Remittances to the Government
This
session looks at the money that your company must
collect on behalf of the government in day-to-day
transactions and which it must remit to the
government on a periodic basis. This issue gets many
small businesses into trouble. Let's start with a
few critical warnings about government remittances:
1. This money is not
yours. Do not spend it! Although this
seems self-explanatory, thousands of small
businesses all over the world get into serious
trouble this way. It can be easy to forget that most
of the $5,000 you have in your bank account belongs
to the government, and to use it for "a little while" for
short-term financing. Along comes the filing and
remitting deadline, and you don't have the money
anymore.
So you don't file anything. Now,
not only do you owe the remittance, you also owe interest and penalties. Further
non-filing or non-payment results in your
business bank accounts being frozen. Not a good
scenario.
The
easy solution is to put the money aside, perhaps
even in a separate bank account. Don't look at it;
don't think about it. Just remit it when the time
comes.
2. Make sure you
reconcile your liability account in your books
to what you're actually remitting to the
government. It's easy to just concentrate on the
changes in the account for the current period
and forget that last period's amount did not get
cleared out properly. Reconciliation will be
discussed later in this session.
3. Keep good
accounting records. You are holding this money
in trust for the government, which will want to
know that you have a handle on how much you owe.
The government may also periodically want to
see your source documents to make sure you're
withholding the right amounts from your
employees and that you're charging the right
amount of tax to your customers. Document,
document, document!
What Are Government Remittances?
There
are two major categories of money you must
collect on behalf of governments: employee
withholdings and retail sales tax. At this point, I'm going
to break out the differences between Americans
and Canadians to show you that even though the
taxes themselves are different, the concepts
are the same.
Remittances to the Government