In this sponsored post, accountant and business solution expert Gail Freeman advises what sole traders need to do to set up a business.
TALIA is a sole trader and came to see me about the first steps she needed to make in setting up her business.
“We need to start at the beginning, which is registering for an Australian Business Number (ABN),” I told her.
“When you register for your ABN you have to advise the amount of your expected sales. If you expect your sales to be less than $75,000 then you do not need to register.
“Also if you are not paying wages, which you don’t as a sole trader unless you employ staff, then you don’t need to register for PAYG with-holding tax at this time.
“You will not need to complete a Business Activity Statement (BAS) until your income exceeds $75,000 or you register for GST voluntarily.”
Talia said she had a contract awaiting her signature for $70,000 and expected to have more work.
“My advice would then be to register for GST now as you are so close to the threshold,” I said.
“You are obliged to register once you know your turnover will exceed $75,000 and that would seem to be fairly clear. Once you have your ABN and are registered for GST you have an obligation to lodge a BAS. “The BAS is a form that you lodge with the Australian Taxation Office every quarter. You need to disclose your turnover, which is your sales plus a few other items if they are relevant. They include barter transactions, rent received, interest earned, membership fees, some government grants and proceeds from the sale of business assets including cars.
“The phrase used in the legislation is that you are making a ‘supply’. However, if you receive insurance proceeds, they are not included in the BAS.
“You can choose whether you report your turnover including GST or excluding GST as you earn less than $10 million. The other important thing to note on the income side is that you have to choose whether you use cash or accrual accounting.
“In simple terms, this is a choice of using your receipts or your billings. Small businesses usually use cash because you do not have to remit GST to the ATO when you haven’t been paid.“
“In the case of expenses, you do not have to report these to the ATO. You just report the total input tax credits that you are entitled to claim.
“I know this sounds confusing but your accounting program will generally prepare the BAS for you and provided that the transactions have been entered correctly the BAS should be correct. We can help you set up your accounting program so that the GST is set up right.
“Even though this all sounds a bit scary most of the time it is quite easy to deal with once you have had a bit of help and are in the swing of it.”
Talia agreed that it did sound scary, but left my office saying she now felt much more confident.
Disclaimer: This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser.