Running a small or medium-sized business (SME) in Sri Lanka can be challenging — and staying compliant with the Inland Revenue Department (IRD) is often overlooked until it’s too late. Whether you’re a startup or a seasoned entrepreneur, tax mistakes can cost your business time, money, and reputation.

Here are the top 5 tax mistakes SMEs make in Sri Lanka — and how you can avoid them.

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🚫 1. Not Registering for Taxes Early Enough

Mistake: Many SMEs wait too long to register with the IRD, especially if their revenue is initially low. This can lead to penalties and back taxes.

Avoid it:
If your turnover exceeds Rs. 120 million/year, or you’re a company, partnership, or sole trader earning taxable income, you must register for income tax and/or VAT.

👉 Solution: Register with IRD as soon as your business is operational. Visit ird.gov.lk or use a qualified tax consultant to assist.

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🚫 2. Misclassifying Income and Expenses

Mistake: Mixing personal and business expenses or failing to record income properly leads to incorrect tax filing — and can raise red flags with the IRD.

Avoid it:

• Keep separate business bank accounts
• Record all income sources, including cash
• Use tools like TaxCalculator.lk to track your profit accurately

👉 Pro Tip: Have a qualified bookkeeper or accountant verify your income statement monthly or quarterly.

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🚫 3. Not Deducting Allowable Business Expenses

Mistake: Many businesses pay more tax than required by not claiming deductions for allowable expenses such as rent, salaries, stationery, or utility bills.

Avoid it:
Familiarize yourself with allowable deductions under the Inland Revenue Act No. 24 of 2017.

👉 Example: You can deduct expenses like:

• Staff salaries and EPF contributions
• Office rent and utility bills
• Advertising, marketing, and digital services

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🚫 4. Missing Filing Deadlines

Mistake: Late filing of tax returns (especially Income Tax, PAYE, or VAT) results in fines and interest from the IRD.

Avoid it:
📅 Key Deadlines to Know (2025):

• Income Tax Return (Individuals & Companies): 30 November
• VAT Filing: Monthly or quarterly
• PAYE Returns: Monthly (15th of every month)

👉 Use a tax calendar or sign up for email reminders via TaxCalculator.lk

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🚫 5. Ignoring Professional Tax Advice

Mistake: DIY tax filing might seem cheaper, but mistakes can be costlier in the long run.

Avoid it:
Engage a qualified Chartered Accountant or tax advisor — especially for:

• IRD audits or queries
• Structuring your business
• Claiming tax credits or capital allowances

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🎯 Final Tip: Use Digital Tools to Stay Ahead

Tools like TaxCalculator.lk can help your business:

• Estimate tax liabilities accurately
• Stay updated on IRD rates and rules
• Calculate PAYE for employees

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💡 Need Help With SME Taxes?

If you’re a small business owner in Sri Lanka and want help with tax planning, filing, or compliance, contact us today. We offer affordable consulting services and can customize solutions for your business.

📞 Call us at: 0719204903
📧 Email: info@taxcalculator.lk
🌐 Visit: www.TaxCalculator.lk