Small business owners spend a lot of time filling out forms for the tax office. But the good news is that technology is reducing the burden.
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Small businesses are spending more time than ever on meeting their tax obligations.
This is a pity. No one starts a business so they can fill out forms, yet this is what many business owners end up doing, eating into time that could be better spent on growing their business.
A recent study by academics from the University of Tasmania and Monash University found that the cost of complying with tax obligations has ballooned since 1995.
In the 2009/10 tax year the average gross cost to a small business of complying with its tax obligations was $32,389. This was $20,129 for internal time costs and $12,262 for external costs. GST, which was introduced in 2000, accounted for about half of the internal costs.
Fortunately, it's not all bad news.
Small business accounting software is dramatically reducing the time and money SMEs have to spend on tax. Much of the data they previously had to collate and calculate themselves is produced automatically.
And they've been able to cut back on one of the most tedious tasks of all – filling out forms. Here are five forms that small businesses no longer need to spend hours filling out.
Tax file number declaration
When an employee joins a business, they're meant to fill out a tax file declaration form before they can start getting paid in full. In the past, the employer then had to then post it off to the tax office. While on its own it's not a big job, it is nonetheless one of those little tasks that distracts the business owner from more important tasks.
Rather than posting it, companies that are using accounting software to manage their payroll can file the declarations electronically.
End of financial year PAYG payment summary
At the end of the tax year, all employers are required to let the ATO know how much they've paid each staff member and how much income tax they've withheld on their behalf. This is so the ATO can use data matching to make sure everyone is paying the right amount of tax.
This can be quite a fiddly job, and the more employees a business has, the longer it can take.
In this past, this information could be sent electronically to the ATO, but still had to be input manually. Modern accounting software will now do both automatically, reducing the amount of work that employees and employers alike will have to do during the EOFY period.
Some accounting software will even automatically email each employee their payment summary — the form (formerly known as a group certificate) that employees get after the tax year has ended, telling them how much they've earned and how much tax they've paid so they can do their own tax return.
Part of the job of an employer is to make monthly or quarterly payments into their employees'' superannuation accounts. This can be a big job if their employees are members of different funds — it means going to each different fund website, logging in and entering each employee's earning details.
Fortunately, this is another task that can be largely automated. Smart small business accounting software can now calculate the correct amount of superannuation to accrue for employees each pay, and will also automate the payment process at the end of the period. This takes care of sending money to the employees superannuation funds individually, saving time and hassle.
Business Activity Statement
Accounting software can automatically calculate a small business' GST liability by using the data it already has about sales and expenses. Business owners can then fill out an online form to lodge the BAS via the ATO Business Portal.
For businesses which have an accountant that lodges their BAS, the process is becoming just as easy. If the accounting software is shared between the business and accountant, the accountant's practice software can import the data, automatically fill out the Activity statement from within the software and file it with the ATO directly. It means there's no data entry at all, virtually eliminating the scope for error.
The Taxable Payments Annual Report
This form applies specifically to the building and construction industry, where businesses have to send the ATO details of every contractor they've paid reporting how much has been paid to each in a financial year, as well as the contractor's ABN. This form is notoriously time consuming. This is a big manual form which can take a long time to fill out.
Good accounting software will have smart filters that enable you to automatically create the report, which you can then review and refine before uploading to the ATO.
The end of these five forms are just the beginning of the paperless and hassle free accounting world that that awaits small businesses. We can expect to see even more automation in the coming years as accounting software and the ATO start forming even better data links.
The information contained in this article is general in nature and does not take into account your personal situation or your business circumstances. You should consider whether the information is suitable to your needs, and where appropriate, seek professional advice from an accountant or other qualified professional.
Laura Cardinal is a product manager at Xero.