Are you a GST-registered freelancer, contractor or sole trader business? If so, these tips about book-keeping, BASs and your responsibilities in regard to the Australian Tax Office (ATO) may be helpful.
Book-keeping - recording your earnings and expenses in your book-keeping program - doesn't take very long if you keep it up-to-date. For my small business, it takes up to half an hour a week or about an hour a month. Or, if I get behind and have to do it all at the end of the quarter, three or four hours to input the information to my book-keeping program.
For small GST-registered businesses, it's usually best to input everything into your accounting program and do your bank reconciliations at the end of every month. Then you don't have a heap of book-keeping to catch up on when the BAS is due to be lodged with the ATO at the end of the quarter.
However, in very busy periods it's often practical to let your book-keeping slip behind rather than spend valuable customer-hours on book-keeping; in the knowledge that you'll have to catch up on your book-keeping before your BAS is due.
Every year my two busiest periods are May/June, and November/December. In early May, everyone starts rushing to get their reports or policy documents or publications edited and proofread or their transcripts finished so they can be invoiced and pay their bills by the end of the financial year. In early November, everyone suddenly realises Christmas is on its way and they need to wind up their reports and other documents prior to the new calendar year. I don't really try to keep my book-keeping up-to-date in those two quarters because I am flat out working long hours to keep my clients happy and make money.
Every new financial year, I'm two or three months behind in my book-keeping and have a BAS due to be lodged within the next few weeks. Every new calendar year, I'm two or three months behind in my book-keeping; but this isn't a big problem because luckily, the tax office gives us longer than the usual one month deadline to complete the 'Christmas BAS' which is not due until late February.
Being a few months behind in my book-keeping is not a disaster at those particular times of year because July and January are the two quietest months of the year; months during which I have time to catch up on all the tasks that have been lagging behind, including book-keeping and BASs; months during which most people are taking a breath and short break before launching into the next year. Then once I've caught up with my book-keeping and BASs it's August, or February, and the usual workload starts coming in again.
A long time ago when I was still in the early days of learning to manage my business, while completing my BAS I discovered that I'd accidentally spent all of that quarter's GST money that I'd been collected for the ATO. I'd had some unexpected expenses that quarter and in those days, I obviously had limited book-keeping skills or this wouldn't have happened. The tax office sympathised when I rang them up to explain: 'A lot of small businesses have made the same mistake.' They gave me extra time to pay them back their GST and I survived my first near-financial disaster.
This experience taught me to never accidentally spend the tax office's GST again. I use a system whereby I always know exactly what is mine and what belongs to the tax office. Thus I'm always able to pay my quarterly BAS bills on time.
So for those of you who own a GST-registered business and are still new to managing your own business: don't ever forget that the GST you collect does not belong to you.
Once your April-June BAS is lodged, you can start thinking about lodging your tax return for the previous financial year.
When to lodge your tax return depends on a few things.
If you are afraid you are going to be faced with a huge tax bill, you're better off lodging your tax return early so you can plan how to pay it. On the other hand, if you're expecting a refund from the tax office then the sooner you receive the refund, the better.
As July is a quiet time of year for my business, straight after lodging my BAS I make an appointment with my accountant to get my tax return done as quickly as I can; so that by the time August arrives and the busier period starts again, my tax return has been almost or fully completed and lodged, and I'm freed up to focus on looking after my clients.
This article is based on my own experiences since starting On Time Typing as a small (sole trader) online/onsite scribing business in 2002 which has become an online transcription, scribing, writing, editing and proofreading business.
Stay posted for future articles about book-keeping basics and managing an online business.