ACCOUNTING
Managing your accounting can seem like a daunting task, especially for those just stepping into the world of entrepreneurship. With laws and regulations in this field changing regularly, it’s all too easy to miss an update or slip up somewhere. Wondering what accounting management really involves, who needs to do it, and what other methods of record-keeping you might consider? We’ve got you covered with the essentials, breaking down everything you need to know in a way that’s easy to understand.
Accounting is mandatory for all legal entities and for individuals who
- are registered in the commercial register,
- had a turnover exceeding 25 million CZK in the previous calendar year,
- are required to do so by a specific regulation,
- are partners in a company where at least one of the partners keeps accounting records,
- choose to keep accounting records voluntarily.
In addition to the aforementioned reasons for mandatory accounting, other individuals can choose from three options to record their income and expenses for tax base determination purposes. These include the previously mentioned accounting, tax records, or lump-sum expenses.
TAX RECORDS
The rules for keeping tax records are specified in § 7b of the Income Tax Act. Tax records include data on
- Incomes and expenses, categorized as necessary for determining the tax base.
- Assets and liabilities.
This provision contains information on how to value different assets. Tax records also mandate an inventory of assets on December 31, which in practice means comparing the recorded and actual status of stocks and assets and adjusting any discrepancies (shortages or surpluses) in the tax base.
The specific form of maintaining tax records is not prescribed. You can keep them in paper form, in Excel, or use accounting software. However, it is crucial to familiarize yourself thoroughly with all relevant provisions of the Income Tax Act, especially for the correct allocation of income and expenses to taxable and non-taxable, proper valuation and recording of assets, calculation of depreciation, etc.
LUMP-SUM EXPENSES
The option to apply expenses in a lump sum was introduced to minimize administrative burdens for small entrepreneurs – individuals when determining the tax base and preparing tax returns. Therefore, you do not need to record your expenses or assets as in the case of tax records and do not require any in-depth expertise or special software. A simple table, for example in Excel, where you record your incomes, e.g., cash sales from January 1 to December 31 in one column, and so-called receivables, e.g., issued invoices and their payment dates, in another column, is sufficient.
The amount of expenses is given in a lump sum according to § 7 paragraph 7 of the Income Tax Act and depends on the type of business.
ACCOUNTING AND VAT PAYMENT
You become a mandatory VAT payer if your turnover exceeds 2 million CZK (until 2022 when the threshold was 1 million CZK) over 12 or fewer consecutive calendar months. In that case, you need to register within 15 days after the end of the month in which you exceeded the set turnover and start fulfilling the following VAT payer obligations
- Apply value-added tax to all your sales, i.e., taxable supplies made.
- Keep records and retain all tax documents for 10 years.
- Submit tax returns and control statements by the 25th day after the end of the tax period.
- Verify your suppliers in the VAT payer registry.
- Issue tax documents and remit VAT also for received advances.
- And you can claim the so-called right to excessive deduction for your purchases.
If your turnover for the previous calendar year exceeded 25 million CZK, you are already legally required to keep accounting records.
SELF-ACCOUNTING OR AN EXTERNAL PARTNER
At first glance, managing your own accounting might seem like a cost-saving measure. On the other hand, it requires a very good understanding of accounting principles and, most importantly, current legislation. Overlooking important details or submitting documents late exposes you to the risk of penalties from regulatory bodies, e.g., the Financial Authority. Not to mention the question of equipment, i.e., the acquisition of quality accounting software, which you have to pay for and learn to use effectively.
By collaborating with an external partner on an outsourcing basis, these concerns are taken off your hands, saving you a lot of time. If you’re an entrepreneur or a small manufacturing or trading company, our team of experienced accountants will take care of comprehensive accounting management with maximum convenience for you. We offer:
- Maintenance of the main ledger.
- Processing of accounting documents, their digitization, and archiving.
- Bank, inventory, and asset record-keeping.
- Creation of accounting reports and statistical statements.
- Preparation of control reports.
- Processing of the annual financial statements.
- Preparation of the control summary report and VAT returns.
We pride ourselves on a professional and meticulous approach. Accounting management is a breeze for us. With us, you’ll always have your accountant within reach.
