Taxes are one of the largest expenses any company faces; paying less can mean higher earnings and, in turn, higher value for shareholders. So it is no surprise that companies seek to reduce the amount they pay. Business owners tend to leave tax planning until the last minute. It is prudent to begin planning for your taxes at the start of the year by identifying tax deductions, tax credits, and exemptions over the course of a calendar year, tax planning is a legal means of minimizing tax liabilities over a calendar year. Therefore, financial security and tax savings can only be achieved with a reduced fiscal burden.
The economy has had challenges, starting from inflation-related cost increases, ongoing supply disruptions among others. Whether you’ve had an excellent year or struggled, year-end decisions in whatever manner, say from income to expenses to equipment purchases have a significant impact on your tax picture. 2023/2024 is an important year to think carefully in terms of overall tax planning to allow you to take control of your tax situation, maximize savings, and ensure compliance with applicable tax laws.
Do the following ahead of the new financial Year 2023/2024
- Step-up your business book-keeping and records management. Keeping records is crucial for so many reasons, including monitoring the progress of a business, preparing tax returns, identifying various receipt sources and keeping track of deductible expenses. Keep track of the gross income your business earns, and as well have expense record. Failure to keep the necessary information or any other proof of transactions leaves the URA with no option but to determine your income using other methods and also to reduce the expenses you deducted. Part IV of the Tax Procedures Code Act imposes an obligation on a person carrying on a business to maintain accounts and records. Records should be kept for five years after the end of the tax period to which they relate.
- Do proper business planning. In business, tax planning helps in managing cash flow, optimizing deductions, and ensuring compliance. Review your business structure, expenses, and income sources. Make strategic decisions that minimize tax burdens and supports your long-term business growth.
- Compliance with tax laws. Uganda’s tax laws have always changed from year to year. Financial year 2023/24 will be affected by the tremendous tax amendments that were passed by the parliament. Staying informed about these changes is essential to ensure compliance. By proactively planning for any new tax laws or regulations that may affect your financial situation, you can avoid penalties and surprises when filing your tax returns from the URA.
- Investment planning: Tax planning involves considering the tax implications of your investments. You have a duty to understand the tax treatment of different investment options, such as stocks, bonds, or real estate, you can make informed decisions to minimize capital gains taxes. The new tax amendments repealed initial allowances for qualifying depreciable assets and industrial buildings. It is prudent that you plan well your investment.
- Maximizing deductions and exemptions: Proper planning will help you identify allowable expenses and exemptions that can help reduce your taxable income. Based on the type of business that you’re in, identifying and capitalizing on such expenses will help you plan well for taxes.
- Create a smart plan for paying taxes. The sooner you have an idea of your business’s general outlook for the tax year, the better prepared you are to prevent cash flow disruptions. Many businesses have faced higher costs due to inflation since 2020 and only proper thinking ahead about you’re your business will owe in the next 6months could prevent you from facing liquidity problems at tax time. The new tax bills presented a waiver of interest on voluntary payment of principal tax. The Commissioner shall waive the taxpayer’s liability for interest and penalty if the taxpayer voluntarily pays, by 31 December 2023, the principal tax outstanding as of 30 June 2023. This is a good strategy to identify your tax liability and voluntarily pay.
- Consult a Tax Advisor. One of the best things you can do as a business owner to minimize the amount of tax you are required to pay is to consult a tax advisor. Even if you are someone who keeps a close eye on business news and stays up to date on tax law changes, you still need professional advice to help you file your taxes. Business tax filings can be complex, and the penalties for mistakes or oversights can be high. Ultimately, paying for a tax advisor will be less expensive than trying to clean up the aftermath of a mistake with your taxes.
Failure to proactively deal with tax issues as soon as they happen will expose you to risks with the URA when it comes to timely meeting of tax obligations. Last minute handling of tax issues becomes complex and costly. Do not be caught offside!
Joshua Kato is a Chartered Accountant – Uganda Baati Ltd
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