The end of the financial year is a busy time for several businesses and tax professionals. For businesses whose tax year of income is aligned with the fiscal year, 30 June is the end of the year of income and the 12 month point in the tax calendar when the second instalment of tax is due. For businesses whose year of income ends 31 December, 30 June is the sixth month point of the year of income when the final self-assessment return for the previous year and the fist provisional return for the current year are due along with the corresponding tax payments.
It can get a bit confusing for non-tax practitioners. One of the easier ways to recall the deadlines is to remember that obligations are due every 6 months during and after the year of income. Corporate income taxes in Uganda are paid in two instalments of 50% each, on or before the last day of the sixth and twelfth month of the year of income.
It is important to meet the deadlines as there are penalties for the late filing of returns and for the late payment of tax. The late filing of a tax return attracts a penalty which is the greater of 2% of the gross tax liability or Ushs 200,000 per month for which the return is outstanding. The late payment attracts interest at a rate of 2% per month on the unpaid amount. However, if for any reason, you anticipate a delay in filing your return, you must notify the URA before the deadline and formally request for an extension of time. If your business is cash strapped, you may also request for a payment plan for the tax payable. However, interest will accrue on the outstanding amount.
In addition to the deadlines, one must also be mindful of the attendant penalties for understating the tax estimates. Where the estimate of income is less than 90% of the taxpayer’s actual chargeable income assessed for that year, the taxpayer is liable to penal tax equal to 20% of the difference between the estimated tax and the tax calculated on 90% of the taxpayer’s actual chargeable income. Certain businesses such as agricultural businesses are excluded from the underestimation penalty.
The compliance calendar is designed to provide the taxpayer with ample time to revise the estimates. The key time to re-evaluate the provisional tax estimate is prior to year- end i.e. when there is still time to file a revised estimate. One should not wait until the final tax return is due as all one can then do is to check if there is an underestimation penalty.
Other checks that should be undertaken relate to the withholding tax that has been paid during the year as advance corporation tax. As this should be utilised as a credit against the actual tax payable at the end of the year, it is important to ensure that the withholding tax certificates have been obtained and reconciled to the credit that is due.
For VAT registered businesses, the sales per VAT return should be reconciled to the sales reported in the financial statements/management accounts. This can be done annually and any differences should be explained and documented as differences could imply an under declaration of sales for VAT or corporate income tax.
Records supporting the tax position should be kept for future reference. The records must be kept for 5 years after the end of the tax period to which they relate. Without doubt, poor record keeping exposes the business to tax liabilities that can be avoided. Specifically, all deductions claimed must be supported by the appropriate receipts and invoices and recipients of payments above UGX 5m must have tax identification numbers. Further, purchases from VAT registered persons must be supported by e-invoices to qualify for tax deduction. Contracts for large transactions must also be in place especially where the transactions are cross-border and with related parties.
Lastly, as the tax law is dynamic, it is important to consider the changes to the tax law that occurred at the start or during the year that may affect the business’ tax position.
Overall, getting prepared is an ongoing process rather than a one-off exercise at the end of the tax year or when the payment deadline looms.