As you will all know we are currently in the middle of BAS time. This time each quarter is always quite stressful for Small Business Owners, especially the ones that are the DIY Bookkeepers. There are so many mistakes that can be made and most of them are innocent. But you need to be taking a proactive approach to you BAS’s and the GST implications of your purchases and sales.
During BAS ‘time’, as a bookkeeper I go around to many businesses and run an eye over their reports created from their accounting software and assist with the lodgment of their BAS’s. This week I came across a few interesting things when doing this. Then today I came across two articles on the same subject that I wanted to share with you.
The first article is from the ATO Business Portal, it is titled Common BAS errors, it touches on different areas of the BAS and the common errors that Small Business Owners make. I would strongly suggest that you all have a read of this.
The next article I found was a Blog written by someone at MYOB. This article covers the 10 common mistakes that the writer has come across at BAS time. This is also an article I would suggest you all read; I have also shared it on my Social Media Platforms on Wednesday morning.
One of the most common mistakes I come across is that when the Small Business Owner, or their bookkeeper, can’t find if the item has GST included in the price, they either assume that it does or assume that it doesn’t. I would strongly suggest that you find out if it does or not. I have two examples where this has cost the business quite a bit of money when it was discovered that their assumption was incorrect and they had to pay the ATO back for GST they claimed when they shouldn’t have.
The first example is a business I came across this week that deals with VIC Roads and the NSW and QLD equivalents quite a bit. They always pay the fee online and therefore only get a print out of the online transaction, never a receipt or tax invoice. Several times I have suggested to them that they need to ring the Government Departments and find out if their transactions have GST or not. Most Government charges do not have a GST component, but some do (like the 3rd Party Insurance component of you car Registration in Victoria.) And I have also advised them that they need a copy of a Tax Invoice for Auditing purposes, but that is another story.
When I got to this client this week, they proudly produced for me a copy of the Tax Invoice for this Government Department. Since the last BAS, they had started receiving them and had kept them all to show me. Upon looking at the Tax Invoices I was able to see that there was in fact no GST included in the transaction. Unfortunately this was bad news for this particular client as it confirmed what I had thought, they shouldn’t be claiming GST on this particular expense. This meant that all the transactions they had entered for this Government Department (and there was hundreds), had been incorrectly entered. They had been entering them as including GST, working on the theory that it is better to claim it than not.
This is a theory that I would strongly suggest you do not have. If you are unsure if the transaction includes GST or not and you have done everything within your power to find out if it does or not, and still can’t find out, it is better to enter the transaction as GST Free or Not Reportable instead of including GST. This ‘mistake’ by this client now means that we have to amend previous BAS’s and they will owe the ATO around $5,200.00 for GST claimed when they weren’t entitled to do so.
The other example I have is a client who purchased the license of a product for quite a substantial amount of money. The license was purchased from a Government Agency, but because of the amount that they were paying they took the attitude that the amount included GST, they didn’t bother to look into it, just assumed it did include GST. The payment for the license was to be made quarterly over quite a few years (due to the large sum of money to be paid). After the first 3 payments and being strongly advised by their Accountant and myself to contact the Government Agency to find out if the amount included GST, they finally did so. They were advised that no, the purchase did not include GST and therefore they owed an amount of $8,500 to the ATO for GST they claimed and shouldn’t have.
So I would strongly suggest to you all to read the two articles I have mentioned above, and any item that you are purchasing and you are unsure of the GST implications, that you contact the person whom you making the payment to and ask them the question – does this invoice/purchase include GST or not?
If you would like to download my free BAS Checklist, you can do so by clicking the link below.
Question: Share with me a situation where you have/have not claimed GST.