For small businesses, the 2018/19 finish line is in sight. At midnight on 30 June, the financial year ends, the books are closed and businesses report their financial situation to the Australian Tax Office (ATO). Matthew Prouse from Xero provides five tips to help small businesses make the most of this busy time and keep stress to a minimum.
Single Touch Payroll: get started now on closing out the year
Recent research from Xero found one in five small businesses (20 percent) wrongly believed that STP did not apply to them. As of 1 July 2019, all employers must begin using Single Touch Payroll (STP), which is a new reporting requirement introduced by the ATO.
Small businesses who are yet to make the transition to STP should work with their accountant and bookkeeper on becoming compliant sooner rather than later.
If you’ve already opted in to STP, all you’ll need to do is finalise your payroll figures. The good news is that STP makes this year-end task much less of a chore than in days past. There’s no need to create annual payment summaries for each employee (PAYG) and employer (PSAR). Also gone is the need to download and manage an unwieldy PAYG report file for large employers. And perhaps best of all, you can close out payroll for terminated employees at any time rather than waiting until year-end.
Make any big purchases before July – and fix up your fixed assets
If you’re in the market for new business assets, one of the biggest tax breaks available to small businesses is the newly enlarged instant asset write-off. Whether you need a vehicle, plant equipment, or other work-related machinery, up to $30,000 of the purchase price can be immediately written down.
The end of financial year is also the time to review your fixed assets. You’ll want an accountant to help you manage the depreciation and disposal of your business assets during the year. You should keep a record of all assets purchased, and have your advisor set up a register to record and depreciate your fixed assets.
Be kind to your future self: Get your bills, invoices and paperwork sorted
In the course of a year, a small business can accumulate a decent-sized paper trail – even if you’ve moved your accounting to the cloud. Do your future self a favour by following up on the year’s quotes, draft invoices and billable expenses. This way, you can start the new year with a clean slate.
It always pays to plan ahead, so make sure you have the necessary documents ready for your chat with your accountant or bookkeeper. They’ll be able to tell you what records they need, but if in doubt, simply check the ATO’s list of EOFY essential tasks.
Do you buy and sell goods? EOFY is a good time to check your inventory. For businesses with turnover less than $10 million, you’ll need to conduct a stocktake if you estimate the difference between your stock level at the beginning and end of year is more than $5,000, according to the ATO. You can claim a deduction for most expenses you incur on buying, maintaining, repairing and selling business assets or stock, either immediately or over time. As well as the stock you sell, you’ll want to include buildings, fixtures and fittings, plant and equipment, cars and trucks, office equipment and computers. Stocktakes can impact your tax planning, so it’s always a good idea to consult your accountant beforehand.
Start the new year right
For the new financial year, try to set up systems that limit the amount of work you have to do at tax time. Technology such as cloud accounting software can:
- Produce a running report of business performance (so you don’t have to wait till this time next year to find out how you’re doing)
- Create an automatic audit trail
- Automate data entry, so your books are always up to date
- Pull up a profit and loss statement or a balance sheet whenever you like – not just at tax time.
Also, ask your accountant to come up with a tax plan for the new year. They’re in a much better position to lower your tax bill if they can create a 12-month strategy.