Every month and quarter at our business we help clients prepare and lodge many Business and Installment Activity Statements (BAS). Over the years we have become aware of some common tax mistakes clients make when preparing their activity statements.
1. Make sure you understand whether you account on the cash or accrual basis and print the correct reports
When you register for GST with the ATO, all businesses with a turnover of less than $2 million must select whether they wish to account for their GST using the cash or accrual accounting method.
Most small businesses select the cash method as their choice but this is not always the best choice. If your business is cash-based, i.e. you are a restaurant that has no debtors and pays creditors on terms, the accrual method is the right choice for you. This means you can claim the GST back on purchases immediately, even though your supplier must wait for your payment. This can greatly assist with cash flow.
This method must be updated in your accounting system and you must make sure that you are printing the correct reports (cash versus accrual) to match the method you have chosen.
2. Declare the wage amount for only one month when preparing a quarterly BAS
If your business has employees, and you withhold more than $25,000 per annum in PAYG Withholding (PAYGW), the ATO will most likely move you to a monthly lodgement cycle.
If this happens the ATO will advise you in writing. This means that your business will lodge monthly Instalment Activity Statements (IAS) and quarterly Business Activity Statements (BAS).
GST is reported once a quarter, and PAYG is reported once a month. Therefore it is important to remember if you are lodging your September or Q1 BAS, report GST for the entire quarter from 1 July to 30 September, and report PAYGW for just the month of September.
3. Include the GST-free amount in total sales, even though it is broken out in a box below
Box G1 requires you to enter the total sales for the period, and you must include any amounts that are also reported in box G2 and G3. You can report these amounts as GST-inclusive or GST-exclusive by indicating with a tick box your reporting method.
At year end the ATO uses cross references between lodged income tax returns and BAS to identify discrepancies so it is important that you correctly report your revenue.
4. Do not vary your PAYG Income Tax Instalment amount unless advised by your accountant
The ATO is often working about one to two years behind ‘real time’ when calculating the income tax amount that must be paid for the current year. Circumstances can change over these years where a business grows or shrinks. As a result, you may wish to change, or vary, the requested income tax instalment amount.
We recommend that you check with your bookkeeper or accountant before revising the amount paid. If you vary your instalment downwards, and then have an income tax amount owing at year end, the ATO can levy fines and penalties.
5. Make sure you lodge by the deadline
If lodging yourself, each BAS is due on the 28th day of the month following the quarter, except for the December quarter where the BAS is due on 28 February.
If you lodge via a registered BAS or Tax agent, you will get an extra month to lodge in addition to your deadline.
The ATO is taking a very heavy-handed approach to late lodgements and will fine you $180 for each month the BAS is lodged late, up to a maximum of five months. This can really add up if you have a number of late BAS returns as each BAS attracts an individual penalty.
6. Reconcile your PAYG and GST back to the balance sheet
If you make a change to the tax rate or a transaction for a period of time where a BAS has already been lodged, this change will not show up in the reports generated for the next BAS period.
The only way to identify if GST and PAYG has been altered after a BAS has been lodged is to do a comparison of the quarterly reports to the balance sheet accounts. This process is straightforward if lodging on accrual, but becomes more complicated when lodging on a cash basis, as you have to adjust for GST on debtors and creditors.
We recommend engaging a bookkeeper or accountant at least once a year to review your BAS lodgement and to perform this reconciliation.
Preparing and lodging your BAS is a complicated process that requires years of experience to ensure all data has been reported correctly. We recommend that you work closely with your bookkeeper or accountant to ensure your BAS has been prepared correctly. There are many firms out there that would be happy to act as your ‘bookkeeping coach’ and work directly with you to provide review and advice.