So you are a pretty smart operator when it comes to being an electrician, plumber, carpenter or bricklayer, plasterer, landscaper.
The minute you agree to be a contractor – you are going to need so much more than remembering the lessons learned as an apprentice. Suddenly accounting and tax compliance become just as important
Here is a list of the kinds of things you need to have a handle on so you can create a great career and enjoy the fruits of your labour!
1. ABN – stands for the Australian Business Number – the Australian Taxation office will question you a great deal about the kind of work you are doing before you will be given one. Laborers for instance are generally not considered contractors and may not be provided with an ABN.
2. GST – now this depends on how much money you have invoiced over the year. If you think you are going to invoice over $75,000 in a year then you are expected to register for GST (I would recommend you do this through a tax agent). Once you are registered for GST then you need to ensure you put GST on your invoices. It may also mean you need to regularly lodge a BAS (Business Activity Statement) as well – which brings me to the next point …. book keeping!
3. Book keeping – I am sure this the bane of every tradies life. Its long winded, fussy and boring!! Unfortunately this is the part of the business that can literally destroy you overnight. A bad book keeper is actually worse than a bad apprentice – as at least you KNOW when the apprentice is bad and can handle them straight away – with a bad book keeper you might not know for months how awful their work is ….. and then comes the cost of repairing it!
3a) Always get your accountant to set up what book keeping method you are to use. They are just as much the end user of this work as you, and for an hour or so of their time you should end up with the correct system that everyone is happy with. (this will generally save you lots of money in the long run)
3b) Don’t hire a book keeper until you have a clue just what the job is. Have a bash at doing the data entry even if you hate it. You need to know and appreciate the job that you are asking them to do – both in terms of what the end product should look like as well as how long it should take to do. Besides which, some of you might not even the mind the job and continue to do it yourselves anyway!
3c) Hire an accredited book keeper – these are known as BAS agents. That way you know that they have professional insurance and good training. It reduces the possibility that a bad job will be done. In some cases if a BAS agent makes a mistake the ATO will not penalise you as much as they could for any short comings.
3d) Get the book work checked by your accountant a few months in. If its not quite right, its so much easier to alter when there isn’t so much to do.
4. Lodging stuff with the Australian Taxation Office. This is a common mistake that people make – oh I am a bit short on dough, so I won’t lodge the BAS for a bit …..
The fines for late lodgement are actually WORSE than paying late!
The Australian Taxation Office increased their penalties lately so it’s $210 per month a single BAS is lodged late. That can add up quickly. There are caps on these, but frankly don’t let this be you….. at all.
If you pay late – yes the Australian Taxation Office gets grumpy but its nothing like the $210 fine, rather its a set % rate (from 9 – 14% odd) on the amount you owe. You can also contact them and negotiate a payment arrangement so it doesn’t get out of hand.
And don’t think this just doesn’t apply to BAS’s but also Tax returns as well. They recently upped fines for late lodgement of personal returns to $870 per year….
5. Sham contracting – this is a hot topic that appears to have died down just a little in recent months but it is something you can accidentally find yourself falling foul of. To really ensure your own compliance in this regard its vital you visit a tax agent, but here are some areas you need to address:
- How are you invoicing?
- Who sets the price and how your work is billed out?
- Are you wearing a uniform – and is it your uniform or the clients?
- How did they find you and decide to use your services?
- How many clients do you have?
- Do you have a formal contract with your clients?
- Did you have your insurance paid for you by the client?
There are many more areas that need to be examined but I hope the above gets you thinking.
There was a drive by government to ensure that people were not forcing people who are normally employees to become contractors so they could avoid employee entitlements and so forth.
So it’s also important if YOU are hiring subcontractors that you look at these same contractor and help you ensure compliance with both roles.
Just ensure you don’t DIY this part of your business – it can end up very expensive should you fail the tests as set by the Australian Taxation Office and Fairwork Australia.
6. Some practical things to do: Book work can be expensive and the paper trail can get really confusing so there are some ideas that make it easier overall:
If you get paid in cash BANK it all first. Don’t spend it
Don’t pay for anything in cash either. If you lose the receipt there goes your ability to claim a tax deduction. More importantly you won’t be aware of what you can and cannot claim in your first year or two of business so you need to know you can access history of all your expenditure.
Minimise the number of bank accounts – preferably one standard account and maybe a credit card. – This isn’t from the point of view of interest rates and all the financial planning side, but rather, its hellishly faster to enter data from a single bank account than 5 of them with personal transactions through everything!
Try not to use your business account for personal expenditure – it will make your life easier overall.
7. Cars. Generally you can claim things with cars for trades people BUT it’s a minefield of rules and your best bet is to keep everything you have on your car and then talk to your tax agent so they can create a strategy for you. Sometimes you will need to keep a log book (which you can buy from a local news-agency) Everything by the way means:
- buying tyres
- type of car, engine size (is it a ute or van)
- when you purchased the car and how much for.
- did it meet the low CO output criteria?
- papers you have on leasing the car if you didn’t buy it outright.
8. Travel. So you have a job that is several hours away – and maybe you needed to stay overnight for a few days to get it done. Make sure you keep a diary of just what happened and details of the hotel and food purchased as well. I find a lot of people neglect to claim the food whilst away.
9. Tools. No tradesperson is without their specialised tools- and they break. Always make sure you record all of their purchases.
10. What are you wearing? Now this one is a tricky one to work through sometimes and frankly it should be a conversation you have with your tax agent at the beginning. Some things are obvious, like steel capped boots for protection, but other things need a little more information and can be occupation specific. So make sure you have that conversation.
Well I do apologise for such an ESSAY – but there is a lot to think about when you become a contractor and a good tax agent will make an enormous difference to just how easy it is to evolve your habits into strong wealth generating ones!
Bloomfield and Associates are able to weave through many aspects mentioned above, including providing book keeping services and HR support should you need it.
Please come in and have a chat – even if just to find out where you start!