- Release Date:2025-06-13 20:00:42
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Many friends with entrepreneurial dreams choose to register as individual business owners at the initial stage, believing that the procedures are simple and management is easy. There is even a saying that "individual business owners do not need to keep accounts or file taxes". Recently, many individual business owners have been asked by the tax authorities to self-examine their accounts and tax payment situations in recent years. Today, Exclusive Easy Finance and Taxation must solemnly tell everyone: This is a serious misunderstanding! Not keeping accounts or filing taxes is equivalent to planting a "tax landmine" that could explode at any time on one's entrepreneurial journey. Exclusive Easy Finance and Taxation helps you avoid those invisible pitfalls! Help entrepreneurs operate in compliance and master the essential tax and finance survival guide - save money and comply!
Legal Red Line: Individual business owners must keep accounts and file tax returns. There are laws to follow!
Article 15 of the Law of the People's Republic of China on the Administration of Tax Collection:
Branches of enterprises established in other places and places engaged in production and business operations, as well as individual industrial and commercial households and public institutions engaged in production and business operations (hereinafter collectively referred to as taxpayers engaged in production and business operations), shall, within 30 days from the date of obtaining the business license, present relevant certificates to the tax authorities for tax registration. The tax authorities shall handle the registration and issue the tax registration certificate on the same day they receive the declaration.
Article 19 of the Law of the People's Republic of China on the Administration of Tax Collection:
Taxpayers and withholding agents shall set up account books in accordance with relevant laws, administrative regulations and the provisions of the financial and tax authorities of The State Council, keep accounts and conduct accounting based on legal and valid vouchers.
Interim Measures for the Management of Accounting Books of Individual Industrial and Commercial Households (State Taxation Administration Document No. 17)
Article 7: Individual industrial and commercial households that meet any of the following circumstances shall set up double-entry books:
(1) With a registered capital of over 200,000 yuan.
(2) Taxpayers selling value-added tax taxable services or business tax taxpayers have a monthly sales (business) revenue of more than 40,000 yuan; VAT taxpayers engaged in the production of goods have a monthly sales volume of more than 60,000 yuan. VAT taxpayers engaged in the wholesale or retail of goods with a monthly sales volume of more than 80,000 yuan.
(3) Other circumstances where the provincial tax authority determines that double-entry bookkeeping should be set up.
Article 8 and Article 9: For individual business operators that do not meet the above standards but meet certain conditions, it is also required to set up simple accounts (such as those with a small business scale and genuine difficulties).
Article 12 Even if the tax authorities impose regular fixed-amount taxes on individual business owners, accounts must still be established if the standards for setting up accounts are reached.
Article 25 of the "Regulations of the People's Republic of China on the Administration of Tax Collection"
Taxpayers must truthfully file tax returns in accordance with the tax filing deadlines and contents stipulated by laws and administrative regulations or determined by the tax authorities in accordance with laws and administrative regulations, and submit tax return forms, financial and accounting statements, as well as other tax-related materials required by the tax authorities as needed.
Core conclusion: The law mandates that individual business owners establish accounts (double-entry or simple accounts) based on their business scale and must file tax returns on time and truthfully! The claim that "there is no need to keep accounts or file tax returns" is illegal!
List of Common Tax Types for Individual Business Households
In the course of operation, individual business owners, based on the nature of their business, mainly involve the following types of taxes:
1.Value-added tax
Levy on the value-added amount of goods sold, services provided, etc. Small-scale taxpayers usually enjoy a lower levy rate or quarterly exemption quota (subject to policy compliance), but they need to file returns.
2.Urban maintenance and construction tax, education surcharge, local education surcharge
Levy on the value-added amount of goods sold, services provided, etc. Small-scale taxpayers usually enjoy lower collection rates or quarterly exemption limits (subject to policy compliance), but they need to file returns. These are taxes and fees levied in conjunction with value-added tax/consumption tax.
3.Urban maintenance and construction tax, education surcharge, local education surcharge
Personal income tax is levied based on the annual profit (taxable income) of individual industrial and commercial households.
Accounting-based Collection vs. Fixed-rate Collection: A Huge Difference in Tax and Finance Treatment!
The tax collection methods for individual business owners mainly fall into two categories, which have significant differences in the requirements for bookkeeping and tax filing
Account examination and collection
Characteristics: It is necessary to set up accounting books in accordance with the law and conduct accounting based on true, complete and accurate accounting vouchers. The tax payable is calculated based on the actual profit (taxable income) after subtracting costs, expenses and losses from the income.
High requirements for finance and taxation: It is necessary to establish a standardized accounting system, accurately record all income, costs and expenses, and keep original vouchers (invoices, contracts, bank statements, etc.) well. Financial statements (such as income statements) need to be prepared regularly. Detailed financial statements need to be provided when filing taxes.
Applicable objects: Generally, it is applicable to large-scale individual businesses with sound accounting systems, or individual businesses that have voluntarily applied and been approved by the tax authorities for account-based tax collection.
Assessed collection
Characteristics: Due to the small scale of individual business owners, their lack of ability to keep accounts, or their disordered accounts that are difficult to verify, the tax authorities lawfully determine their taxable amount or taxable income rate.
Form: Regular fixed amount: Directly determine a fixed tax amount (such as paying 500 yuan in tax per month).
Determine the taxable income rate: Determine a profit margin (such as 10%). Tax payable = Income * Taxable income rate * individual income tax rate - quick deduction number.
The relatively simplified financial and tax requirements do not mean that there is no need to keep accounts! Those that meet the accounting standards still need to set up simple accounts. Even if the income is subject to assessed collection, it is necessary to keep the vouchers that prove the income (such as receipts, bank statements, etc.) well for the tax authorities to verify. Tax filing is relatively simplified (for example, regular fixed-amount taxpayers may file quarterly or annually).
Note: Assessed collection is a compulsory management measure of the tax authorities, not a right! If the actual profit far exceeds the verified level or there are behaviors such as concealing income, the tax authority has the right to recover the tax and impose penalties. After the households subject to assessed collection meet the accounting standards, they must establish accounts in accordance with the regulations.
Misconception Clarification: Assessed collection does not equal tax exemption or no need to keep accounts! It is merely a simplification of the tax collection method. Individual business owners still have the obligation to file tax returns and need to keep relevant business licenses properly.
Real Case Warning: Failure to file tax returns for three years will result in fines and late fees of over 200,000 yuan!
In early 2024, during a tax risk investigation, the Shenzhen Tax Bureau discovered that a certain individual business owner of electronic product retail within its jurisdiction (registered in 2020) had never made any tax declaration and had never established any accounting books or vouchers since its establishment.
Verification process
The tax authorities retrieved the individual business owner's bank account statements, sales records on e-commerce platforms (such as Taobao and JD.com), lease contracts and other third-party data.
Verification result
After verification, it was found that during the three years from 2020 to 2022, the actual sales revenue of this individual business far exceeded the exemption standard for small-scale taxpayers of value-added tax, and there was a large amount of unrecorded income.
Processing result
Back payment of taxes
It is determined that it needs to pay a total of approximately 48,000 yuan in additional value-added tax, urban maintenance and construction tax, education surcharge, local education surcharge and individual income tax (business income).
Late payment penalty: A late payment penalty of 0.05% per day is charged, with a cumulative total of approximately 180,000 yuan over three years.
Fine: For constituting tax evasion (refusing to file a tax return after being notified), a fine of more than 0.5 times the amount of tax underpaid (approximately 24,000 yuan or more) will be imposed.
In total, the individual business owner ultimately needs to pay at least 228,000 yuan. This is undoubtedly a disaster for a small-scale individual business owner. The boss regretted it deeply and admitted that he had simply believed the rumor that "self-employed individuals don't need to keep accounts or file tax returns."
The lesson is painful: ignoring legal obligations and taking chances will eventually cost far more than the cost of operating in compliance!
Suggestions for Individual Business Entrepreneurs:
Dispel misunderstandings and establish a sense of compliance
The notion that "sole proprietors do not need to keep accounts or file taxes" is illegal and dangerous! It must be abandoned.
Clarify one's own collection method
Take the initiative to contact the competent tax authority to confirm whether you are subject to account-based tax collection or fixed-rate tax collection, as well as the specific requirements.
Keep accounts in accordance with the law and preserve vouchers
No matter what kind of collection method is adopted, it is necessary to record income and expenditure as accurately as possible and keep all original vouchers related to business operations, such as contracts, invoices, receipts and bank statements. Those who meet the accounting standards must set up accounts in accordance with the regulations (accounting agency assistance can be sought).
Declare and pay taxes on time
Tax returns must be made strictly within the period (monthly, quarterly, or annual) determined by the tax authorities. Even if there is no income or the conditions for tax exemption are met, a "zero declaration" should still be made.
Make good use of policies and seek professional consultation
Pay attention to the tax preferential policies of the state for small and micro enterprises and individual businesses (such as the VAT threshold policy for small-scale taxpayers), and reduce the tax burden under the premise of compliance. For complex financial and tax issues, it is essential to consult professional financial and tax advisors or agency bookkeeping institutions. Do not act based on intuition.
Conclusion
Starting a business is no easy feat; compliance is the foundation. As an important participant in the market economy, individual business owners should establish accounts in accordance with the law and declare and pay taxes truthfully. This is not only an inevitable requirement for fulfilling legal obligations and avoiding the risks of huge fines and late payment penalties, but also the cornerstone for their own standardized operation and long-term development. Never let the rumor of "no need to keep accounts or file tax returns" become the biggest landmine on the road to entrepreneurship. Bookkeeping and tax filing are not burdens but safety belts for individual business operations! All individual business owners are kindly requested to take this seriously, operate in a timely and compliant manner, or seek the assistance of professional financial and tax advisors to ensure that your entrepreneurial journey is more stable and far-reaching.