Owning a business comes with its challenges, and when it comes to tax time it can be even more confusing.
A lot of businesses fail because they don’t plan the tax side of things well enough. From payroll tax, super guarantee contributions and GST, we’ve seen businesses blindsided by hefty penalties and tax debts because they put their obligations out of sight and mind.
Here are six most common tax mistakes killing small businesses. Avoid these mistakes, and you’ve more than doubled your chances of making it.
1. Not keeping track of changes to tax laws
Our tax laws are constantly changing and evolving and whilst some changes can mean more money for business owners, other changes can hurt if they are overlooked. If you are an employer, did you know that most modern awards are updated twice a year? Whilst missing these changes could lead to you underpaying your staff (and opens up a whole new issue) there is also the amount of tax which you need to withhold to be taken into consideration. This oversight could cost you thousands at tax time if you aren’t on top of the changes.
2. Not using a tax agent
There is a real possibility of missing some of the cash relief which is on offer from the Government at the moment as they try to stimulate our economy if you aren’t working with your Advisor. Many small businesses also overlook deductions they could be making or perhaps are being too lenient in what they are claiming. Get yourself a tax agent – even if you are a micro business with relatively small revenue. A good tax agent will make sure you are getting access to any financial support which is available and also keep you in the loop of any of the tax changes which could affect your business.
3. Not keeping good records
Good record-keeping means good business and your tax agent would much rather you have a whole file of records which might not be any use than to not have them at all. It is crucial to keep a hold of receipts relating to your business so your tax agent can correctly assist you with your deductions. It also is a necessity if you end up being audited by the ATO. Detailed and accurate business records allow for better financial reporting so you should be tracking everything – both incoming and outgoing.
4. Not getting the status of your workers right
Under many awards, new legislation means that long term casual employees have the right to ask for permanent contracted work and if you aren’t careful, a retrospective claim for entitlements could be costly. It is important that employers review the status of their long-standing casual employees and ensure you are meeting your obligations under the Fair Work Act.
5. Making sure you pay your employees superannuation – and on time
Often employers fall into the trap of leaving the payment of superannuation to last on their list, especially when cashflow is tight. There are significant penalties imposed for missing super payments so you can’t risk late lodgements.
6. Managing cashflow around tax obligations
Running a tight business budget is crucial and whether you are paying your tax and other obligations monthly or quarterly, they need to be accounted for. You need to make sure you are estimating, based on your predicted wages and income what amount you will need to pay for tax withholding, GST, income tax, payroll tax and superannuation. We recommend having a spare bank account to transfer cash into on a weekly or monthly basis, so the money is on hand when the payments are due.
Leah Oliver, Founder, Minnik Chartered Accountants