By Dan Pollard, Founder, Fergus
With the 2020 financial year having come to a close, business owners of all sizes in construction and trades are looking at their tax obligations.
There are a number of changes this year that it’s important for business owners and sole traders to be aware of, while remembering the evergreen principles for tax time.
Call a pro
As a business owner you have to do a lot of things yourself. But tax is one area where it pays to get specialist advice. The cost of a licensed tax advisor can be written off as a business expense, and getting the right advice at the start of the process can save far more than it costs down the line.
This year it’s particularly important to be across your finances as there have been both interruptions to business due to the COVID pandemic and one-off payments, subsidies and grants applied to businesses to manage the impacts of COVID.
Track your COVID subsidies carefully
If you’ve taken advantage of wage subsidies during the 2020 financial year, these will have been paid to employees and will be taxed through your PAYE payments. Subsidies that have been passed on to your employees are generally regarded as excluded income and are not taxed. However they generally cannot be claimed as expenses against your business income, though additional payment on top of the subsidies could be.
Any wage subsidies that are not passed on to your employees are required to be paid back to MDS and a failure to do so may result in this being regarded as taxable income. Mapping your changing wage levels throughout the year will be important for both business planning and accurate tax reporting.
Some businesses will also have accessed loans to help them manage the fluctuations of the pandemic. These loans are liabilities that will likely affect your tax position this year, as well as future years.
Ensuring these are factored into current accounts and future planning is wise. A government-supported program for loans from commercial lenders to some COVID-affected businesses remains open until June 2021.
Move your payroll online
It’s not uncommon for business owners to run into trouble because they have miscalculated PAYE and employee holiday pay amounts. In some cases a failure to pay these correctly can be considered theft.
Moving from a paper-based system to an online payroll can help you – and your tax advisor – in a few ways here. It will make it easier to automate PAYE payments and to keep track of employee’s accrued entitlements. It will also make period reconciliations far easier. This means you can conduct them more often with less effort, and catch any mistakes before they occur.
Correctly Classify One-off Expenses
Many businesses will have borne the expense of moving off site employees to a work-from-home environment. Tracking these costs throughout the year is important as they should be taken into account when calculating your tax position. It’s important to understand what constitutes an expense and what is an asset – take advice from an accountant on this. While some expenses can be written off against income earned through your business, assets must be depreciated over time and cannot usually be treated in this way.
Examine your record-keeping
As many business owners face a larger-than-usual headache at tax time managing the irregularities of a year like none before it, there are ongoing lessons that can be learned from this.
Digital record-keeping is an important tool to keep track of rapidly changing business conditions and the financial activity that accompanies them. It’s worth taking time at the end of the financial year to examine whether your systems and processes are optimised to keep ongoing records so that your periodic PAYE and GST payments are accurate and your records for annual reconciliations easily accessible. Attending to this piece of business once can save you many hours over years or even decades moving forward.
Dan Pollard, founder, Fergus job management software for trades and service businesses.
Plumber turned tech entrepreneur, Dan launched Fergus in 2014. Having done the hard yards as a plumber for over 20 years, Dan was determined to come up with an easier way to manage the end-to-end operations of his trades business. Dan has a passion for helping tradies realise their own true potential and is a wealth of knowledge when it comes to what it takes to run a successful trades business.