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Top 5 avoidable tax mistakes small business owners keep making

Posted by: The ADP Team on 24 October 2018 in Business Strategies, Small Business, Tax

Thank you to our guest blog, Tax & Super Australia.

The whitest lie ever told to new small business owners is that hard work guarantees success.

Hard work is vital to success, but it’s not the only quotient. Perhaps aspiring entrepreneurs have listened to starry-eyed blog writers (although ADP has its feet on the ground) and charismatic airbrushed suits telling them that they can’t lose if they try hard enough. Well, there are over 2.24 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 chances of making it can only increase.

1. Forgetting to allow for fringe benefits

Fringe benefits tax (FBT) is payable on some items or even services a business provides to its employees. FBT can often be missed as it has its own tax “year”, which ends 31 March, as well as the fact that some employers are simply unsure about which benefits are taxable and which are not. If your employees use company-owned vehicles for personal use for example, or you provide them with food or entertainment, or reduced-price goods, you may be liable for FBT. Failure to allow for FBT can result in hefty ATO fines, so keep track of all employee benefits you provide.

2. Not getting the status of your workers right

Not getting the engagement status of workers correct can land employers in unforeseen hot water (see our recent blog post). 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.”

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 keeping track of changes to tax laws

Did you know payroll tax rates changed this year? Rufus Rich didn’t. “I’ve got 14 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, there are resources online that can keep you up to date with the latest rulings and determinations that actually apply.

5. 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. It doesn’t cost much to consult a specialist – they’ll help you avoid regrettable scenarios, and the cost is generally deductible anyway.

Featured Writer – Tax & Super Australia


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TAGS: Fringe Benefits Tax record keeping guy Tax workers right