Overview of common tax compliance issues faced by startups & small businesses

Many startups and small business owners face many tax-related challenges and issues, often due to lack of awareness or understanding. In this article, we’ll try to find out the common tax compliance issues faced by startups and small businesses, including unawareness, inadequate documentation, improper business structure, and more.
1. Not Aware about probable tax compliances required to your business: I would like to give you the foremost issue that is faced by the small business owners and startups, that they don’t know about what are the probable tax compliances they required for their business. They know how to do the business, they have their resources, knowledge, connection to start the business or some time they are doing their business from last few years but they do not know what types of compliances they will face in future or already under scanner of tax departments. They believe their tax consultants and they do as their consultant asked them to do, but they never get to know that why they are doing so, nor their tax consultants give proper overview of the requisite compliances. This non awareness leads them to feels anxiety, fear of tax related issues, loosing of pease of mind. They simply follow what their consultant asked to do or what they have seen in their peer groups, friend recommendations, etc. So, try to make yourself aware about probable tax compliances, hire a good consultant to avoid any issues in future.
2. Inadequate Documentation: Many startups and business face many issues due to wrong documentation which leads them to pay hefty fines and penalties. Take an example, one person register his GST registration from his own house but he sells goods from different places. Now since he didnt change the address of the GST registration or did not add that additional place in his existing GST registration, his goods get caught by the tax officials in the way of delivery of the goods and he is charged with false billing since his Address in GST and the place from where ithe goods get transported is different. So this is very important to do the proper documentation of your business. Inadequate documentation includes missing invoice details, incomplete expenses records, proper company registration and return documents, inadequate employees and staff records. This kind of inadequate documentation can lead to fines, penalty, delayed refunds or denied refunds, loss of credibility, increased scrutiny from tax authorities, etc. So it’s better to adopt basic and simple documentation techniques to avoid any issues in future.
3. Proper business structure for your business: Do you know if you know the answer of this question that what is the best structure for your business can solve many issue arises in future. First we should know that what is business structure like Sole proprietorship form, Partnership form, Private limited company, Limited Liability Partnership structure and one new structure called One person company. If Startups or business owner know the answer of this question then you are in a right path to grow your business. In present time of digital era or i can say that startup culture, every one want to have their startups which is good things but first know the proper and best structure for your business. I can give you a good example, one person wanted to start a business and he incorporated a private limited company without knowing complete compliances requirement he need to fulfill which ultimately leads to huge cost of incorporation, maintenance cost of the business without doing single rupee business in whole year, government fees for filing return, professional fees, delayed filing fees which is very high in his case. Now he wanted to shut down the business but there is again a high cost which he had paid. So before starting a business must ensures what will be the best structure for your startups and this will save you great amount of money.
4. Requisite Tax Registration for your business and Startups: Starting a new business is always very exciting and challenging as well. So it is very important for entrepreneur to know all types of required registration they need to apply like Trade Licence, Professional tax, GST registration, PAN & TAN Application, Provident Fund and ESIC Registartion, Labour license, FSSAI Licence, MSME Registration, Startup Registration, Import Export License, and the list will go on. But you should know when this kind of registration will be required, which licence is compulsory to take beforehand and which license is required as per business working model. This is very important if you want to avoid any penalty or fine due to non-compliance of taking proper registration and regulatory requirements.
5. Proper Record Keeping of the business transaction: Many businesses person and startups must have felt this issue as they do not know how to keep proper records of the business transactions. In this digital era many startups for ease of doing make transaction from different accounts without keeping the records of the transactions. If you have a small business or startups then it is very necessary to keep record of all transaction either in a excel file or online google docs, drive or if not possible atleast to maintain a diary of all the transactions. One can maintain different diary or files for petty expenses of the business and the different files for purchase invoices and issued sales invoices, filed copies of return month wise and also year wise. This step will help the startups or businesses to gradually improve their record keeping and maintenance of books.
6. Incorrect return filing, delayed filings, non-filing of proper returns: This is one of the most occurred tax compliance issue faced by a startups or businesses which leads to huge fines, penalty, delayed refund, denied refunds, denied tax exemption, denied tax benefits, denied tax deductions and more. So it is very important to business person or startups that they must ensures all the return are filed correctly, before due date which will help them to avail all the benefits. A good example on this that even if you have filed incorrect income tax return before due date, you will have option to correct it, option to carry forward the losses which can be setoff with future tax liabilities. So never file your return incorrect, avoid delay in filing with proper care and attentions.
7. Over smartness or cunning attitude towards tax compliances: This is my personal view that sometimes a business owner or any startups try to over smart the government or sometime they have cunning attitude towards tax compliance. Nowadays with the implementation of digitalization, AI, and Data analysis modules into the system make departments stronger than before. Officials are now more vigilant, strict, not lenient as they were earlier, data of other departments is cross-checked by the different departments. So do not try to be a over-smart as it can leads to tax evasion detection, penalties, fines, legal action, and even prosecution. Over smartness or cunning attitude towards tax compliances can prove to be disastrous for businesses even closure of business. Always remember tax compliance is not a game.
Conclusion: Tax compliance is a very important aspect of running a successful business. Startups and small business owners should be aware of the common tax compliance issues that can hinder the growth of the business. By knowing the importance of proper documentation, business structure, tax registrations, record-keeping, and timely return filing, startups and businesses can avoid costly penalties and fines. Moreover, startups and businesses should try to adop a transparent and honest approach towards tax compliances. Remember, tax compliance is not a game, and over smartness, unawareness can lead to disastrous situations. Stay informed, stay compliant, and focus on a growing your business After all it’s your business, matter of your bread and butter.
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