Admin: Good Evening Zbinites, Finally the rains are back. So our 3rd chat of the weekend loading..And our guest is Grace Nyakabau
Grace: Today I am going to talk about Compliance and taxes for small businesses.
I will try to make this as short as possible.
The first thing you need is to register a company. For the private sector, you can either register a Private Business Corporation or a Private Limited Company.
Benefits of Compliance
1. Credibility and Trust
2. Access to low cost funds
3. Avoid penalties associated with non compliance
4. Smooth operations…no disruptions from authorities.
Record keeping
By law, an entity is required to keep all records of a business’s transactions for up to 6 years. It is important that a company keeps both electronic and physical records, and practice proper bookkeeping to facilitate compliance, facilitate decision making and enhance accountability.
Practical Compliance tips
1. Register early,
2. Use of accounting software, record as it happens, don’t wait for year end
3. Track deadlines of your registered tax heads
4. Understand tax deduction and provisions,-deduct allowable business expenses to reduce taxable profit, keep all receipts/invoices
5. Pay taxes on time
6. Stay up to date on any compliance changes
PAYE-Pay As You Earn*
In simple terms, this is tax charged on an employee’s earnings (salaries, allowances). An entity is required to register for PAYE within 14 days of becoming an employer.
PAYE is charged using different tax bands starting from 20%. The higher the income, the higher the tax rate. The free threshold is up to $100/month.
It is also the entity’s obligation to calculate and remit PAYE to Zimra on behalf of employees.
PAYE returns are due on the 5th of the following month, and the payment is due on the 10th.
Income tax
This is tax on tax charged on profit made by a business (revenue less expenses less other provisions), and is the main tax head that an entity is automatically subscribed to. It is approximately 25% of your profit.
There are other deductions against income which are industry specific.
However, the most common across all industries is SIA or wear and tear where you can claim a deduction expenses incurred in acquiring business assets against your income. This usually leaves the tax payer with *little or no tax due to the authority.* You’d notice that most big organisations sell off their assets, in most cases cars after 4 years of ownership, this is because the tax deduction benefits of that asset would have expired.
Businesses pay provisional tax estimates QPDs on a quarterly basis (25 March, 25 June, 25September and 20 December).
A final return is required by the 30th of April of the following year. This will take into account all provisional amounts paid quarterly, and if there’s any shortfall, you’re required to pay it. However if you paid in excess of the actual obligation as per your computations, ZIMRA will give you a refund, which can be utilised in other upcoming tax returns.
Private Business Corporation
A legal entity, most suited for sole proprietors but with limited liability. It can have upto 20 members(who own and run it). It allows you to operate a single line of business.
Private Limited Company
This is a separate legal entity with limited liability, which allows one to operate as many lines of businesses as you wish. It is run by directors (requires at least two) and owned by shareholders (at least one)…a shareholder/company owner can be a director as well
VAT
Value Added Tax is an indirect tax charged on provision of goods and services. In simple terms, you’re collecting revenue/tax on behalf of the authority, by charging 15.5% tax on your goods or services.
You’re required to register for VAT once you reach the minimum threshold of $25,000 revenue(on taxable supplies) in any year of assessment, or when it is clear that you will surpass the threshold.
However, you can voluntarily register by applying to the authority.
Some/Most well established entities, contracts or tenders prefer to deal with VAT registered suppliers. This is because it reduces their VAT burden, by claiming back tax (VAT) they would have paid on their supplies.
NSSA
This one goes hand in hand with PAYE.
You’re also obligated to register as an employer with NSSA within 30 days of becoming an employer, and remit 4.5% of employees salary to the pension fund.
Limit is up to $700.
At the entity’s cost, an additional 4.5% is required to be contributed to the employee’s pension contributions.
Once your entity is registered, you’re required to register for taxes with the ZIMRA within 30 days of the company s incorporation, whether the company is operating or not.
Your entity will be allocated a Tax Identification Number(TIN), for reference in any tax related issues.
That’s when one issued with a tax clearance certificate.
Renewal is subject to compliance
Common Compliance Mistakes
1. Failing to register for taxes results in fines, back taxes and interest charges
2. Late filing of returns-may result in heavy fines and penalties.
3. Mixing business and personal expenses
4. Poor record keeping-you may miss out some expenses and this will surge your tax burden.
In conclusion,
Taxes are based on profit, not total revenue, and proper record-keeping reduces what’s payable. *Tax planning* and analysis of tax implications of every business transaction also helps you reduce tax burdens.
ZIMRA takes what is legally due, but with proper planning, record keeping, and claiming deductions, most of your income/profits remain yours.
