The whitest lie ever told to aspiring small business owners and entrepreneurs is that hard work guarantees success.
Hard work is vital to success, but it’s not the only quotient. Perhaps your clients have listened when starry-eyed blog writers and charismatic airbrushed suits telling them that they can’t lose if they try hard enough. Well, there are over 2.1 million small businesses in Australia, and a third of those will fail regardless of how hard they try. It’s a morbid truth, but it’s a truth nonetheless.
Another truth is that a lot of businesses fail because they don’t plan the tax side of things well enough. From payroll tax to super guarantee contributions to GST, businesses have been blindsided by hefty penalties and tax debts because they put their obligations out of sight and mind.
Here are the five most common tax mistakes killing small businesses – avoid these mistakes, and your client will more than double their chances of making it.
1. Not keeping track of changes to tax laws
Did you know payroll tax rates changed this year? Rufus Rich didn’t. “I’ve got three employees working for my electrical estimation business, and I didn’t withhold enough to cover the rate increase. Now it’s tax time, and I’ve a tax penalty because my books weren’t right. My tax agent couldn’t warn me until it was too late.”
If you’re not following tax law closely, it’s understandable you’ll miss things. Luckily, our Monthly Tax Update webinars keeps you up to date with the latest rulings and determinations that actually apply.
2. Not using a tax agent
Mary started a jewellery business from home. “For the first year, my revenue was relatively small. I didn’t think I needed an accountant or tax agent to do my return. I thought I could just leave it. The only problem is, I missed out on claiming a deduction for my pendant-pressing machine. If only I’d used a tax agent!”
If-onlys are crippling for small businesses, and they’re avoidable. Our helpline service gives you access to our tax specialists – they’ll help you avoid regrettable scenarios, every time.
3. Not keeping good records
Good records means good business – there’s no way around it. Gillian Charles had a truck delivery business, but because she didn’t keep track of her fleet’s fuel usage, she missed out on valuable fuel tax credit claims. Small business owners need to keep track of their finer details.
4. Not getting the status of your workers right
Not getting the engagement status of workers right can land employers in unforeseen hot water. Chris Crooks hired a group of contracted cleaners every week to tidy up his party hall after functions, but ended up in trouble with the law. “I thought because they were contractors I didn’t have to pay super. I was wrong.” Section 19.524 of our 2017-18 Tax Summary could’ve saved Chris from losing his business.
5. Making sure you pay your employees superannuation – and on time
When cash flow becomes an issue, too many businesses leave superannuation guarantee payments until last. If you want to avoid penalties from the ATO, you need to make sure your employees are paid superannuation when they need to be paid. You can’t risk late lodgements. It’s a good thing members have yearly lodgement updates delivered to their email inbox every month.