Category Archives: Compliance

Three considerations for business insurance

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When it comes to starting a new business or evaluating the needs of your existing small business insurance should be at the top of your priority list. Today we’re exploring three of the top considerations you need to make when looking at insurance for your small business:

What are the key risks to your business, and what do similar businesses in your industry take out when it comes to insurance?

Considering the risks to your business, you may want to get insurance as soon as possible once you start operating to help give you peace of mind. You can always research online (there’s plenty of good content on upcover.com), speak with an insurance broker, or even those in your industry if you aren’t sure where to start.

Generally speaking. However, the most common types of insurance to purchase for your business really depend on whether you provide products or services. Importantly, many contracts, landlords or Associations will require Public and Products Liability Insurance and or even Professional Indemnity insurance if you provide any advice related to your services. Market stalls, online shops and even bricks and mortar shops all require this kind of insurance at a minimum to operate.

Other types of business insurance that you could look into getting coverage for are cyber insurance, business package insurance (tools, stock, property, glass, motor), and personal accident insurance (if you or one of your staff gets injured). This might be in addition to statutory insurance requirements like workers’ insurance too.

Consider the insurance requirements of your industry

Depending on your industry, you may need to hold certain types and limits of insurance in order to be accredited. For example, AHPRA registered businesses need to hold active Professional Indemnity and Public and Products Liability Insurance. This might, for other businesses, also include contractual obligations of landlords, key contracts with clients and their insurance requirements for your business.

What are you most concerned about?

If you believe you can manage the risk without obtaining insurance, this is called self-insurance. Sometimes, you can’t get insurance products for anything such as business risks where a contract falls through, or you don’t get as many customers as you’d hoped, or grow as fast as you would have liked!

However, there are plenty of insurance products out there. Typically, as you grow, you may need to purchase more insurance products to help mitigate the risks in your business and give your business and its owners and employees greater peace of mind. This is so that, in case something happens, you know that you can lean on someone to help you pay for the loss or manage the cost of any claim or lawsuit. If you’re interested in exploring, more than getting a quote on insurance might be a good next step.

By Skye Theodorou, CEO & co-founder upcover.

At upcover, we offer super quick, jargon-free insurance products to small business owners Australia wide. Head to www.upcover.com to find out more about live Professional Indemnity, Public and Products Liability, Cyber Privacy Liability, COVID-19 Bounceback insurance. We’ll also be launching  Commercial Motor (incl. rideshare and delivery),  Tools of Trade, Glass, Personal Accident and Management Liability later in 2022.

As well as being Australia’s fastest insurance for small businesses, we’re also democratising access to insurance, so any business, brand or marketplace can become a distributor of insurance products and monetise their existing membership & customer base. Our technology platform integrates with market leading insurers and online businesses, making it seamless for trusted brands to offer insurance policies directly to their customers – all within their own experience.

Tax return for small business

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If you are paying taxes, you are making money. All small businesses have tax and reporting obligations, and this guide will help you understand what is required to do a tax return for a small business and where you can get help.

A tax return is the completion of documentation that calculates a business’s income earned with the amount of tax payable to the Australian Tax Office (ATO).

WHY should you do a tax return?

  1. It’s the law
  2. You may get a refund
  3. It helps you understand the true position of your business

Irrespective of your business structure, you must submit an annual tax return. Sole traders and partnerships will be taxed at the individual income rates as part of your personal income. Companies must lodge a tax return as a separate legal entity and pay tax at a rate of 26% (in 2020/21 dropping to 25% in 2021/22 details here) of every dollar earned.

WHAT do I need to understand about small business taxation?

Your taxable income = assessable income – deductions

Assessable income is your total earnings before tax from an everyday business source such as sales and other business activity like capital gains. It does not include GST.

Deductions are any expenses incurred in running your business.

Sole traders must include any salary or wages in their tax returns, and the ATO will calculate if any tax is owing or a refund is due. A sole trader not paying themselves a salary, including PAYG withholding tax, is likely to receive a PAYG instalment for estimated income to be earned.

Partnerships must lodge a partnership tax return. Then as an individual partner, you must lodge an individual tax return for your share of income or losses. The partnership does not pay income tax; rather, the partners themselves do.

Trusts and beneficiaries must lodge a trust tax return. Then as an individual trust beneficiary, you must lodge a company or individual tax return for your share of income or losses.

Companies lodge a company tax return and pay company tax on assessable income. Companies might pay PAYG (pay as you go). The ATO will inform you if you need to pay PAYG instalments; however, as a general guide, expect to pay it if your assessable income exceeds $2 million. PAYG is a means to collect tax throughout the year versus waiting until the end of the financial year. You can also make a voluntary payment or apply for a variation if you feel your circumstances have changed.

HOW do you lodge a tax return?

A tax return should be lodged by 31 October for the previous year. Exceptions may apply if you use a registered tax agent or file a company tax return. A tax return must be lodged every year you run a business, even if you don’t expect you will have to pay tax.

You can lodge a tax return:
  • By paper
  • Online via myTax if you are a Sole Trader
  • Via a registered tax agent
  • If you are a company, trust, or partnership by standard business reporting (SBR). See our guide on accounting software

If you are required to pay PAYG on your business earnings, this will become part of your BAS reporting and payment requirements. More details on this can be found in our BAS guide. The benefit of having PAYG is that tax is paid during the year, and you can budget to make these payments rather than having a large lump sum payable at the end of the year.

After you have lodged an electronic tax return, the ATO aims to finalise the return in approximately two weeks. The ATO warns that processing may be delayed if there are incorrect or incomplete details in your return.

When completing your income and deductions for business:
  • keep accurate and complete records of your assessable income and expenses
  • use the correct method for calculating and reconciling the amounts you claim
  • report all income and deductions to ATO at the right time
  • pay any amounts owed on time
  • only use valid business deductions
    • the expense must have been for your business, not for private use
    • if the expense is for a mix of business and personal use, you can only claim the portion that is used for your business
    • you must have records to prove it

Types of expenses that are not deductible include entertainment expenses, traffic fines, and private or domestic expenses such as childcare fees or clothes for your family. GST cannot be claimed as an expense if you have already claimed it as a GST credit.

If a prepaid expense exceeds $1000 and you will not receive the goods or service within 12 months, or it is not eligible for an immediate deduction, the expense will need to be apportioned over time.

A capital expense for items such as machinery or equipment will normally be needed to be apportioned over time.

HINTS

The Australian Tax Office provides an online search engine to assist small businesses http://www.sba.ato.gov.au/

You can also book an after-hours phone call http://www.sba.ato.gov.au/Forms/Book-an-after-hours-call-back—small-business-support/

The ATO provides an app providing tax and super information and tools https://www.ato.gov.au/General/Online-services/ATO-app/

If you employ people, you will also have PAYG withholding tax payments you will need to make from your workers’ wages. See our guide on payroll.

SUMMARY – PAYG small business tax

You must pay tax on your assessable income minus deductions. The way you submit a tax return is based on your business structure. You will likely pay PAYG tax in instalments throughout the year, with your tax return determining if any further payments are required or if you are due a refund. Accurate records must be maintained; deductions will only be accepted for valid business deductions.

How to complete a BAS statement

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If you are reading this guide, you may have learned that you must do a BAS statement, and this guide will help you prepare and lodge your statement.

The business activity statement BAS is a form submitted to the Australian Taxation Office ATO by registered business entities to report their tax obligations, including GST, pay as you go withholding, pay as you go instalments, fringe benefits tax, wine equalisation tax and luxury car tax.
(Source Wikipedia)

WHY do I need to do a BAS statement?

If you are a small business that exceeds $75,000 turnover or provides taxi or ride-sharing services, you must register and charge for GST. You need to lodge a business activity statement.

Your Business Activity Statement will help you report and pay your:

  • goods and services tax (GST) – See our essential guide on GST.
  • pay as you go (PAYG) instalments – is a withholding tax that requires you to pay incremental amounts of your business income to the ATO. These payments accumulate towards your expected end of year income tax liability.
  • PAYG withholding tax – You withhold this tax on behalf of your employees. They will get credit at the end of the financial year as part of their personal income tax return.
  • other taxes including wine equalisation tax, fuel tax credits, and luxury car tax.

WHAT do I need to Complete a BAS statement?

The fields you need to complete in your BAS will depend on your business structure and whether you’re completing a quarterly or monthly report or a monthly BAS if turnover is above $20 million.

The ATO will automatically send you a Business Activity Statement when it is time for you to lodge.

When completing your BAS statement, the ATO states:

  • Enter whole dollar amounts – leave cents out and don’t round up to the next dollar
  • Enter each invoice once only
  • If you account for GST on a cash basis your expenses and sales must fall within the period you made or received payment
  • Only complete the fields that apply to you – if you have nothing to report, enter zero
  • If you’re doing your BAS manually, double-check your figures and calculations
  • You can always correct a mistake made on an earlier BAS

The ATO runs webinars on completing your activity statement, and bookings can be made here.

Visit the ATO website for help completing other fields in your BAS:

HOW do I lodge?

The due date for lodging and paying is displayed on your BAS. Lodge and pay on time to avoid any penalties.

BAS due by QuarterDue date
1. July, August, and September28 October
2. October, November, and December28 February
3. January, February, and March28 April
4. April, May, and June28 July

You can lodge:

You may pay your BAS with BPAY, credit, or debit card, and you will need to quote your Payment Reference Number (PRN) if doing online. If you are concerned about managing your business’s available cash, you can pay ahead, which will be credited against your next Quarterly BAS liability.

HINTS

  • Reconcile the BAS figures with your records
  • Check your purchases and sales are reported in the correct period
  • Only complete the sections that apply to you
  • Keep good records as part of your normal accounting practices
  • Ensure your sales reconcile with your bank statements (if reporting on a cash basis)
  • Keep all your tax invoices and GST records for 5 years
  • All claims must be in Australian dollars
  • You cannot make credit claims for invoices that do not include GST
  • Further GST and BAS tips can be found on the ATO website https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/BAS-and-GST-tips/

SUMMARY – BAS is your report on tax to the ATO

Lodging a Business Activity Statement is required if you turnover more than $75,000. Your reporting method is to the Australian Tax office for GST collection, PAYG income tax collection, and business income tax instalments. If you use an Australian designed accounting package, your administration will be greatly reduced. Ensure you accrue and do not spend the money you owe quarterly to the tax office.

Record Keeping for small business

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Running a small business is about understanding what is going on and about meeting your obligations. You might have obligations to employees, suppliers, the taxman or more simply an obligation to yourself to understand if you are making any money or the ability to look up a past agreement.  This guide will look at why record keeping is important, what you need to keep records on, and how to keep good records.

Record keeping is the activity or occupation of keeping records or accounts.
Record keeping in financial terms is the process of recording transactions and events in a ledger or accounting system. Since the principles of accounting rely on accurate and thorough records, record keeping is the foundation accounting.

WHY should I care about record keeping?

Keeping good records is important for any small business. Whether that is to help manage your costs, whether it is for legal, regulatory or tax reasons, or simply to help manage and improve your business.  Collecting, storing, and effectively analysing your data is vital.

Without adequate records, it would be impossible to measure the health of your business and to keep track of your progress. It also helps avoid fines for doing the wrong thing and demonstrate your financial position if you need a bank loan.

Records must be kept by law for:
  • 5 years for Australian Tax Office purposes
  • 7 years for Human Resources time and wages records
  • 2 years after you have offset a capital loss against a capital gain (individuals & small business)

Keeping good records will make running your business easier and save you time in the long run.

WHAT should I keep records on?

The types of records you should consider keeping include:
  • Client Files
  • Contracts
  • HR required records for 7 years
    • employee details including pay, leave and work hours
    • reimbursements of work-related expenses
    • workers compensation insurance for each employee
    • pay as you go (PAYG) tax instalments
    • superannuation contributions
    • ending employment
  • HR records recommended:
    • resumes and job applications
    • contracts of employment
    • performance reviews
    • trade or registration certificates
  • Business records (for example, business registration, formal meeting minutes etc)
  • General business information (for example, job tracking, customer correspondence)
  • Accounting and tax for 5 years
  • Business expenses
  • Bank statements / credit card statements
  • Annual tax returns
  • Quarterly/Monthly tax filings
  • Payroll
  • Inventory
  • Sales
  • Revenue
  • Petty cash
  • Vehicle logs
  • Invoices
  • Cancelled cheques and cheque stubs
  • Purchase orders

HOW do I make record-keeping easy?

Under Australian law records must be:
  • readily accessible if required
  • must be unchanged and must be stored in a way that restricts the information from being changed or the record damaged (changes may be permitted for correcting an error)
  • in writing (electronic or paper)
  • legible
  • in English
  • explain all transactions
  • accurate and not misleading

A bookkeeper or your accountant can help with this process but this will not remove your need to still be involved in keeping accurate records.

Although you can keep records on paper it will be much easier if you do so electronically.  Refer to our essential guides on expense management, accounting software and payroll software to understand more. If you are concerned about outlaying funds for software you could set up a series of spreadsheets to help manage your accounts.

Other key documents like signed contracts, lease documents etc should be kept in a safe preferably fireproof storage. These documents can also be scanned and stored electronically ensuring you have back up copies.  Refer to our guide on Storage and sharing of files.

Electronic solutions and storage of records have the following advantages:
  • back up records in case of disaster
  • automated processing and provide ready-made reports
  • produces taxation and employment reporting requirements for government submission online
  • keep up with the latest tax rates, laws and rulings
  • save on physical storage space

HINTS

The Australian Tax office (ATO) provides a record-keeping evaluation tool which will help you evaluate how well you are keeping your business records. https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=&anchor=RKET/#RKET/questions

The ATO provides an App for sole traders to help them record business income, expenses, and vehicle trips.  https://www.ato.gov.au/general/online-services/in-detail/mydeductions/mydeductions/

SUMMARY – keep records under Australian law

Record keeping is not just about keeping records for accounting.  Under Australian law, some taxation, superannuation and employment records must be kept for 5 or 7 years. 

Accurate and regimented record keeping will help you find the information you need, provide reporting and make running your business easier.  Modern accounting and payroll cloud-based solutions will not only streamline the process but also produce required government reporting for you.

Lack of record-keeping, false or misleading reporting can result in fines. Always ensure you have backup copies.

GST do I have to pay it?

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They say two things are certain in life, death and taxes. We certainly hope your small business lives a long and prosperous life and that you never fall foul of the taxman.  In this guide, we will explain the GST and show you that it is not a tax you pay but instead one you help collect from the final consumer.

The Goods and Services Tax (GST) is a broad-based tax of 10% on most goods, services, and other items sold or consumed in Australia. If you are registered for GST, you must add GST on all your applicable taxable sales unless they are GST-free or input-taxed. You are able to claim credits for GST included in the price of business purchases of goods and services.

WHY do I need to register?

If your business exceeds $75,000 turnover or provides taxi or ride-sharing services you must register and charge for GST! You need to register within 21 days of exceeding the turnover threshold.

WHAT are the steps to follow for Standard GST registration?

  1. Register for GST online, by phone or through a registered agent. Make sure you get an Australian Business Number (ABN) first. https://www.ato.gov.au/Business/GST/Registering-for-GST/
  2. Determine which of the goods and services you sell must include GST.
  3. Issue tax invoices when you sell something which GST is included you must issue an invoice clearly showing the 10% GST added.  For example, $100 x 1.1 = $110 inc GST. Under Australian legislation, all goods and services pricing should be indicated as total price with GST included. For example, from the previous example, $110 inc GST, not $100 ex GST.
  4. GST credits for anything that you have bought for your business. Collect tax invoices that show GST has been paid . Link

Australian GST-free products and services
Most basic foods, some education courses and some medical, health and care products and services are exempt from GST.
Exports of goods and services from Australia are generally GST-free.
The supply of a service is GST-free if the recipient of the service is outside Australia.
Further info
  1. Your accounting system should clearly show how much GST you have collected and paid. (Be sure to read our essential guide on Accounting software as this will simplify the process). Ensure you put aside any GST money you have collected, as it must be paid to the tax office and it is not your business’s revenue. You will pay your GST collected minus your allowable credits to the ATO.
  2. Lodge a BAS statement. A Business Activity Statement (BAS) is your report to the ATO on your GST activity. You can lodge online through MyGov, the ATO Business Portal, directly through some accounting software, tax agent, or mail.
    If your turnover is less than $20 million you must lodge quarterly otherwise monthly. More details can be found in our How to Complete a BAS guide.

The Australian tax office requires GST invoices to include certain information and this will differ based on the sale being below or above $1000. The above $1000 format can be used for the lesser value.  The specific requirements and a suggested format can be found here https://www.ato.gov.au/business/gst/Tax-invoices/

BAS due by QuarterDue date
1. July, August, and September28 October
2. October, November, and December28 February
3. January, February, and March28 April
4. April, May, and June28 July

HINTS

  • Keep good records
  • Ensure your sales reconcile with your bank statements
  • Keep all your tax invoice and GST records for 5 years
  • GST is not claimable on private expenses such as entertainment and food
  • All claims must be in Australian dollars
  • When claiming a tax credit for less than $82.50 for you only need one of the following; a tax invoice, a cash register receipt, a receipt, or an invoice.
  • You cannot make credit claims for invoices that do not include GST
  • Further GST and BAS tips can be found on the ATO website

If you sell something that is GST exempt you can still claim credits for the GST included in the price of purchases you use to make your GST-free sales.

SUMMARY – GST do I have to pay it

In summary, GST will be part of your business, so ensure you keep accurate records and employ an appropriate person to help and/or use a software tool to ensure you stay compliant.

How to Invoice

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As a small business owner, you need to keep track of how much money is coming in and how much money is going out. The collection and creation of invoices is a key way to achieve this. Thus you need to know how to invoice.

In this guide, we will look at why, in most cases, legally, you must provide invoices to your customers and how you go about creating one. We will also look at when and how you want to get paid.

An invoice is a time-imprinted business document that itemises and records a transaction between a seller and a buyer. If the goods or services were purchased on credit, the invoice usually specifies the terms of the deal and provides information on the available methods of payment.

WHY should I invoice my customers?

If your business turnover exceeds $75,000, you must register for and pay GST. See our guide on GST. When you make a sale of $82.50 or more, including GST, you must issue an invoice.

If your business has a turnover of less than $75,000, your customers may demand an invoice, and even if they don’t, it is simply good business practice.  We have written a comprehensive guide on Record Keeping.

Legally you must keep a copy of your invoices for 5 years.  This can be a paper copy or electronic.  These copies will help you fill out your BAS.

If a customer requests an invoice, you must provide it in under 28 days.

WHAT terms should I offer my customers?

Before we look at the invoice itself, a very important decision needs to be made about whether you will offer your customers any credit.  This is when you expect to get paid for the goods or services that you are providing.  Options include:

  • Deposit – You require a percentage of the total upfront to start work
  • Cash on delivery – full payment is made at the time of delivery of the product
  • Payment on completion of work – full payment is made at the time of completing a service
  • Progress payments – a schedule of payments normally with milestones are set through the project
  • Credit terms – the customer is given a set number of days to pay
  • Discount for early payment – You offer an incentive or discount to pay an invoice early, like a 5% discount if they pay within 7 days

Ideally, you get paid early or at the time of delivery, however, many businesses will not accept that if you want to do business with them.  Unfortunately, some companies have conditions whereby you have to accept terms of up to 120 days if you want their business.  This is robbery, and the norm would be 30 days. The longer a business takes to pay you helps their balance sheet, the quicker you get paid helps your balance sheet.

You will also need to decide what payment methods you will accept.  A bank transfer will be the most attractive as it will not attract fees, you don’t have to handle cash, and the money should move to your account within 24 hours. Cash will require you to visit the bank.  If you decide to accept a credit card or Buy Now Pay Later (BNPL – for example PayPal), you will get the money straight away, but you will have to pay a merchant fee in the form of a percentage of the transaction.  This payment form is convenient for the customer and will get the money to you fast. 

Whatever form of payment or payment terms you decide to use, you will need to consider when building your cost model.

HOW to invoice

By far, the easiest way to produce an invoice is through an accounting package.  If you create one manually, this can easily be done using a spreadsheet or word processing application. You will find many templates available in those applications, as well as downloadable templates from the internet.

In Australia, an invoice must include:

  • the heading “tax invoice”
  • Your business or trading name
  • your Australian business number (ABN)
  • date of the invoice
  • a description of the items sold, including the units (hours or goods) and price
  • the GST amount– this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, a statement which states ‘Total price includes GST’ (only applies if you are liable for GST)
  • If the invoice is over $1,000, including GST, you must also include the buyers’ identity or ABN
Example

Tax Invoice

Freds Shop                                                                             17 Fake St
ABN: 32 123 456 789                                                           Your Town State Postcode

Date:  25 March 2021

To:         Valuable customer
              56 Down Rd
              Town State Postcode

Description                                                   Quantity             Total
Widgets                                                          1                           $40.00
Labour                                                            2hrs                     $80.00

Total Price including GST                                                       $132
GST                                                                                              $12.00

HINTS

Now you have created your invoice, you need to send it to your customer, with the most common form these days being via email.  Ensure you have the right contact, and it is also worth copying it to a company’s accounts payable team. You can, of course, hand-deliver or post.

If your customers do not pay your invoices, read more about your options in our guide on bad debts.

The tax office provides guides on requirements for tax invoices here.

SUMMARY – How to Invoice

Accurate invoicing will help you keep your business in check and the ATO happy.  An invoice can be easily created. You can use an accounting package to help with the greater task of managing to invoice and your accounts.  If your turnover exceeds $75,000, you must provide invoices that specify GST.  Invoices are not required for amounts less than $82.50, including GST.

Can’t pay my debts – Insolvency Reforms

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With Australian small business gripped by the effects of COVID-19, many find themselves in a position where they can’t pay their debts.  The Australian government has stepped in to help by introducing insolvency reforms.

Insolvency is when you find yourself in a position that you do not have the funds to pay the money you owe to others. As the owner of a small business your business and most likely you personally are responsible for paying your debts.

WHY should I pay my debts

If you don’t pay money that you owe to others, they have the right to recover those funds.  If you don’t have the funds, you become insolvent or essentially bankrupt.

Before January 2021 it was illegal for a business to trade if insolvent. The Australian government has introduced reforms that will allow a small business more time to restructure and survive the financial effects of COVID-19.

WHAT do insolvency reforms mean to me?

If you find your self insolvent and your debts are less than $1million, you will be eligible. Note that you must also have paid your employees their entitlements including superannuation and have your taxation lodgements up to date.

The small business reforms package consists of:

• A debt restructuring process providing a quicker and less complicated procedure for financially distressed but viable firms to restructure their debt.

• A liquidation process to allow faster and lower-cost liquidation, maximising returns for employees and creditors.

These reforms have been announced as temporary so at some point they will be removed!

Most importantly, this means that you can keep trading under your control while developing a debt restructuring plan.

HOW do I get help?

Traditionally you would need an administrator who would take control of your business which would be placed in voluntary administration.

Now a small business restructuring practitioner is recruited, which will reduce the complexity involved.

If you are facing financial stress, you should approach a practitioner immediately to discuss your options. There is a flat fee to do this but remember it is the difference between closing your business immediately and trading out of your insolvency.

The practitioner will work with you over up to 20 days to create a plan that your creditors must vote on.  If the plan is approved, the practitioner will administer the plan, including making payments on your behalf to creditors as set out in the plan.

HINTS – Small Business Reforms Package

A government fact sheet can be found here

You can find a registered restructuring practitioner here. Only a person registered with the Australian Securities & Investment Commission (ASIC) as a “registered liquidator” can act as a business restructuring practitioner.

SUMMARY – Can’t pay my debts

Key to your business success is good record keeping.  Knowing your financial position and understanding if your business has become insolvent means you may be able to trade out of your issues.  Alternatively, shut your business down without also destroying any personal assets.  The recent government reforms show sympathy and understanding of small business. They are making it easier to get back on your feet.