Advices Budgeting Business Strategy Tax

If you are a new business, doing your Business Activity Statement (BAS) can seem overwhelming.

And if you are an established business, it can seem never-ending!

In this article, we will look at a few ways that you make BAS submissions easier.

DO I NEED TO SUBMIT A BAS?

You will need to submit a BAS when you charge GST.

Generally, you don’t legally need to register for GST until your revenue is forecast to be over $75,000 per annum. You can register for GST at any point.

But it is not compulsory until it is clear you will reach $75,000 for the financial year.

If you are not registered to pay GST, you cannot charge GST. If you are charging but not paying it to the government, you have to reimburse your clients. Which can get complicated and be a little embarrassing.

It is confusing whether or not you should charge GST when you are starting out, especially if you are not sure of what your revenue will be. But it pays to get it right.

If you are not sure if you should be charging or paying GST, book in a chat with me and we can discuss what your tax obligations are and make sure you are set up correctly.

WHAT HAPPENS WHEN I NEED TO REGISTER FOR GST?

If you are a business that transitions from not paying GST to paying GST, the best practice is to notify your clients – so it is not a surprise, and add GST to the rates moving forward.

It can be uncomfortable to charge an additional fee to your clients, especially those that supported you from the start. We recommended that you communicate clearly with your clients that it is now a legal requirement for you to charge the additional 10% GST.

You can ‘absorb’ GST out of your rates. But this comes out of your pocket. Let’s look at an example:

Jenny is a VA and charges $50 per hour. She has reached the threshold and now has to pay GST.

Jenny works 30-hours / week:

  • Rate: $50 x 30 hours
  • Total: $1,500 per week

If she is to charge the additional 10%:

  • Rate: $1,500
  • 10% GST: $150

Invoice Total: $1,650

Jenny must pay $150 in GST each week, but the revenue to Jenny remains the same. However, if Jenny absorbs the GST into her rate of $50/hour, her accounts for the week will look a bit different:

  • Hourly Rate incl GST: $50
  • 10% GST: $ 4.55
  • Hourly Rate excl GST: $45.45
  • Rate: $45.45 x 30 hours: $1,363.65
  • 10% GST: $136.35

Total: $1,500

By not passing on the GST, Jenny has to pay GST of $136.35 out of her own pocket each week, which adds up.

Over the course of a year, Jenny would reduce her income by $6,500 by simply not on-billing GST.

WHEN IS MY BAS DUE?

Essentially, your BAS is a summary of all the business taxes you pay to the government during a specific period. Most Australian businesses will lodge their BAS monthly, quarterly or annually depending on the business’s cash flow.

Don’t forget that we can help you apply for GST and understand your BAS schedule if you need assistance.

WHAT DO I INCLUDE?

A BAS will include the taxes your business pays, such as:

  • Goods and services tax (GST)
  • Pay as you go (PAYG) income tax instalments
  • Pay as you go (PAYG) tax withheld

THAT SEEMS LIKE A LOT OF WORK?

It can be, but if you use an accounting platform and keeping good records as you go, it will help you stay on top of it and make your reporting a lot faster.

Your accounting program should be set up to keep records of all sales, fees, expenses, wages and other business costs – including tax credits.

Most platforms will make it easy to track GST credits and code each item’s correct GST accounting method.

You may have a bookkeeper who does most of this for you, but it is still vital to understand your obligations.

If you are processing your own BAS, you need to make sure that you understand how GST Credits work.

WHAT ARE GST CREDITS?

GST Credits are defined as the GST you have incurred as a business. They are called Input Tax Credits.

If you engaged Jenny from our example above, her invoice includes $150 GST.

The ATO will allow you to claim back the GST you have paid as credits.

As part of your BAS, you need to add up the GST you have paid or are liable to pay on your business expenses, which you will offset against the GST you have collected.

QUICK GUIDE TO CLAIMING GST CREDIT:

  • Only claim GST Credits on the business portion of purchases
  • Don’t claim GST on private expenses, such as food or entertainment
  • Claim GST credits upfront for purchases under hire purchase – if you account for GST on a cash basis
  • Claim GST credits on the Australian dollar value when claiming invoices in a foreign currency

AVOIDING ERRORS

We all want to get our BAS reports out of the way quickly, but an error from rushing can lead to bigger headaches in the future. A few things that you can do regularly to ensure accuracy in your reports include:

  • Checking GST is included on invoices you issue for sales
  • Make sure invoices are only counted/entered into your system once and not accidentally duplicated
  • Check you are using the correct formulas to work out GST
  • Have a separate column for GST in your cash book

Finally, you will need to keep all your tax invoices and other GST records for five years. Having a bookkeeping system that you save all your receipts and invoices in can make this easy to store and access if you ever need to.

HOW DO I LODGE MY BAS?

You can lodge your BAS online through the MyGov portal, or a registered tax agent like us can submit them on your behalf. Don’t forget; we can also help you set up or run through refresher training in your accounting platform to help you streamline your processes.