It's something of a little white lie, isn't it — the one told to aspiring small business owners and entrepreneurs is that hard work guarantees success. Hard work is vital, but it's not the only quotient. And while you may be told by starry-eyed blog writers or charismatic motivational speakers that you can't lose if you try hard enough,
A third of new businesses that fail each year can attest to a different reality.
In our experience, 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, we've seen businesses 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 that can trip up a small businesses – avoid these mistakes, and you're likely to more than double your chances of making it.
- Not keeping good records
Good records means good business – there's no way around it. One small business owner with a truck delivery business neglected to put in place a system to keep track of her fleet's fuel usage, and had to rely on estimations. Because of this, she missed out on valuable fuel tax credit claims.
- Not getting the status of workers right
Not getting the engagement status of workers right can land employers in unforeseen hot water. An events business owner 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."
- Not paying the superannuation guarantee, or on
When cash flow becomes an issue, too many businesses leave superannuation guarantee payments until last. If you want to avoid penalties from the Tax Office, you need to make sure your employees are paid superannuation when they need to be paid. You can't risk late lodgements.
- Not keeping track of changes to tax laws
Did you know payroll tax rates changed this year? One business owner 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."
If you're not following tax law closely, it's understandable you'll miss things. Luckily, our monthly client newsletter keeps you up to date, but it also couldn't hurt to check in with us from time to time for updates.
- Not using a tax agent
One sole trader 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 this year I missed out on claiming a big asset write-off 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.
This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2014 Moore Stephens Australia Pty Limited. All rights reserved.