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!

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.