When opening any business, an entrepreneur in most cases will need a person who will be engaged in bookkeeping: he will keep records of all expenses and income, deal with issues of reporting to tax or other regulatory authorities alike. But not all firms are expedient to hire their own accountant in the state for a full salary. It is often more profitable to outsource an accounting company specializing in this.
Interaction between a company and an accountant
The frequency of interaction between an entrepreneur and his partner in accounting for outsourcing depends on:
The type of activity of the company,
Organizational and legal form (esek patur, esek murshe, hevra baam),
Size of its turnover,
Presence of employees,
And many other factors.
Next, we will outline the process using regular tax reporting as an example.
The tax authorities establish the frequency of reporting and paying taxes, depending on the size of the company’s turnover. At low speeds, firms deal with Maam and Mas Ahnasa once in every two months. Large firms with serious turnover report monthly taxes.
To prepare tax reports and calculate the amount of taxes payable, clients transfer all the necessary documents to the accountant, namely, data on expenses and income. If we are talking about Esek Mursch or Hevra Baam, then the interaction of the entrepreneur and the accountant during the year occurs with the frequency in which regular reports are submitted to the tax authorities, i.e. every 1-2 months. Esek Patur with small volumes and with the support of a competent accountant, can generally limit itself to only annual reports in Maam and Mas Ahnasa respectively, and will meet with their accountant once a year.
Payment of taxes is divided into regular payments during the year, so that there is no situation at the end of the year where you need to immediately pay a huge amount of taxes.
Payments in Bituah Leumi (National Insurance Service) for the entrepreneur himself and his employees, if any, are made monthly.
The task of the accountant is to correctly calculate the VAT payable in Maam. To do this, he needs to analyze all the expenses which included the VAT paid by the entrepreneur and all income with VAT, and either the amount of value added tax payable in Maam or the amount to be returned to the entrepreneur’s account is displayed.
If an entrepreneur experiences periods when he has less expenses than income, then he is entitled to a VAT refund, which he receives on his account for about a month.
An entrepreneur sold his goods in the amount of 117 shekels, where 17 shekels is the tax that the buyer paid, and which the entrepreneur paid to Maam. For 100 shekels, the businessman issued a hashbonite mas and put them in his pocket.
But to produce their goods, an entrepreneur needs to spend 50 shekels on raw materials, plus 8.5 shekels to pay VAT on this amount.
According to the law, the VAT spent on business needs is returned to the entrepreneur by the state, and this is called “return VAT”. Thus, in the next reporting period, the entrepreneur will pay VAT in the amount of 8.5 shekels (minus the “return VAT” from raw material costs).
The situation described above is relevant for companies that pay VAT, i.e. for Esek Murcher and Hevra Baam. Esek patur reports on the conduct of business in Maam once a year in the form of a “tax return for exempted entrepreneurs”, or from the month it was exceeded- the amount of non-taxable annual turnover established for Esek patur (in 2018 this is 99,003 shekels). At the same moment, an entrepreneur can claim a VAT refund on expenses.
The frequency and amount of prepayment for income tax in Mas Akhnasa is also determined at the beginning of the year and depends on the forecasted turnover. Usually reports and payments are made once in every two months. In the case where the company has a high turnover, then it is done monthly.
For companies with small turnover and income, most Esek patura, for example, may not have advance payments in Mas Akhnas for income tax.
. If the company is serviced by an auditor, then he can change the size of the advance payment during the year. For example, if we are dealing with a seasonal business, then the auditor can cancel the advance payments of income tax for the low season and raise it for the high season. This is quite difficult for an ordinary accountant or an entrepreneur himself. You need to apply with Mas Akhnas, fill out special forms, etc.
The ability to change the size of the advance payment allows you to not withdraw money from the business in the low tax season for working capital deficit, and to pay taxes in advance during the period when the income is high, so as not to collect a large amount at the end of the year.
If you simply don’t pay advance taxes in a period when there are no incomes, then after 2-3 months Mas Akhnasa will respond with sanctions that will complicate not only further business, but also any financial activity of a person. Bank accounts, property (for example, a car) may be seized, a ban on traveling abroad and many more may be issued.
Payments in Bituah Leumi are made monthly. In order to submit reports and transfer payments in Bituah Leumi, the entrepreneur transfers salary sheets for his employees, data on vacations, sick leave, days off and other information affecting the wages of employees to the accountant.
The formation of deductions in Bituah Leumi consists of part of the employees and part of the employer.
If the salary of employees is subject to taxation (it depends on its size), then taxes payable are also calculated from it and payments are made to Mas Akhnas. Employee salary taxes may also be paid on a monthly or bi-monthly basis depending on the number of employees and amounts.
When an accountant has made all payroll calculations, all this is sent to the client for settlement with employees. Among the data on salaries and taxes withheld, there are also data on pension, insurance, dismissal and other deductions that the entrepreneur makes on his own, or through his insurance agents. These are mandatory deductions, where only the amount is calculated by the accountant, but paid by the client…
The most common format is that the accountant pays taxes by writing checks on behalf of the entrepreneur. For small businesses with small and infrequent payments, the option is possible when the accountant prepares all the payments, and the entrepreneur pays on his own in any way convenient for him.
An entrepreneur needs to remember that tax evasion is a criminal offense that amounts to theft.
This article is for general informational purposes only and does not replace expert advice.