Common mistakes of sole proprietors: how to avoid large fines

Even the slightest mistake by an individual entrepreneur (IEO) can lead to high costs. At the end of the year, shortcomings in accounting or registration of financial transactions are often revealed.

Lawyer Bohdan Yankiv discusses the main violations in his blog that should be avoided to avoid severe financial sanctions.

Providing services without the appropriate KVED code

An IEO can receive payment only for the types of activities listed in the register of single taxpayers. If this rule is violated, the tax authorities may cancel the entrepreneur’s right to a simplified taxation system. There is also a penalty in the form of a 15% fine on income from unregistered activities. Therefore, it is essential to register the necessary KVED code before preparing the report.

Payment for services without checking the status of the counterparty

Before making a payment for services, the client must check that the counterparty is actually registered as an entrepreneur. If this is not done, it will be necessary to withhold 18% of personal income tax (PIT) and 5% of military levy. In the event of non-payment, there is a risk of a fine equal to 25% of the unpaid amount, plus a penalty for each day of delay.

The status of an entrepreneur can be checked through:

The Unified State Register (by name or identification number);
The register of single taxpayers in the electronic office.
Available online services.
It is essential to consider that if an individual entrepreneur is registered in a temporarily occupied territory, withholding of PIT and military levy is mandatory regardless of status.

Exceeding the annual income limit

One common problem for entrepreneurs is exceeding the allowable income limit at the end of the reporting year. In this case, the individual entrepreneur may be fined 15% of the excess amount. In the next quarter, it may be transferred to another group of single taxpayers or to the general taxation system.

To avoid this risk, you can take precautionary measures, such as:

temporarily suspending payment acceptance;
returning part of non-cash receipts;
postponing the receipt of income to the next year;
involving partners for revenue sharing;
Re-issuing agreements under a commission agreement.