9 Simple Steps to Prepare Your BAS using Xero

The deadline for the latest quarterly Business Activity Statement (BAS) is fast approaching. Whilst the ability lodge directly with the ATO either via an online accounting system, ATO business portal or mygov makes the process more efficient, there is still some work to be done before you can complete and lodge your BAS.

Whether you are using a manual process or an accounting program, there are certain steps you should take to ensure the information reflected in your activity statement is correct.

For this reason, there are many advantages to hiring a registered BAS Agent including enjoying a an extra 4 week extension for lodgement and payment.

When you’re lodging your BAS on your own, the process in itself is not difficult, made easier by lodging online but, depending on how well you kept your records, it can be time consuming.

Accuracy is vital, as mistakes can lead to penalties.

For the purposes of this blog, we will examine the process using Xero Online Accounting, however the general principles apply to other accounting systems and manual records.

Step 1 Preparing your Information

Are your bank accounts, credit cards and other accounts reconciled on the dashboard?

  1. Ensure there are no unreconciled bank statement lines for the period you are reporting on.

  2. Check the account transactions tab for any unreconciled (orange) transactions for the period. If there are, investigate them as they may be duplicates or missing bank statement lines (see below)

Step 2 Bank Statement Reconciliation

Check that the Xero statement balance reflects the balance of that account in your internet banking.

Go to Manage Account (or the 3 vertical dots) button and choose Reconciliation report.

Go to the second tab called “bank statement” and select the date range for the quarter. Select reconciled only and click update.

Match the opening balance and closing balance with your actual bank statement or internet banking.

If these match, publish the report.

If they do not match, there may be missing or duplicate transactions. These need to be investigate before going further.

Step 3 Review Aged Payables

Select the Aged Payables report from the Report menu (click on the star to save as a favourite)

Select the date as the last month of the quarter. Review the report to ensure that the aged payables listed are accurate and outstanding.

Step 4 Review Aged Receivables

Select the Aged REceivables report from the Report menu (click on the star to save as favourite)

Select the date as the last month of the quarter. Review the report to ensure all aged receivables are accurate and outstanding.

Step 5 Review Activity Statement Transactions by Tax rate report

Select Activity Statement from the Reports Menu. Choose the current reporting period.

Go to the second tab “Transactions by Tax rate” which lists all the transactions entered for the reporting period grouped by their tax rates.

Review the list, looking for any transactions that may have been incorrectly reconciled with a wrong tax rate.

Under the BAS Excluded header, you will find transactions like wages and salaries, superannuation and PAYG withholding, GST, loans, drawings etc. These are correct as GST is not included in these types of transactions.

If you need to make any changes, click on the transaction with an error to view and edit. Go back and refresh the activity report.

Step 6 Prepare the Activity Statement

If you have payroll ensure the Gross Wages (W1) and Tax withheld (W2) amounts are prefilled. If not, review your payroll settings to ensure the different earnings rates are included at W1.

If you have a PAYG instalment, you will need to manually add to the report at the relevant area.

Step 7 Lodge your BAS

Once you are happy that all transactions are correctly included, click on Publish.

You now have the option to lodge your BAS directly from Xero (please contact us if you need assistance setting this up).

Otherwise you can lodge via the Business Portal or myGov depending on your business type.

Lodging online gives you an extra 2 week extension. Lodging via a Registered BAS Agent gives you 4 week extension.

Step 8 Reconciling your Payment or Refund

To reconcile your BAS payment or refund, a time saving tip is to create a bill (or credit note) which can then be matched to the payment(receipt) on the bank feed.

Where you have PAYG withholding and/or instalments, you need to split the payment/receipt between the different accounts. If you don’t, you will find that the GST, PAYG Withholding Payable and Income Tax payable accounts will not reflect the true balance of the liabilities.

Step 9 Lock Date

This last step ensures that no changes can be made to the period you have just completed. You may need the assistance of your adviser if you don’t have the requisite access level to do so.

Go to settings, advance settings, financial settings and “Lock Dates”. Choose the date for the end of the reporting period you have lodged.

Now Relax!

When debts go bad

Cashflow is the lifeblood of small business.  It's a constant balance between sufficient cash inflow to support your outflows. Non-payment by a customer can have serious impact on most businesses.

A tough economy increases the risk of customers defaulting on their payments, being under financial stress.

It is important for all businesses, as part of their planning process, to analyse their debtors regularly to identify those outstanding debtors who are unlikely to make payment.

"A debt is considered bad when a business has tried to recover the debt and has exhausted all efforts for it to be recovered with no reasonable expectation of payment."

Accounting for a Bad Debt and GST

The GST treatment of writing off a bad debt will depend on the method you use to report GST.

On a Cash Basis, GST collected is only reported once the payment has been received from the customer.   As the customer has never paid the invoice, no GST has previously been reported and therefore your business won't have any GST adjustment to claim back.

If you report on an Accrual Basis, the bad debt adjustment will need to be GST coded as you have already paid the GST when you recorded the sale.  You can make an adjustment on your next BAS (conditions apply) to claim back the GST you previously paid to the ATO for the sale you made but did not receive payment for.

The procedure for writing off bad debts can be complicated.  Please do not hesitate to contact our office to discuss.

A simpler BAS

If the thought of completing your BAS sends you running to finish a load of washing or ironing, file your paperwork or wash the dog, then you'll be happy to know that a simper BAS is on its way for small business.

The ATO is working on reducing the amount of GST related information to be reported on the BAS to simplify GST bookkeeping and reporting requirements providing time and costs savings for small business.

From 1 July 2017, small businesses will only need to report:

  • GST on Sales (1A)
  • GST on Purchases (1B) and 
  • Total Sales (G1)

The requirement to report export sales (G2), other GST free sales (G3), Capital Purchases (G10) and Non capital purchases (G11) will be removed.

From 19 January 2017, newly registered small businesses can take advantage of the simpler BAS reporting by doing the following:

  • For Quarterly reporters: select Option 2 (Calculate GST quarterly and report annually) on your first BAS
  • For Monthly reporters: insert "0" at labels G2, G3, G10 and G11 on your BAS
  • For Annual reporters: insert "0" at labels G2, G3, G10 and G11 on your Annual GST return

 

Business Cashflow keeping you up at night?

Manage a cash gap in your business

Manage a cash gap in your business

Cashflow if the lifeblood of a small business.  Making decisions on your bank balance is risky. Cash flow needs to be addressed long before a problem arises.

One of the biggest challenges experienced by many businesses in the post WA mining boom economy is a "cash gap" - a lag between cash inflows and outflows.

A business that suffers a cash gap may be profitable "on paper", but may have cash flow problems where they are required to pay suppliers, employees and taxes before receiving money from customers.

How would (and could) your business cope with the following?

  •  losing your largest customer?
  • Breakdown of a significant asset required to operate your business requiring replacement?
  • Hiring a new employee?
  • an opportunity to fulfill a huge order of your product or purchase large volumes of stock at a good price?

Bridging the cashflow lag between payments and receipts with high interest credit cards and loans will evaporate any profit margin you may have.

Protecting your cashflow requires constant monitoring and the following strategies:

  • sticking to your terms of trade and keeping on top of outstanding receivables
  • potentially rethinking your terms to keep cash coming in regularly
  • reducing your inventory levels
  • negotiating your supply chain (requires a good relationship with suppliers)
  • ensuring cheaper access to working capital

So many small businesses are bogged down in compliance (eg quarterly BAS, annual tax returns)., however, your business financials can tell you so much more.

No one has a crystal ball but cashflow forecasts are the next best thing. Regularly monitored, a cash flow forecast can assist you to make decisions on when and how your business will grow. Eg when to put on a new employee?  Buy a new asset?  Whether or not you take on a new customer or huge order from existing customer, loss of a customer etc.

A successful business needs a trusted adviser by their side. If your accountant is only providing regular compliance work, it may be worth finding one that can provide proactive solutions for your business.

 

The Sharing Economy and your Obligations

Think AIrBNB, Uber, Airtasker.

If you are earning income through the sharing economy, you may have different obligations depending on what you are doing.

What is the sharing economy?

The sharing economy connects buyers and sellers, usually through an app or a website. Sometimes sellers may bid against other sellers to win a job.

For example, you may be:

  • providing skilled or trade services, such as creating a website
  • completing odd jobs
  • ride-sourcing – transporting passengers for a fare
  • renting out a room, house or parking space.

What do you have to do?

Some things to consider are:

  • if you are carrying on an enterprise
    • if you need an ABN
    • if you need to register for GST and lodge activity statements
  • if the price of the goods or services you provide includes GST
  • if and when you need to provide tax invoices for your sales
  • if you need to declare your income in your income tax return
  • what GST credits and income tax deductions you can claim for your expenses related to earning your income
  • how all your sharing economy activities added together impact your GST and income tax obligations.

If you’re providing goods or services for a fee, and it’s not a hobby, it's assessable income. If you’re registered for GST through your current business, account for GST through your existing ABN and GST registration.

If you’re providing ride-sourcing services, you’ll need an ABN, register for GST and to charge and account for GST, regardless of your turnover.  The ATO regards this as providing taxi travel services.

If you’re renting out your main residence, you don’t need to pay GST but you’ll need to include this rental income in your return.  You can claim all related expenses but are not entitled to GST input credits.

If you are registered for GST because you are already carrying on an enterprise you must account for GST on ALL the sharing economy goods and services you provide that are subject to GST.

If you are providing goods and services across multiple websites or apps, or through other enterprises outside of the sharing economy, you need to get an ABN and register for GST when your total turnover for all your activities together is, or is expected to be, $75,000 or more per year. 

Record Keeping

No matter how much you earn or the reasons for providing goods or services, you should keep records of ALL income and expenses. You may intend to provide goods or services as a hobby or recreational pursuit, but your level of activity over a whole year may mean that you are in fact running a business and need to comply with income tax and GST obligations.

Source: ATO Small Business Newsroom

BAS, the Small Business Owner and the ATO Business Portal

The Business Portal is a secure website for managing your business tax affairs.

You can use the portal to view, prepare, lodge and revise your BAS and IAS Activity Statements.

Not only is it easy to use, other reasons to ditch the paper form are save $$ on postage and give yourself more time.  Not only is your activity lodged immediately, you receive a 2 week lodgement and payment extension just for lodging electronically.

You can also:

  • View  your statement of account and payment options
  • Download payment slips and obtain Eft codes
  • Transfer funds between your accounts
  • View and request refunds from
    • Income tax accounts
    • FBT accounts
    • Excise and some super
  • Update your details
  • Test, lodge and download selected files eg lodge payment summary annual report and taxable payments annual report
  • Communicate with the ATO through a secure mailbox

The business portal ensures the security of your online transactions through AUSkeys. Each user must have their own AUSkey to log in.

To register for the business portal, go to www.ato.gov.au/Business/Business-Portal/In-detail/Getting-started/Register-to-use-our-online-services/

Processing Employee Payment Summaries in Xero

As an employer, one of the end of year requirements is to provide your employees with an annual payment summary.  These need to be in your employee's hands no later than 14 July with the annual report to be filed with ATO by 14th August.

Xero makes the process very simple but before you send them off, you just need to follow these steps.

Review your payroll data with the general ledger for any errors before generating your employee’s payment summaries

Run the Payroll Activity Summary report and make sure you select all employees and the financial year you're checking.

Run the General Ledger Report, select the financial year and sort by Account Name. Both theCash Basis and Show YTD fields should be clear.

Use the following table to check your payroll data by matching the report balances in your Payroll Activity Summary report and the General Ledger Report.

Matching report balances

In your Payroll Activity Summary                                   In your General Ledger Summary

Total Earnings                          should match                    Total Wages and Salaries

Total Super                               should match                    Total Superannuation

Total Tax                                   should match                    Total PAYG Withholding Payable

If balances don't match check your Pay Run History to find the pay run with the error and process an adjustment using an Unscheduled Pay Run.

Prepare and distribute employee payment summaries

Xero automatically prepares and allocates your payroll data to your employee's individual non-business payment summaries. Review these amounts before you finalise them and send off your annual reports to the ATO.

  1. Go to Payroll, click Employees, then Payment Summaries.
  2. Check that your organisation name, ABN and postal address information is correct. You can update this information in Organisation Settings.
  3. Enter the signatory name and add the contact number, then click Confirm and Continue.
  4. Select the Financial Year Ending.
  5. Review gross payments, PAYG, allowances, workplace giving, union/association fees, RESC and Lump Sum amounts allocated based on your payroll data.
  6. Identify and fix any payment summary errors.
  7. Enter any RFBA from your fringe benefits tax return to each employee where needed.
  8. Enter any additional Lump Sum amounts paid. This will reduce your employee’s gross wages to ensure the amounts aren't duplicated.

  9. Select all employees.
  10. Click Publish.

You can now email the payment summaries to your employees or download and print a PDF.  Employees can also access from My Payroll if you have invited them to use this feature.

Submit payment summary report to the ATO

Lodge the payment summary report through Xero, or download and lodge the report through the ATO portal.

Note: If your organisation has 99 or more payment summaries, you need to download the EMPDUPE file and lodge the report through the ATO portal.

Lodge the report to the ATO through Xero

  1. Go to  Payroll, then click Employees.
  2. Click Payment Summaries.
  3. Click Confirm and Continue.
  4. Select all employees and click File Now.
  5. Select if you are an agent lodging this information on behalf of another business.
    • If you click Yes, you’ll need to add your agent details.
  6. Select the Authorisation To File declaration check box.
  7. Click File Now.

The annual report is filed at the ATO if all payment summaries are accepted. If it can't be filed, you'll need to fix the relevant payment summaries and submit the file again.

Once you've sent the annual report to the ATO, your end of year payroll process is complete.

Download and lodge the report through the ATO portal

  1. From the Payment Summaries screen, select all employees.
  2. From the File Now list, click Create EMPDUPE.
  3. Click Yes to include the agent details and enter the relevant information.
  4. Click Create EMPDUPE. The file is downloaded to your computer.
  5. Upload the file to the ATO Online Portal.

 

 

 

Common BAS Pitfalls

With the year end comes a chance to prepare an annual reconciliation of your GST account and match against the quarterly BAS you've lodged to date.

This will ensure you have included everything to be claimed and make any adjustments for errors that may have occurred (T&Cs apply).

The advent of cloud accounting has given the small business owner the opportunity to look after their own bookkeeping and to even lodge their own BAS, saving them time and money with the right guidance. 

The ATO has highlighted a number of common mistakes found in the BAS/IAS reports relating to general errors in form filling or lack thereof, and errors in reporting and claiming GST correctly and in reporting PAYG withholding.

In practice the errors we commonly pick up are as follows:

  • Default tax codes in Chart of Accounts are incorrect - if in doubt always seek out the assistance of a registered tax or BAS agent

  • Incorrectly claiming GST credits

    • Not all expenses have a gst component eg bank fees, Facebook advertising, Google Adwords, interest expense, water rates

  • Claiming GST credits for the full amount of a purchase when the goods are to be used partially or wholly for private purposes - GST credit must be apportioned

  • Claiming GST credits where the contractor or supplier is not registered or required to be registered for GST - in these circumstances you must witthold 48.5% and remit to ATO

  • Claiming GST credits without a valid tax invoice (unless the supply is less than $82.50 inc GST)

  • claiming GST credits at the commencement of a hire purchase or lease contract, or insurance premium funding when accounting on a cash basis as they may only be claimed at the time a repayment is made.

  • Including private expenditure when claiming GST credits and deductions on business tax returns

  • Including wages and superannuation contributions as non-capital purchases (G11) rather than at label W1

It is valuable for a small business owner to have first hand knowledge of the financial circumstances of their business however it pays to ensure that the systems are correctly set up by a registered Tax or BAS agent and regularly reviewed. Errors can be costly - penalties, interest or an increased tax debt and cost you more in the long run.

Subbies and data matching

Are you in the Building and Construction Industry?  Do you pay subcontractors for their services? 

If so, you may be required to report to the ATO the total amount paid to your subcontractors in the financial year in which the payments are actually made (ie on a cash basis).

The Taxable Payments Annual Report is due for lodgement by 28 August for the previous financial year.

This information is for data matching purposes, allowing the ATO to identify those contractors who haven't included all their income on their tax return, or not lodged tax returns.

Business are required to ensure that the subcontractor's details (ABN, name and address) are kept up to date and records of payments maintained.

Sub-contractor must ensure they have lodged all tax returns to date and have included all income in those returns otherwise they may be liable for a review or audit or even face penalties.

Note: There is no requirement to provide your subcontractors with any details of the information reported, but you can choose to provide your contractors with details of the information you provided using the Payee information statement.

For more information visit ATO website: http://bit.ly/1RSg6CV or speak to your accountant.

 

Ride the EOFY wave

We're into the pointy end of the year.  Just over a month until EOFY and when panic seems to set in for most people.

It doesn't have to cause stress.  Its all about organisation and preparation.

Ideally you have been keeping your records in order all year, so when July 1 ticks over, it should be a simple of matter of running payments summaries for employees, final bank and GST reconciliations before lodging your June BAS, and move forward in the new financial year.

But let's be realistic, for most this doesn't happen.  

My top tips for getting through EOFY:

1. Once you have entered all invoices and receipts for the year, prepare an annual Bank reconciliation for all your business bank accounts and confirm the balances in your accounting system match the statement balances.  Investigate any variances. There may be omissions or duplications.

2. Review the balances of asset and liability accounts to ensure the year end balances represent amounts due/owed.  Eg Loans, leases, fixed assets.

3. Reconcile gross wages, PAYG withheld and Superannuation in your Payroll system to your accounting records.  Even if you have an integrated system like Xero differences can arise due to incorrect coding of payments (eg net wages being expensed rather than reconciled to Wages Payable) or incorrect treatment of allowances and deductions.

Once balances are confirmed, prepare PAYG Payment Summaries for all employees and distribute by 14th July deadline. The Annual reports need to be lodged wth ATO by 14 August.

4. Review Aged Receivable and Aged Payable reports.  Follow up any sales invoices owing to you and ensure what is showing as bills outstanding is only those that are actually owing.  Clean up any anomalies.

5. Ensure you have copies of all receipts and invoices to support income and expenses.  The tax man does not allow deductions without a valid receipt.  We recommend an online document management system so that all important docs are at hand.

6. Reconcile your GST account for the year to date to ensure you have claimed everything.   It will also highlight any GST amounts recorded in a period after you've lodged a previous BAS (whether by mistake or as a result of an adjustment). Adjustments < $10,000 and within 18 months of the due date of the BAS in which the error was made can be claimed in your current BAS.

7. Review the performance of your business in the last financial year.  Try to pinpoint the peak and trough periods to map your financial requirements in the new financial year.  Set up a budget to track your performance throughout the year.

8. Review your business plan or write one if you don't have one.  It doesn't have to be complicated.  A business plan is simply the goals you have for your business eg growth, diversification, higher turnover, and how you are going to make it happen.

9. If you are in the Building and Construction Industry and pay Subcontractors for their labour, you need to prepare a Taxable Payments Annual Report and lodge with ATO by 28 August.

10. If you are a retailer or hold inventory, you will need to perform a stocktake before June 30 to account for your stock on hand.   Vend have recently introduced a FREE inventory counter to make this process quicker and easier. Check it out here: http://bit.ly/1Z7sLHV

Finally, if you need expert advice, ensure you engage the services of a Registered Tax Agent or BAS Agent, Qualified Accountant or Bookkeeper who can advise you correctly.  Mistakes are costly.