Accounting services at simplified tax system

Jan, 01 2024


All commercial entities including small and medium sized companies and sole proprietors are obliged to do bookkeeping. However, bookkeeping under simplified tax system has some peculiarities. Although it is easier in comparison with the requirements for companies applying general tax system, some mistakes may lead to penalties and other sanctions imposed by authorities.

Who can use the simplified tax system?

When the commercial entities are being registered, they can choose one of the following tax systems: general or simplified. Majority of legal entities apply general tax system and cannot change it. The simplified tax system or STS suits small and medium sized businesses. 

A company must meet the following requirements to be entitled to apply the STS: it must employ less than 100 employees, its revenue must not exceed 150 million rubles per year. Another important requirement is that the amount of main assets’ residual value must be less than 150 million rubles. The law imposes some additional requirements on organizations: they must not have local branches and the proportion of other companies’ participation must not exceed 25%. All that requirements do not allow big enterprises to apply STS. 

The peculiarities of bookkeeping and taxation while applying the simplified tax system is one of the reasons for many companies to try to switch to that system. As soon as the company switches to the simplified tax system it is exempt from some taxes:

  • value added tax;
  • property tax, except some kinds of real estate property;
  • income tax, excluding tax on income from dividends and certain types of debt.

In other words, if a company switches to this system it may reduce the tax base. Under the STS it is possible to choose the object of taxation which can be either income or income reduced by the amount of expenses. The second approach is usually called as «income minus expenses». It suits the enterprises with high cost of production. However, please pay tour attention that the tax changes depending on the option chosen: you pay only 6% tax from your income but a 15% tax from «income minus expenses».

The specialists recommend companies whose expanses are 60% or more of their revenue to apply the «income minus expenses» system. If the expenses do not exceed 60% it is more favorable to pay a 6% income tax. Moreover, it is only necessary to know the amount of receipts and deductions for calculating the tax with such a taxation object. In other words, choosing income as the object of taxation simplifies accounting.

The deduction is calculated basing on the amount of insurance premiums, benefits paid for temporary disability, payments for voluntary insurance of employees.

Accounting peculiarities while applying STS.

In some cases, companies applying simplified system may use simplified accounting methods as well. This applies only to small businesses. Which obligations does the law impose on the companies applying STS? They have to prepare and approve an accounting policy – it is necessary to prepare the Manager’s order to do so. Besides, it is necessary to consider the movement of funds, assets, and liabilities even if applying STS. All financial calculations must be reflected in the accounting statements. Finally, organizations must submit their accounting and tax reports to the authorities on time.

The possibility to switch to simplified tax system is a significant advantage of a small business status. It substantially simplifies accounting, for example, allows you to combine accounts, not to revalue fixed assets and intangible assets. The latter include technologies, programs, trademarks, and other intangible assets necessary for doing business. There are other advantages of simplified accounting:

  • Enterprises who employ less than 15 workers are entitled not to use double recording;
  • If the number of business transactions is less than 30 per month, it is allowed to keep only a general ledger without separate registers;
  • It is permitted not to reserve upcoming expenses – rare exceptions exist;
  • It is not necessary to recalculate data for previous periods to correct the accounting mistakes.

Companies who have chosen to apply the simplified system still have to pay taxes even in a smaller amount in comparison with the general tax system. In particular, they are still required to make social contributions, including pension payments and deductions for employee health insurance. The law does not allow infringement of employees’ interests.

Mostly accounting is done by double entry-bookkeeping or accrual. However, companies that apply the STS can use the cash accounting. Why is it convenient? According to the Tax code, this method considers income and expenses that are used while calculating the tax. Transactions are recorded in the book of income and expenses – a mandatory register for all companies operating under the STS.

Mandatory accountancy.

Among other advantages of STS there is possibility to submit fewer reports to the tax authorities. Consequently, you need to spend less time for preparing and submitting them, and the load on some specialists within the company is reduced. In this case, it is convenient to transfer accounting to outsource and reduce one’s own staff. Enterprises applying STS have to submit only annual reports. They can also make interim reports, for example, for a quarter. However, this is required if the interim reports are stated in a policy approved by management.

Accounting balance sheet and other reports are submitted in accordance with the forms approved by the Ministry of Finance, no later than March 31. The list of required documents is not too long: accounting balance sheet and a report on financial results. To generate reports applying the simplified system, small businesses should not be included in the list of companies that are subject to mandatory audit according to the law. It means that some activities do not allow to apply that type of accounting. For example, the law does not allow microfinance enterprises to apply simplified accounting.

Management should entrust accounting to specialists from the very beginning, even if the company applies simplified system. Because even in such state of affairs, the volume of accounting work remains significant. Despite the fact that there may be fewer tax reports to prepare, small businesses need to regularly submit other reports and returns. We would like to remind you that mistakes in filling out financial documents can cause serious problems to the company.

VALEN offers accounting services to companies applying STS in Moscow and other regions. Our specialists have great experience in outsourcing. Qualified accountants will put the documentation in order, submit all the necessary documents to the authorities on time, as well as provide detailed consultation to eliminate mistakes in further work.

Please contact us directly at +7 (495) 7-888-096 or leave the request on the website to get the consultation or make an order for accounting services at STS. We will be delighted to see you in our office in Moscow as well.

Author of the article
Accounting services at simplified tax system
Valentina Khlavich
Managing Partner
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