Taking care of tax and accounting is a necessary evil once you’ve launched your business as an independent consultant. The first thing you will need to do is let the tax office know that you are in business. From then on, you will need to keep your accounts in order and of course, make sure you pay the taxes for which you’re liable.
While an entire book would be necessary to totally cover the topic of tax and accounting, it’s possible to lay out a few of the most important pieces of advice in this short blog post.
Please read on for some tax and accounting tips that might be helpful as you get your independent consulting business off the ground.
GST and Your Australian Business Number
Assuming you are going into business as a sole trader, you will be liable for Goods and Services Tax if your business turnover will be $75,000 per year or more. Of course when you’re just starting out as an independent consultant, it’s hard to know if you will bring in that amount, but it’s certainly not unrealistic to expect that you will.
If you expect to make $75,000 or more, you will also need to receive an Australian Business Number (ABN). Once you are registered for GST and have your ABN, you must charge GST to your clients when you invoice them, and pay it to the government on a quarterly basis.
Should You Hire an Accountant?
When you are just getting on your feet as an independent consultant, you might be tempted to forego the help of an accountant and try to handle your own bookkeeping. While this might seem like a smart move to save money, it could turn out to be a false economy. It’s not difficult to make errors in accounting, especially in the early days when there is so much going on.
Accounting errors can be costly, as can missing out on advice and guidance that an accountant can provide to help maximise your business profitability.
My honest advice would be to engage an accountant from the outset. You can save yourself some money though, by asking an accountant to handle your tax affairs only, and handling the day-to-day bookkeeping yourself.
Use Technology to Simplify Tax and Accounting Tasks
If you do decide to manage your own bookkeeping, you don’t have to struggle with manual invoicing and accounting spreadsheets. Do yourself a favour and implement a cloud-based accounting software package.
A good accounting application will let you generate invoices with little more than the click of a mouse, as long as you enter your bookkeeping data on a timely basis.
The advantage of using an accounting solution in the cloud is that you can give your accountant access to your accounts, so he or she can monitor them and easily gather the information required for your tax returns.
Diligence is a Virtue
Tax and accounting can be a tricky topic to get your head around, especially if you haven’t worked for yourself before. To avoid it becoming a headache, do what you can to keep it simple, even if it does mean paying an accountant to look after the most taxing (if you’ll excuse the pun) elements.
Keeping it simple doesn’t mean avoiding the issue though. It will pay to be thorough in your bookkeeping and timely with your tax returns. Tardiness and a lack of attention to tax and accounting in your business can potentially cost you much more than a year’s worth of accounting fees.
On the other hand, if you get into a timely bookkeeping routine, engage an accountant to help you, and take advantage of small-business accounting software, tax and accounting should be but a minimal distraction from the more enjoyable and productive aspects of independent consulting.