In 2010 Charlotte and her husband went to their accountant. Her husband Ben, is an expert polisher, one of the best in Geelong, and she is raising four young children. The accountant told Ben, that he should “get MYOB software and do his own books to save money.” Although he is an expert polisher he is not an expert with computers or software or bookkeeping for that matter.
This became evident when in 2012 the family brought their books back to the accountant. The accountant got upset and said “I told you that you should get some bookkeeping software and do the books yourself.” After a difficult and disagreeable meeting it was suggested that Charlotte do the books for the family business. The accountant told Charlotte “…..this is exactly how you do it. Don’t worry about how Ben used to do it I want you to do it this way from now on. Ideally I want you to go back through what Ben has done and also do it exactly this way.”
Charlotte tried and tried over the following year to do the past two years and the current year using the software, and at the same time trying to learn how to become a bookkeeper and raise four young children while Ben was at work.
In 2013 when Charlotte and Ben returned to the accountant, the accountant said that Charlotte and Ben were “hopeless.” Shortly after that the accountant informed them that he was no longer willing to “help.”
After much disagreement with Ben, Charlotte agreed to try again and started compiling her books and the all the mail from the tax office. At the school crossing one day Charlotte saw one of the Diligence Bookkeeping cars with the contact details on it, and gave the number a call. Immediately Charlotte was shown the Xero software package and how it was able to capture large amounts of information. All of the past financial years were compiled into the database.
Because Charlotte had all of the information she was able to compile the data for:
In total the family had five accounts at the tax office. It was a complex structure and very difficult to comprehend.
Last week, after four months of working through the last few years worth of transactions together, Charlotte was able to say that she was totally up to date and she had lodged all of her outstanding tax and BAS lodgements to the ATO. With the help of the Diligence Bookkeeping BAS agents, Charlotte was able to negotiate payment plans on those accounts that she was able to afford and that the ATO would accept.
In summary, somehow it became Charlotte’s fault that:
If you ask us that’s just not fair.
Now she’s up to date and Diligence have put systems in place to keep her up to date and she is a very happy mum again. She has learned a great deal about the systems and software, and will do some work herself and whatever she does not get done, she knows who to ask.
As a final note, when our BAS agent told this story to the ATO they showed clemency. They remitted all of Charlotte’s fines (over $17,000) and her interest too.
It wasn’t fair, it wasn’t her fault and now she’s moving on thanks to the ATO, Xero, her persistence and the help of her bookkeepers.
The construction industry is tough, but Tony and his earthmoving business have been operating in Geelong for some time now. The hours are long (to be ready to start work at 7 AM Tony needs to be up around 5am). He loads his excavator, bobcat and truck, tops up the diesel in all the engines and then hits the road.
Once on site Tony conducts the safety checks, then the rest of the day involves driving machinery, removing concrete, shifting dirt, digging up trees and whatever else the owner or developer requires. Tony also takes phone calls from new and prospective clients and discusses new projects while on the the current job. He rarely has time to make a packed lunch or cook himself a hot meal to bring to the site. At the end of the job he cleans up, packs up, greases the moving parts, moves everything back onto the truck and trailer and then moves onto the next job site to repeat the process.
Tony’s wife Jules, is a nurse and is a very good “people” person. She works a lot of hours and does a lot of shift work. With her long hours and dislike of numbers she is not interested in helping Tony with the books. Especially as the only time they get to see each other is at the end of a long day and some weekends, when they are both so tired. The last thing Jules wants is to talk about is tax and deductions.
Neither Tony nor Jules want to become bookkeepers, but they do want to run a successful business with the right systems in place. They also want support and guidance to ensure that they maintain their competitive edge in the tough world of construction.
But this is the only time in Tony’s busy week that he can squeeze in the invoicing. He reluctantly sits at his old computer, opens up his old MYOB software and starts plugging away.
On July 1st Tony called Diligence Bookkeeping to see if Diligence could help do his tax and to see if there was a better option for his bookkeeping.
Two nights later the owner of Diligence Bookkeeping, Steve Miller, sat with Tony at his dinner table in Torquay, having just created a Xero Accounting Software account and completed the basic Xero setup for Tony. Diligence then loaded the required information for Tony’s invoicing and ensured that all the MYOB contacts and addresses were transferred correctly.
Tony was especially excited when Steve showed him the Xero App for his iPhone that would allow Tony to do his invoicing from the job site so that the customer paid him for the time to complete his invoice before he left the site. This was going to eliminate the evening and weekend job that he used to do instead of spending time with Jules, plus it means that he would get paid faster and his cashflow position would be dramatically improved.
For the first time in his life Tony was very excited about accounting software!!
The invoicing process for his construction business became so much simpler for Tony. Whenever he needed help to add inventory items or to create accounting codes, all Tony needed to do was contact Diligence Bookkeeping and we could make the needed additions remotely due to the cloud based nature of the Xero software. This made Tony’s life become so much simpler and he was so much happier!!
When tax time came around, Tony asked if Diligence could load his last three months of data from Xero into his old MYOB software. Diligence actually recommended that it would be just as quick to load the entire financial year of data into Xero and to complete his end of year tax returns from there!!
Because Tony was able to download an entire year of transactions for each of his accounts and Diligence loaded them straight into Xero the following day.
Tony saw first hand that with great software and support he and Jules were going to be able to have more time together, charge the client for the time it takes to invoice, get some of the bookkeeping done during the day through his iPhone and delegate the rest of his bookkeeping to the Xero Accounting Software specialists at Diligence Bookkeeping.
Tony reckons he does about 20 jobs a week, and it used to take about 10 minutes to do each invoice and he often left it to the weekend. That meant that he was doing over 3 hours of unpaid work on a weekend instead of spending it with Jules and the kids. Because of the time delay from when the job was done to when the invoice was getting done, he knew he was missing key bits of information that were hurting his business. Now with his app for Xero he going to be able to complete an invoice in five minutes and do it before he leaves the customer’s site and email the invoice before he drives off. He says it’s a revolution in his business.
Recently Diligence Bookkeeping in Geelong, was approached to do the bookkeeping for a bookkeeper!! Peter is a great bookkeeper, and was so busy that he never had time to do his own books. Incredibly it meant that he was over four years behind in his returns.
In some ways this was great news. Peter was able to help us to bring all of the data from the last four years into the right format, and very quickly show us the pattern of his trading. Once we had this it was really easy for the Diligence bookkeepers to create a database for him.
Peter’s database was set up on Xero Accounting Software within 24 hours. By converting his digital bank records and paper transactions into data it was possible to complete four years of bank reconciliations in just one day. This meant that Peter could lodge all of his old returns, and essentially catch right up in no time at all.
Is this possible for any business person? Simply, yes. Although the process of getting the transaction information into raw data is sometimes time-consuming, once that has been done it is possible to group all of the data alphabetically and not by date. Once data is sorted alphabetically it doesn’t matter how many years of data there is, if the transaction says BP, it is very likely fuel and so bulk transactions can be treated in one go.
It is important to note that in all cases where you want to claim a deduction, you must keep the receipt for that expense. It is likely in the event of an audit that if there is no receipt, there will be no allowable tax deduction.
These kinds of solutions for “leaky taps” are very possible and the conversation that needs to be had with the ATO is one that Diligence Bookkeeping have had for many of our clients, successfully in the past.
How the ATO views your subcontractors and the EXPENSIVE audits that come along with that...
Charlie is a plumber in Geelong, who has been working here and down the Surf Coast for years. He now has 5 guys working with him that he pays every week, but one of his guys, Tommy, is only keen to work 3 days a week, so the question arises, is Tommy still a subby, or isn’t he?
The drama started with a call from the ATO stating that Charlie was about to be audited... and just before Christmas... What a nightmare for him!!!
When Charlie first engaged Diligence Bookkeeping to look after the bookkeeping needs of his business, a full filing and records audit was conducted and the last 7 years worth of records were put in order as a part of the Diligence Bookkeeping service, as requested by Charlie.
He was very smart to have had this done, because when he called us to say the ATO wanted to audit him, it was pretty straightforward, even though they wanted wage records, super payment records and more, all the way back to 2012. The ATO also asked for the lists of contractors that he had engaged, for as far back as 2012, including an invoice from each, their ABN, address and contact details.
What the ATO was looking for, was whether Charlie was actually correctly subcontracting, or whether he was dodging his employer obligations by subcontracting instead.
In the end over 70 contractor invoices were provided from the past 4 years, all were complete with all the correct details. However, there were a few contractors who did not send through tax invoices, even though Charlie had paid them.
One missing invoice was from Tommy, the 3 day a week cruiser. As a part of the generosity shown to Tommy, Charlie always paid Superannuation into Tommy’s Super Fund account, with a view to covering a potential liability he had heard about where a subbie should get their super paid if they don’t work for many other contractors during the year.
So what happened with the Audit?
The outcome went as follows:
1. The Subbies who hadn't provided invoices that included an ABN will be getting contacted by the ATO for their own audits. They should always have quoted their ABN and are likely to face strict penalties for avoiding the tax that comes with this. Also, if they wish to work for Charlie again he has to withhold 49% of the payment until he is provided with an invoice that includes an ABN. (It is also the responsibility of Charlie to ensure the ABN is valid by searching it out on the ABN Lookup website)
2. Tommy was assessed by the ATO as an employee and now Charlie has to pay sick pay, holiday pay and Superannuation for his slackest guy. WHY? Because Tommy's payments were almost always the same amount, they happened weekly, he got Super paid by Charlie, he didn't often give quotes for jobs, and his invoices rarely if ever included materials, even his business marketing was shoddy- no facebook, website, yellow pages, nothing. So when the ATO looks at it, it all says one thing.. Tommy is not running a business he is an EMPLOYEE.
Charlie got lucky this time as no penalties were imposed, but he was staring down the barrel of back-pay and "entitlements" for Tommy as well as being held responsible for "failure to withhold PAYG (as you would for an Employee..)"
What is there to learn from this..?
· Well simply put, the outcome is not yet over, the ATO now will audit Charlie next year again to ensure that he has adhered to the rules set out in their findings.
· Tommy will now have to re-structure his tax and personal affairs to conform to the new payment methodology (to get the deductions as he used to get when he was a subbie - otherwise he will pay far more tax..)
· Charlie will have to document and provide evidence for all new Subbies and be very mindful of how this can affect his standing at the ATO.
· Charlie will also need to take advantage of the "attach file" feature of the XERO accounting software he uses. By attaching the quotes, invoices and the ABN searches for all new Subbies, he ensures that he is able to provide documentary evidence in next year's audit and that he is operating within the guidelines set out by the ATO, and thus he can have a very very Merry Christmas in 2016 rather than the stressy and messy one he had last year... (he was really worried about how far the audit would go and how much it would cost him and the impact it would have on his business for the rest of the year.)
· Recordkeeping and Bookkeeping can be easily done and kept up to date when it is systematic and prepared with an eye on the potential questions that may be posed by the regulators (the ATO and other industry, professional and statutory bodies.)
· Filing systems that are basic and stored online can alleviate the old boxes of paperwork and create an effective and efficient compliance management process with very little extra cost.
· The final lesson to be learned here, is to talk to your tax agent, bookkeeper or accountant early to avoid being caught out some time in the future when you least expect it.
One of Torquay’s best cabinetmakers is a guy called Robert. He is a bit of a legend down on the Surfcoast and like most businesses in the region his busiest time of the year is summer and around Christmas. Robert does put his family first though and loves to get away in January and take a well earned holiday. When he gets back to the tools at the start of February he usually has to outlay a fair bit of cash for new materials, as the investment is needed to kick start the business back into action.
What this means is that when it comes time to complete his BAS from December and pay the GST owing, his cashflow is at its lowest and his capital has taken a battering with the holiday and the new materials, while not doing much in actual sales. This is actually a pretty common problem for many business owners, especially tradies.
One solution for this is to go cap in hand to the Bank and get an overdraft to smooth out the bumps in the business’s cashflow. Robert wasn’t keen on this so he asked us at Diligence Bookkeeping to find a better solution for him that would help his business and not leave him vulnerable to the banks.
We took a 2 step approach to this problem. Out first action was to move Robert’s books onto XERO accounting software. This meant creating a database to store all of the accounting information onto the cloud, which is safe, secure, fast and so easy to use. Second step was to make a call to the ATO. Our registered BAS Agents can do this on behalf of our clients and save them all the time of being on hold and talking to the tax office. Under Robert’s direction we were able to negotiate a plan with the ATO, that allowed Robert to complete a payment plan that fitted his budget, ensured there was no penalty interest and got him back on track ready for the rest of the financial year.
This is a real win:win for Robert, as he can manage his cashflow, avoid bank or ATO interest and work to a plan that works for his business. Most businesses do not understand the inner workings of the ATO, so it is really important to engage someone who has the expereince and can lead you towards these types of solutions.
Especially if you are a Geelong, Torquay or Surfcoast business, and you have been affected by either the floods or recent fires, you may be able to negoatiate some favourable outcomes with the ATO to help you through these tough times and Diligence Bookeeping are to help guide you through the process.
Rob has been a truck driver for 25 years. He can drive any truck there is, and has the licenses to prove it.
He has always preferred to be the subcontractor rather than being an employee, as it gave him better flexibility and tax deductions. He always used to say that once he made $1200 for the week he would go home and spend time with his family, rather than taking on too much. This was in the time when $60,000 per year was enough to provide a very good standard of living.
In 2011 Rob accepted an offer to work on a gas pipeline in Queensland. Long days and great income were normal, and Rob moved his family to a newly purchased home in Geelong. There looked like being no further problems ahead for this honest, hard working man.
The problems started when Rob started to make over $75,000 per year. (That is the threshold for having to lodge GST returns).
Because Rob didn’t love doing his bookwork he always made a point of at least saving every envelope in the side door of his truck. Even though a lot of the envelopes were not open, he had everything. In that pile of papers was the letter that said he had to register for GST.
Keeping documents is an important part of good bookkeeping. However what Rob wasn’t doing was reporting back to the ATO what he was doing each quarter, and because he didn’t have a BAS Agent he had no access to the ATO to know what they were expecting from him.
When Rob decided that the next step was to buy his own truck, he needed his books to show the bank. The bank also asked to see a copy of the ATO portal printout for Rob. This is where the plan fell over, but because Rob had kept all of his documents it made the catch up a lot easier.
Rob had an accountant five years ago, who, for many years had done his work and who had done a great job. But this accountant retired and Rob moved from New South Wales to Geelong.
Rob didn’t know many people in Geelong and he was very busy with work, often working 7 weeks in every eight.
As with many sub contractors, Rob was unsure about who should be paying superannuation, what his BAS obligations were, whether he should have registered for GST, and where he stood as far as tax was concerned. Because Rob was so busy on the pipeline when he moved to Geelong, he started to earn over $75,000 per year consistently. This meant that Rob needed to register for GST. It also meant that Rob should have lodged many BAS returns.
Unfortunately the result was that the ATO garnished Rob’s account one Friday just before Rob was about to pay his mortgage, as there were many fines and much unpaid GST.
The phone call we organised and made to the ATO (as Robs new BAS agents) was a bit scary for Rob, because he thought he was going to be in very big trouble as he had been garnished.
In fact when the call went a lot better than expected, Rob was able to relax a bit and we agreed that we would meet each time he came back from the pipeline, with a view to reconciling his tax bill and getting his plan back on track.
Rob worked three weeks on and one week off for eight months and successfully paid off all of his back taxes and in that same time, with our help and by using XERO, reconciled all of his transactions.
During the process Rob started to gain confidence in his financial situation and together we were able to negotiate a payment plan for the ATO that meant there was enough money remaining to renovate his family home.
After eight months Rob was ready to work a lot closer to home and asked for our help to create a business plan for buying a new truck. When Rob went for the loan, his house value was higher, his ATO portal report was clear, his income was good and stable, and he was successful in applying for enough money to buy his own truck.
Because Rob had been using XERO and because it’s such a simple to use system, Rob now had confidence that he would be able to understand and operate the books in his new business, after such a difficult time.
It is over one year since Rob successfully applied for funding for his new truck now and now he is looking for a new driver for the second truck!
Rob’s invoices are made automatically for his regular monthly truck hire rates. All payments are easily reconciled through XERO, and when it comes time to lodge his BAS return it can be done with the press of a button and it is extremely fast and cost effective.
The most interesting result for Rob is that for what he used to pay his accountant he is now getting all of his bookkeeping done instead of doing it himself, and he’s getting his BAS statements lodged for the same price.
This is what XERO can do by adding confidence, access to information and ease of use.
While Rob was away working he could log into his XERO account at the same time as his bookkeeper and discuss how the plan was going. Obviously when he was in Queensland, phone calls to home were more special and important to him than the call to the bookkeeper, however he did say that the calls to the bookkeeper made it a lot easier to keep going for the last eight months up north.
He says now that he has caught up and has had great help, he will “never look back.”
We say welcome home and well done.
Recently in Geelong another new restaurant closed.
This new restaurant had been going for two years and in its first two months was very well received and very successful.
The owners knew that although one was good as a chef and the other was good with the front of house/customers, neither of them were good at the bookkeeping.
This story is one that will show you how Tony, a small business owner was able to free up 5 hours a week every single week in his business.
Tony has an earthmoving business. To be ready to start work at 7am he needs to be up at around 5am. There is plenty to do. He loads the excavator, bobcat and truck, fills everything up with diesel and drives to the first job for the day.