THINKING OF GOING INTO BUSINESS FOR YOURSELF?

This leaflet is for anyone thinking of setting up a business on his own, or as a partner.

First consider talking to an Accountant or Solicitor if you want to set up a business. It is also a good idea to get their advice about going into partnership, especially because if your Partners default in their tax obligations, you may have to pay it yourself if you hold any money on their behalf.

Remember that all the points in this leaflet apply even if your business is a part-time or a spare-time one and not just if it is full-time.

WHO DO I SEE?
First, go to your local Tax Office. The Tax Office may want to satisfy itself that you are self-employed, i.e. you are trading on your own account and that you are not employed by someone else.

The Internal Revenue Service has offices in all Regional Capitals and most districts in the country. See CONTACT IRS Section of this website

WHAT YOU NEED AS:

A. A SOLE-PROPRIETOR
If you are running a one-person business, you will need a BUSINESS REGISTRATION CERTIFICATE and a REGISTRAR - GENERAL FORM 'A'

B. PARTNERSHIP
If you are in partnership, you will need certified true copies of:
a. Partnership Agreement
b. Certificate of Incorporation of Partnership
c. Registrar-General's application form(for manufacturing concerns)

C. LIMITED LIABILITY COMPANY
If your business is a Limited Liability Company, you will need certified true copies of: -

a. Certificate of Incorporation
b. Certificate to Commence Business
c. Company's Regulation
d. Manufacturing Certificate(for manufacturing concerns)
e. Vending Agreement (if company was purchased).

WHAT HAPPENS NEXT?
Your Tax Office will issue you with the following forms for completion and submission:

A. A SOLE-PROPRIETOR
1. IT Form 21 (Return of Income-Individual)
2. IT -Forms 299B (Application Form for Registration of Trade, Business, Profession or Vocation)

B. PARTNERSHIP
1. IT Form 22 (Return of Income Partnerships)
2. IT Form 299 B (Application Form for Registration of Trade, Business, Profession or Vocation
3. IT Form 21 (Return of Income Individual) to each partner in Partnership

C. LIMITED LIABILITY COMPANY
1. It Form 22A (Return of Income-Limited Liability Companies)
2. IT Form 299B

The Tax Office will then have a chat with you about your business.

TIN REGISTRATION

WHAT IS TIN?
This is a unique TAXPAYERS IDENTIFICATION NUMBER given to taxpayers for official transactions with

a. the Internal Revenue Service
b. the Customs, Excise and Preventive Service
c. the Value Added Tax Service
d. the Controller and Accountant General
e. the Registrar General's Department
f. District, Metropolitan and Municipal Assemblies
g. and any other public institution the Minister of Finance may prescribe.

WHO REGISTER FOR TIN?
Any person liable to tax or required to withhold tax at source is enjoined to register with the TIN Secretariat for this unique number.

HOW IS THE REGISTRATION DONE?
The registration is done upon application to any IRS Office throughout the country.

CAN I REFUSE TO REGISTER FOR TIN?
No, because any person who fails to register for TIN cannot

a. clear any goods in commercial quantities from any port or factory
b. register any title to land, interest in land or any document affecting land
c. obtain any Tax Clearance Certificate from the IRS, CEPS or VAT Service
d. receive payment for the supply of goods or service from the Accountant General or any District Assembly.

Note: Persons already Registered for VAT: Any person already registered by the Value Added Tax Service and issued with an identification number is treated as having been issued with TIN.

WHAT DO I NEED TO DO AFTER THE REGISTRATION?
The most important thing is to keep accurate records of all your business transactions, and the receipt, bills, bank statements, cheque stubs etc. to back them up. You can get various sorts of accounts books for recording the figures. It may also be helpful to have an accountant or accounts clerk for your books.

At the end of each year of trading, your tax office will want a copy of your accounts showing the amount of profit you have made. Brochure IRS 06 "STARTING IN BUSINESS" gives useful advice on how profits are calculated for tax purposes.

To work out the profit you will need to know the details of everything paid in or owed to the business, and everything paid or owed out of it. This will include all your business expenses and any money or items you have taken out of the business for your private use.

If some of your expenses are partly business and partly private eg. rates, lighting, telephone, (where your office is in the same building as your home) or motor expenses in the case where the car is for both business and private use, you have to state so. You and your Tax Office will have to agree on the part which represents business use.

The Tax Office will need to be satisfied that your accounts give a true picture of your business. If you are self-employed, you will normally rely on your business accounts to make a correct return of your income. If you are the owner or director of a Limited Liability Company you will rely on the business accounts to ensure that the Company's profits are correctly returned.

The IRS has a responsibility to ensure that returns are correct. If the returns are not acceptable then the Tax Office will want to look into your tax affairs, examine your books of accounts and interview you. If your records are not good enough to produce proper accounts, your tax assessment might then be based on an estimate of your business activity and the tax could be higher.

It is therefore advisable to keep full and accurate records of our business not only for your own use and your accountant, but also for the Tax Office, so that they can be sure your tax returns are correct.

IMPOSITION OF INCOME TAX
Any person who earns income from employment, business and investment is liable to tax for each Year of Assessment. The Year of Assessment is from 1st January to 31st December of the same year.

CHARGEABLE INCOME: This is the person's assessable income for that year from each business, employment and investment less allowable deductions, capital allowances and /or personal reliefs.

INCOME FROM A BUSINESS: A person's income from a business is that person's gains or profits from any business carried on for whatever period of time by that person. The income may include amounts accruing to or derived by that person from any investment during any basis period.

BASIS PERIOD
This defines the income to be assessed to tax in a particular Year of Assessment. While a Year of Assessment is a government financial year during which taxes are levied, a basis period applies to a period within the Year of Assessment in which a person is assessed to tax.

Before the coming into force of the Internal Revenue Act 2000, (Act 592) individuals, partnerships and companies or body of persons could choose their own accounting dates. However, with the enactment of Act 592, individuals and partnerships are required to adopt the government's accounting date of 1st January to 31st December, of the same year as their "basis period".

HOW IS TAX CALCULATED
The Income Tax year runs from January 1 to December 31 of every year. So January 1 2002 to December 31 2002 is the 2002-Year of Assessment.

You are required to complete a tax return form at the end of each Year of Assessment. You may receive a provisional assessment at the beginning of each year as the Commissioner of IRS, is empowered to raise provisional assessment on every person chargeable with tax.

You may pay each year's tax liability in four equal installments by March 31, June 30, September 30 and December 31 of every year.

Brochure IRS 06 "STARTING IN BUSINESS" tells you more about the tax you have to pay. Your accountant, if you decide to have one, will also be able to help you.

YOU SHOULD SET ASIDE MONEY REGULARLY SO THAT YOU WILL BE ABLE TO PAY YOUR TAX WHEN IT BECOMES DUE

WHAT ABOUT PAY AS YOU EARN (PAYE) FOR MY EMPLOYEES?
If you take someone on to work for you, ( even your wife, husband or child), you may have to deduct tax and Social Security from their earnings, and pay the employer's share of 12.5% of the Social Security Contributions.
If you are thinking of taking someone on, talk to your Tax Office. They will answer some of your questions about PAYE and show you how to fill out IT Form 51 (Employers Schedule of Monthly Deductions). You may also collect IT Form 54 from your Tax Office. This form contains particulars to be furnished in respect of a new employee.

WHERE CAN I GO FOR MORE ADVICE?
An Accountant can advise you on bookkeeping and running your business generally. An Accountant can also draw up your account and help you fill in your tax returns and will show you what tax allowances you can claim. However, you yourself remain responsible for correctly declaring your profits and sending in accurate returns.

Your Bank Manager can also give you advice on business matters. If you do not already have a bank account, you will need to open one, and it is better to keep your business account separate from your private one.

The TAX OFFICE is there to help you. Their job is to get your tax right. If you disagree with the assessment you can go and discuss it with them and MAKE A FORMAL APPEAL IN WRITING if you still do not agree.

Any Tax Office will also be ready to help you with any other tax problems or queries you have.

WHAT IS AN APPEAL?
An appeal is an objection to the way the Tax Office has dealt with your affairs in an income tax assessment. The difference may involve estimated tax charged.

This can often be avoided if you make a complete return of your income in good time and send in your accounts promptly and accurately.

These notes are for guidance only and reflect the tax position at the time of writing. They do not affect your right of appeal about your own tax. (For more information on TAX Appeals see section on Objections and Appeals)

ISSUED BY THE INTERNAL REVENUE SERVICE, SEPTEMBER 2004