End of Financial Year tips to avoid getting caught out at tax time

It’s that time of year again, but this year’s tax season could look a lot different to previous years, with most Australian businesses adjusting to life in a post-COVID world.

With the End Of Financial Year just around the corner, you should have already started getting on top of your books, and if you haven’t, now is the time.

The challenges presented during the pandemic have brought about both setbacks and a bevvy of stimulus and support measures from the government to offset those setbacks.

It can be a lot for business owners to get their head around, but we have a few tips to keep in mind that will make the process simple and to avoid any backlash from potential mistakes.

Get organised

It’s better to get your books in order sooner rather than later, and that includes implementing financial processes that are appropriate for your business.

The longer you leave it, the more difficult it will become.

The simplest way for business owners to manage their own finances without rushing at the last moment is to set aside time every day or week to monitor how your business is performing.

This could include chasing up outstanding invoices, setting aside funds for upcoming payments or collecting and recording GST.

However, if managing your finances yourself is too much to handle, or there just aren’t enough hours in the day, there are people (and programs) available to help you out.

Outsource and automate

A business owner doesn’t have to bear the burden of managing finances by themselves.

Tax is complicated, so if you’re not already working with a financial expert or an accountant, whose job it is to help you with all fiduciary aspects, you really should be.

They can advise you on how to meet your tax obligations and staff entitlements, or could even take care of all accounting aspects for you. Alongside engaging with experts, technology can organise and manage finances much more efficiently and accurately than any human can.

Automating some of your processes will save you time and money in the long run, as well as save you from any potential legal issues that could stem from human error.

One of the most common systems for businesses to automate is their payroll.

Using an online payroll system makes it easier to keep track of staff’s pay, entitlements such as accrued leave and holidays, and avoid unhappy employees asking where their money is. 

The repercussions for not meeting these obligations are serious, and you could be held criminally responsible for under paying your staff or not paying enough tax.

Obligations such as pay-as-you-earn (PAYE) tax and holiday pay can be easily miscalculated and can carry a hefty fine. Don’t forget to also provide each employee (including apprentices) with a payment summary for the 2020/2021 Financial Year.

Know your obligations and entitlements

COVID-19 has added further complications to the already complicated tax system, and it can be tricky to get your head around when the time comes.

Luckily, businesses that automate their systems can alleviate some of these confusions, but it’s still important to know your obligations, or what you could be entitled to by the government.

Amid the coronavirus pandemic, the Australian government has introduced a raft of support payments to keep businesses afloat during tough times, and taking advantage of these benefits could make a huge difference to your balance sheet.

One of the most highly publicised of these support initiatives is JobKeeper, which gives incentives to businesses for retaining staff during the pandemic.

These payments can be classified as a taxable expense you can add to your profit & loss statement. Hiring additional staff under the age of 35 could also make your business eligible to claim the JobMaker hiring credit.

Your financial advisor will inform you of these incentives if you’ve hired one.

Another important tax change for small businesses is the income tax offset increasing from 8% to 13% for FY2020/21. Eligible small businesses can reduce their tax obligations by up to $1,000, which is worked out based on the proportion of tax payable on your business income.

Plan ahead and avoid repeating mistakes in future

The best way to get on top of your finances is to plan ahead. Rather than suffering bill shock every year when it’s time to do the books, business owners can make provisional tax payments throughout the year rather than paying a lump sum.

Making these payments over time also helps alleviate the stress of rummaging through your old invoices and receipts when tax time comes around.

Businesses that reach a certain income threshold are required to pay tax in PAYG instalments, or pay-as-you-go, which are typically paid in quarterly instalments.

You can check whether your business meets this threshold on the ATO website, who will also tell you how much you need to pay and how often. You can also opt to make PAYG payments voluntarily, which can be helpful when budgeting for next years’ income tax.

Note that you still need to lodge an annual income tax return if you’re making PAYG payments.

David Holmes is the Chief Executive Officer of job management software, Fergus a creative leader with 20 years in digital business across agencies, publishers and digital pure plays.

David Holmes, CEO of job management software, Fergus.