Now that we have passed the halfway mark of 2018, many business owners reflect on how their business has fared so far and either give themselves a slap on the back for a job well done, plan adjustments that need to be made to improve productivity and their profit margin or sadly, even consider closing their business down altogether.
This last option is always a hard decision to come to because any business-owner can understand how much effort is put into getting any project off the ground and hopefully turning it into a success so the thought of “giving up” on that dream is devastating. However, sometimes this is the ONLY sensible option if the business does not meet expectations and repeatedly shows losses at the end of the tax quarter or fiscal year. If you do decide the best course of action is to close your business, whether it is due to poor performance or relocation, don’t forget the importance of ensuring the business has been closed down properly. Furthermore, don’t fall into the trap of thinking that just because you are no longer obligated to pay monthly Social Security contributions or declare quarterly taxes, that your tax obligations end there because as you can probably imagine where I am going with this, THEY DO NOT!
Every year, all business-owners must file tax summaries based on the previous tax year’s activity. Even though the tax offices would have received quarterly declarations, they check this tallies up to the annual declarations submitted and they have systems in place to try to keep everybody honest (and yes, I am chuckling as I write this) by contrasting information provided between client and supplier to ensure both parties declare the same amounts. What type of annual summaries may business-owners be liable for and what are the penalties if this obligation is not met?
Modelo 190: This is the most frequently filed declaration because it reflects data regarding any retentions made in concept of employees and/or professional services if the provider is subject to tax retentions on their invoices. If a business has employees on its books, this summary is a must.
Modelo 180: This declaration is for those who rent their business premises and retain a certain amount from the landlord (currently 19%). Since the tax office does not “trust” landlords to declare their rental income, they use the tenants to do so by deducting the tax due on the rent and paying it in on their behalf every quarter and this tax summary verifies the amounts paid during the course of the tax year.
Modelo 425: This form collates data on the IGIC declared and allows business-owners to apply for a rebate if by the end of the tax year it turns out they have paid more IGIC than they have charged.
Modelo 347 and 415: I have grouped these two forms together because they basically contain the same information one is declared at the National Tax Office and the other at the Canarian Administration, since in the Canaries, we have that peculiarity as we declare IGIC and not IVA. This tax form is the one that gives asesorías the biggest headache because it is imperative the amounts reflected on the declaration are correct to the cent. The reason why is quite simple; any transactions between client and supplier that exceed 3.005,06 euros or cash payments in excess of 6.000 euros in the tax year must be declared by both parties so if the tax office(s) detect any differences between these declarations, you can be sure this will be followed up by an extremely invasive tax inspection.
Modelo 349: This is similar to Tax Form 347, but it is used to declare inter-community transactions, or to put it in plain English, operations with other EU member states. Depending on the business-owner’s circumstances, this form may be declared monthly, quarterly or annually but if you are registered on the Intra-Community System (Registro de operadores intracomunitarios or ROI), this is an obligatory declaration to file.
Modelo 100: This is known as the Declaración de la renta which as you know is Personal Income Tax because that lovely campaign concluded in June. It is always a bittersweet time at this office because it makes some of my clients smile and others cry depending on whether the result was a rebate in their favour or more tax to pay. Anyone with a business activity must file this return so as before, if the business closed at some point during the year, the business-owner must declare the following year. This obligation would only continue after the business has closed if the taxpayer meets other criteria (rental income etc).
These are the most common annual summaries declared but of course, your business may be liable to submit other declarations depending on its activity, so it is best you seek advice to ensure your business complies with its tax obligations.
When business-owners close their businesses down, many forget the obligation to submit these summaries and fall foul of the tax office in that way even if their record had been impeccable up to that date. These annual summaries must be submitted between the 1st and 31st of January of the following year, so if for example, a business closed in June 2018, the business-owner would still have to submit the summaries that apply in January 2019.
As is to be expected, failure to do so is considered a tax offence and comes with penalties to the tune of 200 euros minimum per form. Unfortunately, I receive many external enquiries from people who previously had a business who been issued notifications by the administrations over unfiled tax forms so I hope this article proves useful and reminds traders the tax office will “own” them for a little while even after they walk away from their business activity.