The sheer workload involved in starting and running a business can occasionally result in oversights. Tax compliance is an area that some start-ups don’t have the time, interest or understanding to fully grasp.
This approach can prove extremely damaging to a start-up, even though the full implications aren’t felt until the call comes from the taxman. Greg Hayes, director at accountancy and business advisory firm Hayes Knight, provides his top five tips to keep the Tax Office happy.
1. Get on the straight and narrow at the start
If you are new in business, then managing your accounts and tax obligations may be more involved than you are used to. GST, FBT, PAYG and income tax may be a whole new world. And this is not your primary focus.
More important to you will be the growth and development of your business. Securing those new sales, managing relationships with suppliers, stock, debtors and cashflow management will all draw on your time.
Much of this will be more immediate and interesting than making sure that your tax compliance is all in place. Identify up front your compliance obligations and then have your systems set up to correctly record your business activity.
2. Make your tax planning a year round event
The worst type of tax planning is everything at the end of the financial year or quick decisions without enough thought.
Decisions based purely on the tax benefit are often poor business decisions. A tax deduction only returns a part of your outlay.
Unless there is a business benefit to the expenditure you will still be out of pocket. The best tax planning occurs when you consider your tax position at the beginning of the financial year and make it a part of your overall profit and cashflow planning.
Identify where you tax planning opportunities are, and how to best manage tax like any other expense of your business.
3. Keep yourself tax on track
Most businesses have regular tax reporting and payment obligations. In some cases this will be monthly or at minimum quarterly. When you first start in business some of your tax payments may be delayed until after the end of your first financial year.
GST and withholding tax obligations will be more immediate. It is important to plan for your tax liabilities when they fall due. Don’t get caught in the trap of not accounting for the GST you collect or taxes you withhold from your employees.
Tax debts can mount up quickly and get you to a point of no return. It’s much better to have a schedule of when all of your tax reporting and payments are due, and then keep yourself on track.
If cash is tight then consider quarantining your tax liabilities in a separate account so that the funds are always there to meet your debt.
4. If it sounds too good to be true, it probably is
As a business owner you will be confronted with a range of advice and in some cases direct promotion of various ways to save tax.
Some of this will come from friends and associates. Casual comments and experiences shared – all well meaning and designed to help.
In other cases you may have advisers or other businesses promoting ideas or arrangements where the tax benefits seem compelling.
As a general rule if something sounds too good to be true it probably is. Make sure that you take advice from your accountant on any tax planning ideas. They should be able to separate the fact from the fiction.
5. Take advice when you need it
In the early stages of business the tendency is to try and keep cost contained as much as possible. This can include limiting your spend on professional advisers. A good accountant can save you a lot of headaches and cut through much of the tax clutter.
Find an adviser who suits your business and who will be able to work with you and assist you as the business grows. If you are serious about your business you will need more than someone who can simply complete your accounts and tax returns.