial planning. Thanks for sharing these valuable insights.
ReplyDeleteBest Accounting Firm Toronto
تسليك
ReplyDeleteشركة تسليك مجاري بجدة