The term ‘tradies’ covers numerous professions; carpenters, plumbers, electricians, bricklayers, plasterers, gardeners, landscapers, painters, tilers, mechanics, and more. Most tradies like to get on with their own jobs and don’t really like spending time doing the paperwork. However, in recent years the ATO has been cracking down on cash-in-hand work by matching the credit and debit card payment data provided by the financial institutions against ATO records. This is one reason why many are now turning to bookkeepers.
Employee or Contractor?
For taxation purposes, the first thing trades people have to know is whether they are an employee or a contractor. If you are a tradie, it may seem obvious, but the ATO may classify you differently than what you expect. For example, if 80% or more of your income is derived from one source, you may fall under the ATO’s ‘personal services income’ rules, but if 79% or less of your income comes from many different sources and you invoice them directly, you are probably exempt. The ATO’s criteria is complicated and there are many variables within the rules. This is one crucial area where a bookkeeper can save you a lot of tax dollars.
A bookkeeper can also save you from something much worse. How you are classified also affects how you conduct your business and what you can claim on. For example, suppose you want to pay less tax by paying a family member. Depending on whether you fall under the ‘personal services’ category or not, at best you can claim this legitimately, at worst you may be examined for tax fraud. A bookkeeper can save you from very serious and heavy penalties under Part IVA of the Income Tax Act.
One of the main things that tradies want to know is what they can claim on. This is not always straight forward as the ATO updates its regulations on what can be claimed every year. A bookkeeper has the expertise to traverse the ATO’s expansive rules on expenses associated with tools (purchase and repairs), equipment, on-the-job travel, safety clothing and equipment, and other specialised costs such as training courses, licences, union fees, mobile phones and even sunscreen so you don’t miss out on anything, or claim something erroneously.
To illustrate the complexity of ATO rules, consider vehicle expenses. Tradies can claim for vehicle purchase and usage, but the rules are complex. Is the vehicle owned, hired or leased? How do you know if you should you use cents per kilometre or the logbook method of recording mileage and fuel costs? Can you claim for mileage covered travelling from one job to another or from your workplace to home? What if you were working outside normal business hours? Can you claim for petrol, oil and repair costs relating to work-related travel in a car owned or leased by someone else? https://www.ato.gov.au/Individuals/Tax-return/2019/Tax-return/Deduction-questions-D1-D10/Car-and-travel-expenses-2019/
Tradies work hard and work long hours. It can be quite difficult to find the time or energy to deal with finances and taxes. Tradies, like many other occupations, simply don’t know which expenses can be claimed. That’s why it is essential to have a bookkeeper who is up-to-date with annual changes in legislation and can minimise the amount of tax you pay.
Balancing the Books
Tradies need expensive equipment in order to do their jobs, but they also often have to purchase materials. Concrete, tiles, paint, pipes, bricks, glass and numerous other constructions materials may need to be purchased, so it is vital for tradies to keep their cash flow in check.
Tradies are busy people. Keeping track of paper receipts and recording them can be trying and it is easy for paper receipts to get lost or be overlooked. A bookkeeper can help you set up an accounting software package such as Xero or Quickbooks. Accounting software allows you to use a mobile app to reconcile, send invoices, create expense claims and view reports from anywhere. Cloud accounting allows you to send online invoices to your customers – and get updated when they’re opened. These packages also allow your accountant to access your business finances in real time so they can do their job. The other good news is that accounting software is also tax deductable, along with tax agent fees.
A bookkeeper will also manage your GST and BAS obligations which takes the pressure off you. As your business grows or changes, your financial status will also change, but so might your legal status. Your bookkeeper will be able to let you know about any tax compliance issues and will also reconcile your books and ensure you are paying the correct amount of tax.
In short, a bookkeeper can ensure your books are balanced correctly and you reap the maximum benefits of your hard-earned work. Let a bookkeeper take the stress off you by handling your tax obligations and you can concentrate on the job you know best.