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, if I get behind, one or two hours a month to catch up. Or, if I get really behind and have to do it all at the end of the quarter, four or five hours to input all the information to the system.
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 great pile 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 more practical to let your book-keeping slip behind a bit, rather than spend valuable customer-hours on book-keeping; as long as you know you'll have time 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.
Almost a decade ago, I was completing my BAS when I suddenly discovered that I'd kind of accidentally spent all the GST money I'd been collecting for the ATO, that quarter. It had been a big spending quarter and in those days, I had very limited book-keeping skills which is why I ended up making that very stupid mistake. The tax office sympathised when I rang them up to explain. 'A lot of small businesses have made the same mistake,' they said. They were happy to give me extra time to pay them back and I survived the financial disaster.
It was a hard lesson to learn and made me feel like an idiot, but it was a good lesson because it taught me to never accidentally spend the tax office's money again. Since then, I have always used a separate account system to make sure I always know exactly what is mine and what belongs to the tax office. And since then I've always paid my quarterly BAS bills on time.
Don't ever forget that the GST you collect is not yours. Ever.
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 find the idea of completing your tax return stressful you may prefer to get it done 'asap' so that you don't stress about it any longer than you have to.
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, my tax return has been almost or fully completed and lodged and I'm freed up to focus on looking after my clients and promoting my business.
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.