An accountant can help any business, regardless of size, turnover or business life stage. An accountant can even provide invaluable advice before you even start your company. They can help get your business off to the best start: suggesting the best way to structure your company, developing a business plan, and helping you to secure finance to kick-start your project.

Despite this, some owners feel comfortable taking care of the business’s financials, and decide to manage their own compliance activities. Be extremely careful that you are logging your incomings and outgoings correctly, and that you are taking advantage of any tax deductions or credits you are entitled to. It is your responsibility to meet the lodgement and payment deadlines as required.

If you don’t have the time to manage your own compliance affairs, are struggling under the increased workload, or are missing important dates, you should engage an accountant who can help lighten the load and manage all aspects of your compliance program so you can do what you do best – run your business. Let us help you find the best accountant for your needs.

You must register for GST if:

• your business or enterprise has a GST turnover (gross income minus GST) of $75,000 or more
• your non-profit organisation has a GST turnover of $150,000 per year or more
• you provide taxi or limousine travel for passengers (including ride-sourcing) in exchange for a fare as part of your business, regardless of your GST turnover – this applies to both owner drivers and if you lease or rent a taxi
• you want to claim fuel tax credits for your business or enterprise.

You can register for GST when you first register your business or at any later time. You must register within 21 days of your GST turnover reaching the threshold, or if you provide taxi travel for passengers.

A good accountant should take a vested interest in your business so they can can drive growth and profit and help you achieve your wildest dreams. At a base level they can help manage your incomings and outgoings and prepare your annual tax returns. But they can add so much more to your business:

• Develop a business plan to set your business off on the right track
• Help you source additional finance to fund a growth strategy
• Suggest ways to help your business drive future growth, increase your bottom line, and maximise your profit.

To get the best out of your accountant, you should view them as a strategic partner. Share with them your ambitions for the business so you can work together to create a realistic yet optimistic plan for the future.

For new businesses, the three most popular business structures are sole trader, partnership and company. The structure identifies your operation as a trading business.

One of the main advantages of a company structure is that you can take advantage of what is known as limited liability, which is a layer of protection placed between yourself and your business. A limited company is seen as its own entity rather than an extension of its directors. Therefore, any debts the company accumulates belong to the company rather than the individual directors.

The benefits of limited liability really come into play should the company become insolvent further down the line. If the company becomes unable to pay its debts and enters into liquidation, any outstanding debts (unless they have been personally guaranteed) will be wiped out and the director can simply walk away.

While companies have limited liability, but directors can be personally liable under the Corporations Act 2001 if found to be fraudulent, negligent or reckless. Major creditors often insist directors personally guarantee the company’s liabilities.

‘Proprietary’ or ‘Pty’ must be included in a company name to indicate legal status as a company. ‘Limited’ or ‘Ltd’ also needs to be included in a company name if it’s a limited liability company.

Visit the ASIC website (asic.gov.au) for more information on your legal obligations as a company.

You must register for GST if your business or enterprise has a GST turnover (gross income minus GST) of $75,000 or more. (Non-profit organisations and taxi / limousine services have other GST rules and requirements.)

Should your turnover fall below this threshold, you can elect to cancel your GST registration. Deregistering for GST means you will no longer be able to claim back the GST on the products and services purchased in the course of your business activities.

You must cancel your GST registration:

• within 21 days of selling or closing your business.
• if your business structure changes – such as from a partnership to a company.

You may also choose to cancel your GST registration if your GST turnover is below the threshold for compulsory registration, unless you:

• are a taxi driver
• represent an individual who is bankrupt and is registered (or required to be registered) for GST
• are a business that is in liquidation and is registered (or required to be registered) for GST
• are an Australian resident who acts as an agent for a non-resident that is registered (or required to be registered) for GST.

Contact the ATO to cancel your GST registration: www.ato.gov.au

If you are unsure whether your business should be registered for GST or not, seek immediate advice from an experienced accountant.

The thought of managing payroll can be daunting when taking on your first employee. It’s an extremely important task to get right. Paying your staff correctly and on time will help ensure they stay on board. You also need to ensure you deduct the right amount of tax and superannuation when calculating their pay.

As an employer, you have a role to play in helping your payees (eg employees and contractors) meet their end-of-year tax liabilities. You do this by collecting pay as you go (PAYG) withholding amounts from payments you make.

Your first step is to register for PAYG withholding with the ATO.

Points to note:

• You must register for PAYG withholding before you are first required to withhold an amount from a payment.
• If you cease to be an employer you should cancel your PAYG withholding registration.
• Before you enter into a work agreement or contract, you need to check that the worker is legally allowed to work in Australia.
• PAYG withholding is different to payroll tax. Payroll tax is a state tax.

Single Touch Payroll (STP) changes the way employers report their employees’ tax and super information to the ATO. It enables employers using payroll or accounting software that offers STP to send their employees’ tax and super information to the ATO each time they run their payroll and pay their employees.

Alternatively, your accountant can manage your payroll on your behalf so you can rest assured that your staff will be paid on time, correctly, and that your company has made the necessary deductions and reporting arrangements.

The second big decision – after deciding to go it alone as your own boss – is whether to set up under a company structure, or to operate as a self-employed sole trader. The decision you make will affect many current and future aspects of your business, including your legal and tax obligations. Choosing the wrong business structure can cause you to pay more tax than is necessary, and can open you up to personal liability. Each structure has its own pros and cons, so choose the best one for your situation.

Sole trader

A sole trader is an individual running a business. It is the simplest, cheapest and most popular business structure in Australia.

As a sole trader, you are the only owner and you control and manage the business. You are legally responsible for all aspects of the business. Debts and losses can’t be shared with other individuals. You can employ workers in your business, but you can’t employ yourself.

Sole traders are responsible for paying yours and your worker’s super.

As a sole trader, you:

• use your individual tax file number when lodging your income tax return
• report all your income in your individual tax return, using the section for business items to show your business income and expenses (there is no separate business tax return for sole traders)
• apply for an ABN and use your ABN for all your business dealings
• register for Goods and Services Tax (GST) if your annual GST turnover is $75,000 or more
• pay tax at the same income tax rates as individual taxpayers and you may be eligible for the small business tax offset
• put aside money to pay your income tax at the end of the financial year – usually, you will do this by paying quarterly Pay As You Go (PAYG) instalments
• claim a deduction for any personal super contributions you make after notifying your fund.

You avoid the cost and hassle of lodging annual accounts and paying company tax. Instead you just need to complete your individual tax returns each year. To help with this process, you should keep accurate records of your expenses, receipts and invoices.

A major drawback of this structure is a lack of distinction between yourself and the company; you as an individual are essentially the business. If the business fails for any reason, and there are debts outstanding, a sole trader is held personally liable and must ensure the debt is cleared. In extreme cases, you could be declared bankrupt as a result of your business’ financial difficulties.

You must pay income tax on any profits which take you above the tax threshold (currently $18,201). You should be aware that this threshold includes any income received from other sources, for instance if you are in paid employment elsewhere.

Company

A company is a legal entity with higher set-up and administration costs than a sole trader. Companies also have additional ongoing reporting requirements.

A company is run by its directors and owned by its shareholders.

While a company provides some asset protection, its directors can be legally liable for their actions and, in some cases, the debts of the company.

Companies are regulated by the Australian Securities & Investments Commission (ASIC).

The key features this business structure are that the company:

• must apply for a tax file number (TFN) and use it when lodging its annual tax return
• is entitled to an Australian business number (ABN) if it is registered under the Corporations Act 2001. A company not registered under the Corporations law may register for an ABN if it is carrying on an enterprise in Australia
• must be registered for GST if its annual GST turnover is $75,000 or more
• owns the money that the business earns – the individuals who control the business cannot take money out of the business, except as a formal distribution of the profits or wages
• must lodge an annual company tax return
• usually pays its income tax by instalments through the pay as you go (PAYG) instalments system
• pays tax at the company tax rate or lower company tax rate (if a base rate entity)
• may be eligible for small business concessions
• must pay super guarantee contributions (SGC) for any eligible workers. This includes you, if you are a director of the company, and any other company directors.

The benefits of this structure include potentially paying substantially less tax than you would as a sole trader. This is because you can take a dividend instead of receiving an income; dividends are taxed separately, and are not subject to Superannuation Guarantee (SG) charges. Due to this, companies have more complex accounting responsibilities, however you can employ an accountant to ensure you are fulfilling your tax and legal obligations.

A major difference between a company and sole trader structure is that a company is a separate legal entity to its shareholders and directors. This means that unless fraudulent activity has taken place, you will not be held personally accountable for any financial difficulties the company finds itself in. This creates a clear distinction between your personal affairs and your business, which reduces the financial risk to any individuals involved with the company.

The decision to operate as a sole trader or company is difficult. There is no definitive right or wrong choice; the best structure for a small business venture will be different to a larger enterprise with a high turnover. Whichever path you choose, your decision isn’t final – you can change your business structure down the track if your needs change. Your accountant will be able to help and guide you through these key decisions.

Sole traders can use their myGov account linked to the ATO to check your outstanding balance and when your payment is due.

After lodging your tax return you’ll receive a notice of assessment confirming:

• how much you owe
• the due date for payment
• your payment reference number (PRN).

You can use the ATO’s online services accessed through myGov to view your notice of assessment.

Pay as you go (PAYG) instalments only apply if you earn business or investment income over a certain amount. The ATO will notify you if you need to start paying PAYG instalments, how often you need to pay and the payment options available.

You can use the ATO’s online services accessed through myGov to view, lodge, pay, vary and manage all your PAYG instalment obligations.

Businesses in their first year of trading face considerable risk. If you’re already experiencing cash flow issues, you can suffer a rapid decline because of unplanned tax bills. If this is happening to your business, you should contact the ATO quickly before the situation becomes unmanageable.

The Chosen Accountant can put you in touch with a trustworthy and proactive accountant in your area, and ensure that you fully understand your tax obligations and payment options.

When you set up under a company structure, you may need a number of business insurances depending on the type of business you run.

The main types of insurance that might help your company deal with the inevitable issues of everyday business life are:

Public liability

This covers you for compensation claims if a member of the public is hurt on your premises, or you cause injury to someone else while working elsewhere (eg at client premises). The policy will cover claims up to a specified limit, and should include your legal costs in defending the case.

Product liability

Similar to public liability insurance, product liability will cover claims for compensation if your product or service harms a member of the public, and should include your legal representation costs.

Employers’ liability

You must take out employers’ liability insurance once you hire your first member of staff to cover claims for accidents or injuries incurred at your premises. This applies even if you only hire seasonal or temporary workers.

Failing to comply with this regulation could lead to significant financial penalties. If you only employ members of your family, you may be exempt from this requirement.

Professional indemnity

Professional indemnity (PI insurance) offers protection against claims related to your work, including negligence, breach of copyright, and breach of confidentiality. Professional bodies, particularly in the areas of law, finance, and healthcare, often require that their members take out PI insurance.

Building insurance

If you own your own premises, building insurance will cover you against fire, flood, storm damage, and many other events that could cripple your business. This type of policy may be able to include insurance for your stock or other equipment/fixtures and fittings.

Motor vehicle insurance

If you use your vehicle for business purposes, you should include ‘business use’ on your motor vehicle policy. This will protect you in the event of an accident whilst on business. The same applies to any members of staff using their car for work purposes.

Personal guarantee insurance

Lenders often insist on a personal guarantee from company directors to reduce their exposure to risk. Personal guarantee insurance can help you to avoid personal bankruptcy should the worst happen, and a personal guarantee is called upon. Note that cover is generally only a proportion of the guarantee amount.

Business interruption

Business interruption insurance, or business continuation insurance, covers you for loss of trade following a disastrous event such as fire or flood. It can help with the cost of repairs and renovation, and can be the difference between survival and closure for many businesses.

The Chosen Accountant can put you in touch with a reliable, professional accountant in your area. We have long-standing relationships with accountants around the country.

As a contractor, one of the first decisions you’ll need to make is whether to set up your own company, or work as an employee through an umbrella company. You’ll have greater autonomy as a company director, but also more obligations.

One of the big advantages of working for an umbrella company is that they take care of your tax and superannuation guarantee deductions, plus many other administrative tasks, leaving you free to focus on what you do best.

How does an umbrella company work?

An umbrella company completes much of the administrative paperwork on your behalf; you just submit your timesheets, and the umbrella company sends invoices to your client.

The umbrella company acts as an intermediary between yourself and your clients for payroll activity, receiving payments and passing them on to you. They should provide you with an employment contract, and will ensure the correct PAYG and superannuation deductions are made from your income.

Umbrella companies charge a fee for their services, which is taken from your monthly earnings.

Advantages of using an umbrella company:

• Relieves admin, so frees up time to concentrate on your work
• As you’re an employee, you can claim a range of employment rights such as holiday and sick pay
• They take care of your tax, legal and contractual obligations
• You can claim some business expenses
• Simple, straightforward system

Disadvantages:

• Not as tax efficient as running your own company structure
• You have to pay a fee to the umbrella company
• You are relying on someone else to ensure your tax and superannuation deductions are correct

Should you operate under a company structure?

A company structure gives contractors autonomy in every area of your working life. It is also a more tax-effective way of operating, as your income can include a mixture of salary and dividends rather than purely PAYG income.

As a company director, you have to take on more responsibility, but with this comes greater control. When you run a company, you must submit company accounts and other annual statutory returns, but the additional administration is worthwhile for many contractors.

Advantages of setting up your own limited company:

• Total control over your financial affairs
• A more tax-effective method than using an umbrella company
• Claim more business expenses
• Choose when you withdraw money from the company, which makes tax planning easier
• No third-party fees to pay
• Enjoy limited liability as a company director

Disadvantages:

• Administration can be a burden
• An accountant is required to complete your company accounts
• You have more responsibility
• Greater complexity to set up than using an umbrella company

Working through an umbrella company might suit you if you’re unsure whether contracting is right for you – you can ‘test the water’ without the responsibility of running your own company. Also, it’s a good option if you want to focus on work without the distractions of dealing with tax and paperwork.

Find out more about contracting through an umbrella company and running your own company from a reliable accountant in your area. The Chosen Accountant can connect you with a professional accounting practice to ensure you understand all your options.

A company is considered insolvent when you are unable to pay bills as they fall due, or the company’s total liabilities exceed its assets. At this point you must cease trading to ensure that the interests of creditors are respected. If you do otherwise, you are left open to allegations of wrongful trading, and the potential for personal liability as a director.

Recent safe harbour provisions give directors in certain circumstances greater leeway to trade through difficulties and attempt to turn the business around; check with an insolvency expert to ensure you qualify.

If you don’t have cash reserves and a robust strategy, you can be exposed to catastrophic results from common business challenges: losing a major customer; a decline in your market; even an unexpected tax bill. A good accountant will help you spot the early signs of insolvency and recommend an insolvency practitioner if required.

An independent accountant is hired as an ‘agent’ of a business; they carry out work on that company’s behalf. Therefore, the ATO takes the view that the company is liable for any penalties arising from any errors, even if the accountant has made the error. Final responsibility and liability for the accuracy and timeliness of compliance documents rests with the company. If your accountant has acted unprofessionally or has little experience dealing with company accounts, you should look for a replacement. You can also make a complaint about them to the relevant professional accountancy body.

You should send invoices as soon as a job is complete, rather than wait until the end of the month. This helps with regular cash flow, and enables you to pay bills as they are due. Ensure your invoices are accurate and have clear terms, so your customers have less opportunity to raise queries and delay payment.

If you lodge the company tax return yourself, you need to check the due date on the ATO website to ensure you do not incur late lodgement or payment penalties. The lodgement and payment date for small companies is generally 28 February. If you have any prior year returns outstanding, the due date will be 31 October.

If you lodge through a registered tax agent, they will tell you when your tax return must be completed, and will lodge it on your behalf.

Company directors are ultimately responsible for the accuracy of your company’s accounts and tax return; however it is advisable to get expert help from a qualified accountant.