Tax. The three-letter word that is not incredibly exciting and probably creates a sense of dread above everything else. Unfortunately, as one renowned politician once said, tax and death are the only things in life that remain constant.
Starting a new business can be exciting and exhilarating both on a professional and personal level. While it’s a new milestone in your life, challenges do exist and one of the most common problem faced by business owners, is the proper setup, administration and ongoing management of your finances and business accounts.
Building a business is hard work. Successfully maintaining it’s growth is another challenge altogether. As a business owner, running a business is incredibly overwhelming especially when you’re expected to be competent across all areas of operations.
Operating a small business can be a challenge, but one of the biggest difficulties is making the most out of your valuable resources: time, skills and knowledge. As experienced professionals in small business consulting, we often see business owners working harder and longer, but still failing to achieve their business goals and objectives.
There is a lot of talk going on around this at the moment. Everybody has to jump on board from 1st July 2019. Here is what you need to do:
Check if your software can handle it:
If you are using Xero software, you don’t have to do anything extra…payroll is included in the standard package.
Agrimaster users will need to buy Wagemaster package – which is an add-on to Agrimaster and not too expensive.
MYOB, Intuit and Reckon have a $10 per month add-on product (but check first, because some of you may be on a package that includes payroll already).
If you don’t have any of these computer programs, you can access the government cheap stand-alone options ($10 per month or less), namely:
Single Touch Pty Ltd
Cloudpayroll Pty Ltd
AccXite Pty Ltd
Free Accounting Software Pty Ltd
(there are more software providers to come, but they haven’t been approved by the ATO yet)
Once you have chosen your software provider, install the program and set up the payroll system (or get us to help you with it). You will need the employees’ full details – name, address, telephone numbers, emergency contact numbers, tax file number, the date they started working with you, leave balances etc…
Then, start using the program to run the pays now…so you can get used to it before 1st July comes along. That way, we can iron out any bugs before you go live on 1st July 2019. The most difficult bit is installing the add-on and inputting all the employees’ details all over again (you probably have a book somewhere with all this in). Also, some programs will require timesheets (if the pay varies with overtime or extra hours worked etc).
It actually is a positive thing, because it will make the production of Payment Summaries (previously called Group Certificates) easier, it will work the tax and super out for you…plus it will also help with tracking leave and hours per employee…avoiding any unpleasantness when it comes to taking leave or calculating final pays.
So, don’t dilly-dally…get into it and call us if you get stuck.
GST and Income Tax Law don’t always follow suit, so be careful not to assume too much when doing your coding/reconciling your books – logic doesn’t always prevail, and there are always exceptions to the rules. Here are the most common areas in which we find errors:
Get your chart of accounts (code list) right. You can save 99% of errors if you get a qualified bookkeeper or accountant to review your setup. They can help you get all the default tax codes right…so all you have to do is allocate the income or expense to the right code, and it will all fall into place for you.
Loans are complicated. Generally speaking, if you take out a loan, the receipt of the loan doesn’t have any GST in it…nor do the repayments that you make on the loan. So when receiving or paying off a loan, there is no GST. The item that you have bought with the loan funds may have GST on it (and you can claim that) but anything to do with the loan itself will not. This applies to bank loans, Hire Purchase and Chattel Mortgages. It also includes insurance premium funding. The GST on the insurance premium is deductible, but the loan repayment on the insurance funding is not. The exception to the rule is a lease. In this case, you don’t own the asset, you are hiring it from the loan provider…which means there will be GST on the payments. When in doubt, call your bookkeeper or accountant.
As a general rule, you can’t claim GST on anything that is private in nature: Food, Clothing, House Rent, Home Repayments, Directors Fees etc.
Most Government departments are not registered for GST, so there won’t be GST on some items, eg: Motor Vehicle Registrations, Rates, Water, ASIC fees etc.
Other tricky items are Bank Charges, Paypal fees, Google Adwords, interest, Goods or services purchased overseas. No GST on any of this stuff.
Not all Sales have GST on them either. Basic human services like medical and health care, water, fruit, raw meat, bread etc don’t have GST in them.
Don’t forget to include trade-ins of business vehicles and plant when you buy a new one. There is GST on both sides of that transaction.
Don’t mix up your wages with the other business expenses. Wages, PAYG tax and superannuation don’t have GST on them, they are reported separately on your BAS…if you mix them up with the other expenses in G10 or G11, you may inadvertently claim GST on them. Wages appear at W1 and the PAYG tax deducted from your employees’ wages appears at W2.
Above all, read the invoice. Make sure there is GST on it – sometimes you will be dealing with small businesses that are not registered.
When in doubt, consult your bookkeeper or accountant.
Large employers have had to comply with this new reporting regime since July last year. However, the regime is extended to cover ALL employers from 1st July 2019. The bill passed the Senate in December 2018, but it is being bounced back and forth in the parliament while they consider some amendments (which have nothing to do with the payroll part of it). So, we are stuck with it from 1st July, whether we like it or not. If you are using a cloud-based accounting program (like Xero) you don’t have to do anything, the software already handles it. However, if you are using an older desktop version of MYOB, Agrimaster etc, you will need to upgrade the payroll side of things.
Basically, Single Touch Payroll means that the employer sends their employees’ tax and super information to the ATO each time they run their payroll and pay their employees. The information is sent via the payroll software, direct to the ATO and that also includes superannuation. Previously, the ATO had to wait until you got your group certificates done, and reconciled everything, and if you’ve stuffed something up…it was almost too late (or too big) for you to handle. Now that the workforce is more mobile, things need to be done more quickly – and the new software being designed can handle it. So the ATO thought, why not?
Following on from our “Half Time” coach’s Pep-Talk in our December blog, here are some suggestions for you to make the most of January 2019:
Over the holiday break – or as soon as you get back to work with your team, ask yourself these four simple questions:
What worked well over the last six months?
What didn’t work so well over the last six months?
What have we learned?
What is the focus?
The 3rd quarter (January to March) is very important from a business-owners perspective because you will have a number of issues to deal with, namely:
Post-holiday lag – where everybody takes a while to settle back in and you may unconsciously slow down and under-achieve;
This post-holiday lag includes your customers – so you may be struggling for orders from them as well – which may adversely affect your cash flow;
Big Tax bills coming up in February and April (the December BAS isn’t due till the end of February…and the 2018 income tax bill is due in April, along with the 2019 PAYG quarterly tax in advance is also due in April, plus if you are paying your employee tax monthly…you’ll have one due in January, and March too;
On top of all that, you may have spent big over Christmas, and taken the family on holiday.
All of this will come home to roost in February, and you may still be struggling with the cash flow hit when the April tax bills come along.
The only antidote to this post-holiday lag is FOCUS.
Concentrate on doing what you did well in the six months prior – maximise your efforts in this area
Fix whatever isn’t working well – or put a plan in place to fix it asap
Use what you have learned, to plan ahead and not repeat the same mistakes next year
Focus on the most important things first, such as:
Finishing any work in progress (so you can invoice it)
Chasing up quotes (so you can invoice them)
Hitting up new leads – and planning the workflow for the coming six months (so you can onboard the clients and invoice them)
Working out how much tax you have to pay…and when it is due
Shoring up the cash flow
That last point is a doozy. We try to get as many tax returns done as possible by Christmas time, so you know what tax bills you have coming up (both the 2018 tax bill and the likely PAYG due in February and April). If you haven’t had your tax returns done yet, hurry up – so you can put the money away…or talk to the bank to get some help. Prior planning always helps you get the loan. Don’t leave it until the problem lands on your lap to call the bank.
Utilise your team to help you with the first 3 points, you may need some help from your accountant to work out the tax and cash flow planning side of things. Get into it early…you will give yourself a much better chance of success.
Don’t slow down and under-achieve, just because it is quiet at the moment.