Tips for Better Financial Management
Lodging your Business Activity Statement (BAS) accurately is crucial for complying with Australia’s tax laws. The BAS is used to report and pay various tax obligations, including Goods and Services Tax (GST), Pay As You Go (PAYG) withholding, and other taxes. However, the complexity of BAS can lead to errors that might result in penalties, interest charges, or delays.
To help you avoid these pitfalls, here are the most common BAS lodgement mistakes and actionable tips on how to prevent them. Following these guidelines will help you lodge your BAS smoothly and accurately, protecting your business from unnecessary issues.
Table of Contents
1. Incorrect GST Reporting
A frequent mistake in BAS lodgement is inaccurately reporting GST on sales and purchases. This can occur when businesses:
- Forget to claim legitimate GST credits on business expenses.
- Overstate or understate GST collected on sales.
- Claim GST credits for expenses that are ineligible.
How to Avoid This:
- Use Cloud Accounting Software: One of the best ways to avoid errors is by using cloud accounting software, such as Xero, MYOB or QuickBooks. These tools automatically calculate GST on each transaction, ensuring accurate reporting. They also integrate with bank accounts and payment systems, helping you track GST payments and claims in real time.
- Double-Check Tax Invoices: Before claiming a GST credit, ensure that the supplier is registered for GST and that you have a valid tax invoice. GST can only be claimed for business-related expenses.
- Keep Records Organized: Cloud accounting software can also help you store all your tax invoices, receipts, and financial documents in one place, making it easy to retrieve the necessary information when lodging your BAS.
2. Incorrect PAYG Withholding Reporting
PAYG withholding errors are another common issue. Businesses may incorrectly calculate the amount of tax withheld from employee wages or report gross wages inaccurately.
How to Avoid This:
- Review Before Lodging: Always cross-check the gross wages (W1) and PAYG withheld (W2) amounts reported on the BAS with your payroll records before submitting.
- Automate Payroll with Software: Using cloud-based payroll software ensures that PAYG withholding is calculated automatically based on the latest ATO tax rates. This reduces the chance of human error and ensures accurate reporting of employee wages and tax withheld.
- Keep Employee Details Updated: Ensure that your employees’ Tax File Numbers (TFNs) and tax declarations are up to date. If an employee’s tax situation changes (e.g., they acquire a HELP debt), the payroll system should be updated to reflect these changes.
3. Missing or Late BAS Lodgements
Failing to lodge your BAS on time can result in late fees and interest charges. Businesses sometimes miss deadlines because they are unprepared or forget the due date.
How to Avoid This:
- Set Automatic Reminders: Use cloud accounting software to set up automatic reminders before your BAS is due. This way, you’ll have ample time to review and lodge your BAS well before the deadline.
- Prepare Financials Regularly: Avoid the stress of last-minute preparations by updating your records weekly or monthly. By using cloud accounting software, your financial data will be consistently updated, so when it’s time to lodge your BAS, you’ll have all the necessary information ready.
- Lodge Online Through the ATO Portal: If you’re close to missing the deadline, lodge your BAS online through the ATO Business Portal. Even if you can’t pay the full amount, lodging on time can prevent late penalties, and you can arrange a payment plan if necessary.
4. Incorrect Classification of Income and Expenses
Another frequent mistake is misclassifying income and expenses, which can lead to inaccurate GST and PAYG reporting. For instance, some businesses may accidentally classify personal expenses as business expenses or fail to differentiate between capital purchases and operating expenses.
How to Avoid This:
- Use Accounting Software to Categorise Expenses: Cloud accounting platforms often have built-in features that allow you to categorise transactions correctly (e.g., capital expenditure, operating costs, personal expenses). These systems make it easier to classify your transactions and ensure that GST is applied correctly.
- Keep Personal and Business Expenses Separate: To prevent confusion, use separate bank accounts for personal and business transactions. This will make it easier to distinguish between business and personal expenses when lodging your BAS.
5. Failing to Adjust for Errors from Previous BAS Periods
If errors in previous BAS lodgements go uncorrected, they can snowball into larger problems over time. Whether it’s a GST miscalculation or a misreported PAYG amount, it’s important to correct errors as soon as they are identified.
How to Avoid This:
- Correct in the Current BAS: For minor errors, you can correct them in the next BAS if they fall within the ATO’s correction limits. For more significant errors, lodge a revised BAS for the period in question.
- Maintain Clear Records: Use cloud accounting software to track adjustments. If you make any corrections, keep a detailed record of the change and the supporting documentation. This will make it easier to handle future inquiries from the ATO.
6. Claiming GST Credits on Private Expenses
Claiming GST credits for personal or ineligible expenses is a common mistake. This typically happens when business owners use personal funds for both personal and business expenses, blurring the lines between eligible and non-eligible GST claims.
How to Avoid This:
- Keep Personal and Business Transactions Separate: Always use a separate bank account for business-related purchases. This will make it much easier to track legitimate GST claims and avoid claiming credits for private expenses.
- Check Tax Invoices: When claiming GST, ensure the invoice is related to a business expense and contains the correct GST amount. If the purchase is partly for personal use (e.g., a vehicle or mobile phone), only claim the business-related portion of the GST.
7. Not Seeking Professional Help When Needed
One of the biggest mistakes businesses make is not seeking help from a tax professional or bookkeeper when they’re unsure about their BAS obligations. Complex issues, such as determining GST on mixed-use assets or calculating PAYG withholding for employees with unique circumstances, often require expert advice.
How to Avoid This:
- Consult a Professional for Complex Issues: If you’re uncertain about any aspect of your BAS, seek help from a certified tax agent like Hopkan Partners. They can review your financial records, help you correct errors, and ensure that your BAS lodgement is accurate.
- Leverage the ATO Helpline: The ATO provides resources and helplines for businesses with questions about their BAS obligations. Don’t hesitate to use these services if you need clarification on specific tax rules or BAS lodgement requirements.
8. Not Keeping Adequate Records
Poor record-keeping is one of the most common reasons for mistakes in BAS lodgements. Without proper documentation, it’s easy to forget to claim GST credits or misreport PAYG withholding amounts.
How to Avoid This:
- Use Cloud Accounting Software: By using cloud-based solutions, you can store your records digitally, ensuring you never lose an important document. Accounting software allows you to save tax invoices, receipts, and bank statements in one secure location, making it easier to access when you need them.
- Retain Documents for the Required Period: The ATO requires businesses to keep financial records for at least five years. Ensure you store all relevant documents securely and in compliance with these rules.
Avoiding common BAS lodgement mistakes is essential for maintaining compliance and minimising the risk of penalties from the ATO. The best way to ensure accurate lodgements is to use cloud accounting software, stay organised with your financial records, and seek professional help when needed. By following these steps, you can streamline the BAS process, reduce stress, and avoid costly errors.
If you’re ever unsure about any aspect of your BAS, consult a qualified tax professional or bookkeeper like Hopkan Partners. We provide bas agent online services that can help ensure that your financial data is accurate and that your BAS lodgements are timely and compliant with tax regulations.
Want to learn more? Check out our Complete Guide to BAS Lodgement where we give a step-by-step guide for BAS lodgement.
