Red tape has been a perennial bugbear of small businesses. Start-ups are often unprepared for the blizzard of regulations they have to deal with once they launch, with compliance not high up the priority list for budding entrepreneurs.
Politicians on both sides have recently talked tough about reducing red tape and October’s tax summit has raised hopes that the issue will finally be addressed by Canberra.
But has the burden really got worse in recent years? And what can start-ups do to cut down the amount of time spent filling out forms?
The Henry Review identified a tax system that was cumbersome. A PwC survey shows that small companies are grappling with 53 different state and Federal taxes.
There are 32 state, territory and local government taxes that raise 9% of business tax revenue across Australia. The remaining 91% is raised by 21 Federal taxes.
According to PwC, 63% of business tax revenue is raised by income tax, comparing unfavourably with a global average of 38%.
The burden is not only in tax paid but in time and resources spent on compliance. It takes time away from running their business. And it also means many lines of reporting, often conveying the same sort of information.
As David Pring, a Deloitte Private tax partner says, it’s not just the number of taxes, it’s also those multiple reporting lines.
“Companies are doing their monthly or quarterly BAS reports, they are reporting all their income, their GST, their wages information,” he says.
“Then they have to provide an annual report which covers the same sort of stuff. Then they do their personal returns all of which have been generally previously reported to the Tax Office anyway.”
Red tape everywhere
For taxation purposes, companies need to keep sales records including invoices, credit card statements, bank deposit books and cash register tapes.
There are purchase and expense records, year-end income tax records, records relating to payment of employees including tax file number declarations, withholding declarations, PAYG payment summaries, salary sacrifice and superannuation records and records of any fringe benefits tax (FBT).
FBT declarations cover such areas as air fares, cars, expense payments, living away from home declarations, property benefit declarations, remote area holiday transport declarations, temporary accommodation declarations.
In addition, there are state payroll taxes, fire service levies and stamp duties. The kind of red tape will vary from sector to sector.
Retailers, for example, have to deal with: textile care labelling, safety standards, leather labelling standards, flammability labelling of fabrics, country of origin labelling, business name registration, ASIC compliance records, tax records, industrial relations laws, superannuation requirements, occupational health and safety regulations, poison register compliance, dangerous good compliance, heavy vehicle license matters where necessary and forklift drivers license.
Whether or not they need all of these will depend on the business. Retailers also need to be aware of such legislation as the Victorian Fair Trading Act, the Trade Practices Act and the Retail Leases Act.
With a large business, getting all this done is hard enough. For a small business, it’s next to physically impossible.
Too much, too young?
Critics say the Government needs to ask itself a simple question: does it want small business operators who are compliant, or does it want them to be profitable?
“Small businesses have to comply with the same Income Tax Act as companies like BHP and then they have additional sections in the tax act that apply to private companies,’’ Pring says.
“It’s a lot for them to get their heads around.”
Andrew Barrenger, who runs two hairdressing salons in Tasmania with his wife, says the tax rules are hard enough but what has made it even more difficult is the changes to the awards.
It basically meant that employers now need to manage and implement a completely different pay structure. This is a problem for businesses employing many people on different levels and awards.