Some tax advice for the self employed persons

If you are self employed, it means you are in business on your own, as opposed to being an employee of somebody else. Anyone who is self employed is required to register with the URA and upon registration, you would be issued with a Tax Identification Number (TIN).

Being self employed in Uganda carries with it responsibility to sort out your own tax affairs.
This requires a person to keep good records of their business income and expenses to minimise their tax liability. With tax rates of up to 30 per cent of net profit, tax is an essential area in which anyone self employed should aspire to achieve a degree of competence. What is self employment? Any one who is in business either as a sole trader or a partner in a business partnership and receives income that is not taxed under the Pay As You Earn (PAYE) system is effectively a self employed person.

If you are self employed, it means you are in business on your own, as opposed to being an employee of somebody else. Anyone who is self employed is required to register with the URA and upon registration, you would be issued with a Tax Identification Number (TIN).

Every self employed person must keep a record of all their business transactions. This includes records of both the person’s sales or turnover, and his purchases and expenses. Sales turnover is the amount the business earns before deducting business expenses including receipts of any kind for goods sold or work done such as commission, tips, payments in kind, fees and insurance proceeds. If you deposit your sales into the business bank account, check your bank statements to ensure that the amounts deposited on your business bank account do not exceed the turnover you have declared in your business accounts. If your bankings exceed your declared turnover the taxman may interpret this to mean that you have understated your sales and your tax liability will be increased unless you can provide a solid reason for the anomaly.

The tax law requires a self employed person to keep their business records for at least five years. You can be penalised for failure to keep proper business records, or retaining the records you need to make a tax return. You’ll need to keep your business records and personal records separate. Most businesses find that it helps to have a separate business bank account. Your basic records will normally include, a record of all your sales, with copies of any invoices you have issued, a record of all your business purchases and expenses, invoices for all your business purchases and expenses, unless they’re for very small amounts, details of any amounts you personally pay into or take from the business and copies of business bank statements.

It’s helpful to keep a separate record of purchases and sales of assets that you use in the business, such as furniture. These will be treated differently in your tax return. You can claim wear and tear allowances on capital assets used in your business. This means that rather than claiming the whole cost at the fixed assets at the time you buy them, you reclaim the cost in form of tax allowances over time.

Your business records will be used by your accountant to create a profit and loss account. This is the statement that shows the sales income you have received and the expenses you have paid, and what profit or loss you have actually made. This will be the basis on which the tax payable by your business will be assessed. Failure to keep proper business records as required by the tax law, will leave you at the mercy of the taxman. This is because in the absence of proper business records, the tax law gives the URA powers to issue you with a tax assessment basing on their best judgment.
Oh, and by the way, the taxman’s best judgment is that all businesses make huge profits. The businessman is then supposed to keep 70% of this profit and pass on 30% of the profit to the government as income tax.

The writer is a Tax Partner , PricewaterhouseCoopers, Kampala.
francis.kamulegeya@ug.pwc.com