You’re invited to our Cyber Security Awareness webinar which will be held on Tuesday 27th February.
Researchers say tax compliance is costing small businesses $28,000 a year - but Sue Prestney, spokesperson for the Institute of Chartered Accountants, believes that many are spending far more than they need. Here are her suggestions for saving time and money.
According to a recent report, small businesses are spending almost 500 hours a year on complying with tax. Authors Dr Philip Lignier of the University of Tasmania and Dr Chris Evans of The University of New South Wales say that the introduction GST in 2000 played a major role in pushing the average annual cost of compliance up to $28,000.
However, Sue Prestney, spokesperson for the Institute of Chartered Accountants on small and medium business, believes that many businesses are spending far more than they need. “When your accounting systems are set up and used properly you can rely on the reports they produce each quarter to populate your Business Activity Statements (BAS),” she says. “Then, as long as you’ve also been reconciling your major balance sheet items every month, it shouldn’t cost much at all to get your end-of-year tax return wrapped around those accounts.”
It can be false economy to try to save money by doing everything yourself. “Some business owners buy one of the popular book-keeping software packages, throw figures into it and expect it to produce the right information,” says Prestney. “But it really is a case of ‘garbage in, garbage out’.”
There are also traps for the unwary. ‘Rates & Taxes’ might sound like a reasonable place to post company or even personal tax but, in fact, it refers to rate and land tax. Problems can arise if you’re not sure how GST applies to your business, particularly if you’re operating in an area such as the food industry where some sales include GST and others don’t. And you also need to know the limitations of your business structure – for example, you may be earning the money that goes into your company but, if you borrow it for personal use, it can be deemed to be a dividend.
“Putting things right is a lot more expensive than getting them right from the outset,” says Prestney. “It might take a couple of hours with your accountant to set up and learn about your system but it would take much longer to backtrack, find an error and then fix it. “Even worse, if your systems aren’t producing statistics in the range they’d expect, the Australian Taxation Office might decide to investigate. That could have legal as well as financial repercussions.”
As your business grows, compliance requirements can change. “If you’re not aware that your business has crossed the payroll tax threshold, it will come as a shock to find you should have been paying payroll tax for a year,” says Prestney. “If you get big enough to be classified as a large proprietary company, you’ll have to start lodging your accounts with the Australian Securities & Investments Commission and perhaps submit to an audit, so you need to be prepared for those additional costs.
“Whatever your size, communicating regularly with your accountant can help you stay on top of compliance and avoid unnecessary expense.”
You may also be interested in:
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.