We chat to Xero’s head of accounting James Solomons to learn tax tips other than just “keep track of your receipts”.
Head of accounting, Xero
The only thing more stressful than tax time as a small business owner is hearing the same advice time and time again.
“Keep your receipts.” “Check your deductions.” “Use an accountant.” “Get started early.”
We sat down with James Solomons, head of accounting at cloud-based accounting heavyweight Xero to find out some small business tax tips that are not what you might expect.
1. Review your subscriptions
According to Solomons, the end of financial year (EOFY) is a perfect time see if your business is paying for services and software that you don’t actually use.
“One of the easiest ways to start with subscriptions is by looking at the last time you logged in,” he says. “Often, you end up having lots of little subscriptions. Even Spotify, it’s $10 a month. And if you use Hootsuite for your social media platforms but you’re actually posting directly to all of your social channels, then why pay for it?”
Solomons also says that, depending on your business’s cash flow, you may want to consider paying premiums in advance.
“If you have the ability, pay the premium in advance, you know, for 12 months rather than doing it month by month. Sometimes that will add maybe $100, $200 a year to the cost of a premium. So it’s a built-in interest charge, even if it’s not said to be that.”
2. Don’t think of your accountant as the “taxman”
Solomons says that despite seeing value in what they provide, he admits that a lot of business owners see the cost of compliance as a “necessary evil”.
“A lot of business owners view their accountants as the taxman… but I pull them up and say ‘I’m not actually the taxman. I’m here to help you.’ I’m here to save you money, get back deductions, get you refunds and make deductions possible.”
Solomons says that the issue may lie with business owners not fully understanding deductions.
“They [business owners] don’t realise that when you run a business, the lines are not as direct with respect to individuals. If you’re an individual, you claim a deduction against your employment income. There has to be a direct connection between how that expense helps you generate your employment income, how you got your pay and your wages. When you’re in business, it’s a little bit wider.”
For small business owners to see the value in accountants, Solomons encourages them to consider it outsourcing, “like anything else”.
“Getting someone to do your tax return is an outsource of a function of your business that’s required,” he says. “Generally, when you outsource somebody, you expect them to do a better job than you would. I don’t know how to change a washer, I don’t know how to fit out a bathroom, so I’m going to hire a plumber.”
3. Some deadlines aren’t set in stone
With tax, some deadlines are absolute (the due date of your small business tax return, for example). However, others aren’t set in stone. For businesses that want to move across to a digital accounting platform for the next financial year, but haven’t done so by 1 July 2017, don’t think you’ve missed the boat.
“It doesn’t have to be 1 July, because it’s digital and because you can upload bank statements from the last 3 to 12 months,” says Solomon. “I could start today and upload the manual bank statements.”
“Have the system set up and have the bank feeds connected and you can actually start at any time. The first of July is quite a nice point to land on, but the first of any quarter, if you’re doing your business activity statements quarterly, is also a good time that you can get going.”
“There’s always a learning curve that’s involved in this, there’s always time to get up to speed.”
4. You can’t outsource everything to your accountant
While Solomons is all for small business owners using an accountant, especially at tax time, he says that there is still some onus on the small business owners themselves when it comes to tax.
“I think there is a bit of a balance there,” he says. “The accountant certainly should have a good understanding, but the business owner should remain inquisitive about what’s going on and should ask questions about their account. ‘Can I claim this if spend this? Can I claim that?’ And it progresses from there as a discussion to whether it ends up in the tax return.”
According to Solomons, the balance also comes into play from both the accountant’s and the business owner’s experiences. An accountant works in a variety of industries and so can bring tax and business insights from there, but a business owner has insights from his own industry that he can bring to the table.
Solomons also adds that from a legal perspective “small business owners are always required to verify deductions in their text return.”
5. Accountants aren’t just there for tax
“Small businesses that are going to or do use an accountant: when you connect with your accountant, use that as an opportunity to ask them to look over your business position. Accountants are not just there for tax,” says Solomons.
According to Solomons, using this time or other moments throughout the year to have your accountant provide insights into the ways you could improve your sales or profit margins is a good move.
“Use the skills your accountant has, because they run a small business as well. We understand the pressures that small businesses have because we suffer the same fate of what’s going on in the economy.”
“Use the tax time to also have a chat about your business generally and find out other ways that your accountant can help you benefit going into the next 12 months.”
DISCLAIMER: This article is general advice. It does not consider your own personal circumstances and may not be applicable to you. You should obtain professional advice and consider your own situation before acting on anything contained in our article.