When businesses prepare and file their taxes without a KRA agent, they believe it’s a great way to save money. However, like most business owners soon discover, it is a costly mistake, especially when avoidable errors result in hefty penalties and compliance issues.
It’s no secret that hiring a tax agent requires a considerable budget, whether you are an SME or a large company. However, the money spent on a tax consultant is little compared to how much it would cost to pay penalties, interests, or pursue tax disputes with KRA. In this post, we discuss the top 5 mistakes businesses make when filing taxes without a KRA agent.
Why Do Businesses File Taxes Without a KRA Agent?
Before we can discuss the mistakes, let’s find out why businesses decide to do their own taxes without consulting a tax professional.
- Perceived Cost Savings: The first and obvious reason why most small businesses file taxes without a KRA tax agent is thinking they are saving money. Why pay someone to do my business taxes when I could do them and save that money? Unfortunately, when compliance issues arise, the taxpayer ends up spending more money than they would have spent to hire a qualified tax consultant.
- Being Unaware of the Role of a Tax Agent: There is a lack of awareness of the role of a tax agent. Most taxpayers think the role of a tax agent is to only file taxes, which is false. A tax agent is your partner in all taxation matters, including tax planning, tax saving strategy, tax dispute resolution, and other tax advisory services.
- Overconfidence in Their Accounting Skills: Some business owners think that doing taxes requires basic bookkeeping and accounting knowledge only. This couldn’t be any further from the truth. Tax compliance requires a proper understanding of tax laws, tax exemptions, and tax filing procedures on iTax.
- Belief That KRA iTAX System is Easy: The internet age has made people overconfident in learning and practicing various skills. Online tax filing is one of them. A Kenyan taxpayer may think watching a couple of YouTube tutorials on how to file taxes on iTax is all they need to file their business taxes. While the iTax system seems self-explanatory, filing those complex and multi-step business taxes requires professional guidance.
- Perceived Privacy and Control: Some business owners hold the confidentiality of their financial information in high regard, making it difficult to trust an external professional with that data. However, this should not be a worry. Licensed KRA tax agents operate under strict ethical taxation practices rooted in honesty, integrity, and accountability.
Now that we’ve understood what prevents businesses from hiring a tax agent, let’s see how making such a decision negatively affects the business and tax compliance.
Top 5 Mistakes Businesses Make When Filing Taxes Without a KRA Agent
Here are the top mistakes businesses make when filing taxes without a tax professional:
- Incorrect Tax Calculations: Most businesses make errors when computing the taxable income, exempt tax, and statutory deductions. This is partly because the tax laws around these parameters are constantly changing. Tax miscalculations lead to underpayment or overpayment of taxes, both of which can trigger a KRA audit or assessment.
- Missing Out on Deductions and Tax Reliefs: Most businesses fail to deduct all the eligible deductions and tax reliefs from their taxes, losing money to KRA in the process. A tax agent knows the ins and outs of business taxes, including VAT, withholding tax, and corporate tax. They can help businesses manage their taxes better and save money.
- Late Filing of Tax Returns: Running a business is not an easy feat, and most business owners don’t realize when tax filing deadlines are approaching. KRA is strict about missing tax filing deadlines, thus making such a mistake could lead to penalties. Such penalties and other compliance issues can be avoided by working with a KRA tax agent.
- Inadequate Documentation and Record Keeping: Good record keeping is key to accurate reporting and tax compliance. Often, a business doing everything on its own, including bookkeeping and accounting, leads to poor documentation and record-keeping. Without accurate financial records, businesses misreport their taxes, leading to tax disputes or KRA audits.
- Mixing Business and Personal Finances: Small and medium business owners often use personal bank accounts for their business transactions. This leads to a mixture of personal and business finances, which can cause challenges when filing taxes.
Why Working with a KRA Agent Matters for Businesses
As a business owner, filing your own taxes may seem manageable, but that’s not always the case. Simple mistakes could lead to costly penalties and other compliance issues. That’s why you need to work with a licensed KRA tax agent. A tax agent understands the intricacies of Kenyan tax laws and the most recent developments in tax regulation.
You don’t need to overwhelm yourself with keeping up with the ever-changing tax landscape and managing your business operations. Delegating your tax matters to a tax professional saves you time and restores your peace of mind, allowing you to focus on business growth.
A tax agent offers more than tax compliance. They are your trusted partner in maximizing returns from your business. A lot of businesses lose revenue through overpayment of taxes, interests, and penalties. A tax agent provides tax planning and tax-saving advice that legally minimizes your overall tax liability.
Overall, filing your taxes with a KRA tax agent adds immense value to your business. It can be the peace of mind you get by knowing your taxes are filed on time, and you don’t have to keep up with deadlines yourself. Not having to monitor changing tax laws keeps you calm and in the best headspace to run a successful enterprise. All said and done, a KRA tax agent is a strategic partner in your business growth.
Final Words
Businesses make some costly mistakes when filing taxes without a KRA tax agent. These include late filing, miscalculation of taxes, misreporting that triggers KRA audits, and mixing personal and business finances. To avoid such errors, partner with a licensed KRA agent. At Gichuri & Partners, we provide the best tax agent services in Kenya. Contact us today to streamline your business tax matters.
