How should I prepare for taxes as a private trader – prepayments of tax and VAT?

As a private trader, you should set aside money for prepayments of tax and, if applicable, value added tax (VAT). The money in your business bank account is not entirely available for personal use, as some of it may be needed for taxes and business expenses.
 

What taxes should a private trader take into account?

Prepayments of tax

Prepayments of tax are income tax paid in advance. The amount is based on an estimate of your business’s taxable result. Your other income and deductions may also affect the amount of prepayments.

If you have not operated as a private trader before, you must estimate your business’s result for the year yourself. Your business plan and profitability calculations can help you with this.

If your business income or expenses change during the year, you can update the amount of your prepayments in MyTax (OmaVero).

You can read more about taxation and prepayments of tax in the UKKO Entrepreneurship School.

Value added tax

If you are liable for VAT, the VAT you charge your customers is not your business’s own money. It is paid to the Finnish Tax Administration based on the VAT return.

VAT is a consumption tax that the seller includes in the selling price of a product or service. VAT is ultimately paid by the consumer. In business-to-business transactions, the purchasing business may deduct the VAT charged by another VAT-liable business, provided that the product or service is used in business activities that entitle the business to deduct VAT.

The UKKO Entrepreneur service submits the VAT return on your behalf. You will receive an email informing you of the amount of VAT to be paid and the due date.

Sometimes there is no VAT to pay because the VAT on your purchases is deducted from the VAT on your sales. This will also be shown in the email we send you. Read the email carefully to check the final amount to be paid.

If your business is entitled to a VAT refund, make sure that you have provided the Finnish Tax Administration with your bank account number for the refund.

You can read more about VAT in the UKKO Entrepreneurship School.
 

How to update your prepayments of tax in OmaVero

Update the amount of your prepayments if it appears that your business result will differ from your previous estimate.

1. Estimate your business income and expenses for the entire year.
2. Log in to MyTax (OmaVero).
3. Select Tax cards and prepayments of tax → Change prepayments of tax.
4. Enter the updated information about your business income, expenses and deductions.
5. Check the new amount of prepayments and pay them according to the Finnish Tax Administration’s instructions.

You can update your prepayments several times during the year if your business situation changes.
 

How to prepare for taxes

• Keep track of your business income and expenses throughout the year.
• Set aside money in your business bank account for prepayments of tax.
• If necessary, keep the money related to VAT separate from your other business funds.
• Update the amount of your prepayments in MyTax (OmaVero) if your income or expenses change.
• Take your upcoming business expenses and taxes into account before making withdrawals for personal use.

As a private trader, you do not pay yourself a salary. Money withdrawn from your business account for your personal use is a private withdrawal, not a business expense. Private withdrawals do not reduce your business’s taxable result.
 

Final taxation and back taxes

The final taxation of your business is based on your actual income, expenses and deductions. If the prepayments made during the year do not correspond to the final amount of tax, you may receive a tax refund or have to pay back taxes.

Back taxes arise if you have paid too little in prepayments. Updating your prepayments during the year can help reduce the risk of back taxes.
 

Frequently asked questions

Do I need to record prepayments of tax in my bookkeeping?

We recommend recording the invoice for your prepayments of tax in your bookkeeping. The tax prepayment decision, tax prepayment invoice (both available in MyTax) or, exceptionally, simply a receipt for the bank transfer can be used as the attachment for the expense.

According to the Finnish Tax Administration, recording prepayments of tax in single-entry bookkeeping is not mandatory. However, we recommend doing so because it helps you keep track of your business’s overall financial situation. Recording prepayments of tax allows you to monitor the after-tax result in the income statement.

Do I need to record VAT payments in my bookkeeping?

You do not need to record receipts for VAT payments or refunds in your bookkeeping because VAT is handled separately from the rest of the bookkeeping. If you wish to record VAT payments to bookkeeping, you can attach the VAT return in the expense/income voucher.

Is tax paid on all money paid into my business account?

No. Taxation is based on your business’s taxable result, not directly on the amount of money paid into your business account. The taxable result is affected by your business income, deductible expenses and other information relevant to taxation.

Can I withdraw money from my business account for personal use?

You can make private withdrawals, but first take your upcoming business expenses and taxes into account. A private withdrawal is not a business expense and does not reduce your business’s taxable result.

What should I do if my prepayments are too high or too low?

Update the amount of your prepayments in MyTax (OmaVero). First reassess your business income and expenses for the entire year so that the updated prepayments correspond more closely to your actual situation.

If you need help

If you need help with tax matters shown in the UKKO Entrepreneur service, email us at asiakaspalvelu@ukkopro.fi. In your message, describe as precisely as possible what your tax-related question concerns and attach any relevant information or screenshots.

For more detailed information about the taxation and payments of your private trader company, please contact the Finnish Tax Administration directly.