I am often asked this question: ‘Can I lodge my BAS myself?’ Most accountants and BAS agents say no and have many stories of messy clean-up jobs to prove why. However, on the other hand, the ATO has collaborated with leading software providers to make reporting to the tax office easier and simpler for businesspeople.
So, what’s the right thing to do? This article will outline the basic components of a BAS, and how and when to lodge one, so you can decide what’s best for your business.
What is a BAS?
Firstly, it’s important to understand what a BAS actually is. The Business Activity Statement (BAS) is a report from business owners to the ATO about any tax-related activities.
It doesn’t tell you how much tax you need to pay, but it does tell the ATO how much tax you’ve collected from others.
The two components of the BAS that are most relevant to business owners are GST and PAYGW.
The Goods and Services Tax (GST) is added to the cost of most goods and services sold, and it’s collected by the business that sells the goods and services. The tax rate is currently 10%. Note: GST is a consumer tax, not a business tax.
As a business, you apply the tax to your customer invoices and pay the amounts back to the ATO through your BAS.
To ensure that goods and services aren’t taxed multiple times, you can deduct the GST you’ve paid for the goods and services you’ve bought for your business.
Here is an example:
- A farmer sells a potato to a manufacturer for $10. No GST is charged, as it is primary production.
- The manufacturer uses the potato to produce frozen hash browns and sells them to a wholesaler for $30 + $3 GST.
- The wholesaler sells the frozen hash browns to a retailer for $40 + $4 GST. They also get $3 credit for the GST they’ve already paid.
- The retailer sells the frozen hash browns to a restaurant for $50 + $5 GST. The retailer gets $4 credit for the GST they’ve already paid.
- The restaurant cooks the hash browns and sells them to the consumer for $100 + $10 GST and gets $5 credit for the GST they’ve already paid.
In this scenario, the consumer pays $10 in GST.
The ATO collects $3 from the manufacturer, $1 from the wholesaler, $1 from the retailer and $5 from the restaurant.
Once you understand this example, you’re much closer to being able to do your own BAS.
However, there are lots of rules and laws that the ATO will assume you know if you do your own BAS – this is what your accountant has studied and what you pay them for. If you make errors on your BAS, you risk an audit, which could cost a lot of money, and a possible fine.
Let’s explore further.
Deciding to charge GST
Some businesses are registered for GST and others aren’t. Similarly, some goods and services attract GST and others don’t. It can be a complex area.
If you’re just starting out, you need to find out whether you should charge GST. Generally, if your turnover is more than $75,000 per year, you must charge GST. However, you should get advice about your situation from your tax agent.
If you still feel confident that you can do your own BAS, we’ll move on to the other major component – PAYGW or Pay As You Go Tax Withholding. This is the tax you withhold from your employees when you pay their wages.
If you have employees and do payroll yourself, you probably use a tax table to calculate the amount to deduct from your employees’ pay (withholding). Payroll software does this automatically.
In the end, there is always an amount that you don’t pay to your staff. This amount (the PAYGW) needs to be declared on your BAS and paid along with any GST owing.
As well as PAYGW, you might notice another PAYG on your statement – PAYGI or Pay As You Go Income Tax Instalment. This is a prepayment of your own income tax and it is pre-calculated by the ATO. (Yes, it’s a bit confusing to have two components that refer to PAYG!)
When you submit your income tax return at the end of the financial year, the ATO uses it to estimate your tax for the following year. Then it calculates prepayment instalments for you to pay regularly so your end-of-year tax won’t be too high.
If this pops up on your BAS, just pay it. However, if you think the prepayment amount is too high, speak to a tax professional.
There may be other components on your BAS that you need to declare, like Wine Equalisation Tax, Luxury Car Tax and other tax withholdings. However, I won’t discuss these in this article. The more complex your BAS gets, the more likely it is that you need a professional.
When to lodge your BAS
Now let’s talk about when you lodge and pay BAS.
You can choose to lodge your BAS yearly, quarterly or monthly. If you don’t keep a designated bank account for your GST and other amounts, it might be best to pay monthly.
The ATO will suggest an interval for you, based how much they estimate you’ll withhold every month, but you can always choose a shorter interval. If a professional does your books, you should choose a longer interval because every lodgement will cost you fees.
Either way, you should always remain aware of the amount you’ll need to pay the ATO on your next BAS. The more often you use the money in your holdings, the harder it will be to pay your obligations at BAS time.
The most important thing to remember is that this is NOT your money.
Doing your own bookkeeping
Before you decide to jump in and lodge your BAS yourself, you need to decide whether to do all the business’s bookkeeping yourself.
This decision will depend on how well you can keep your books and how much time you have to do it. Accounting software can make bookkeeping easier, but software is only as good as the data that’s entered into it!
Generally, if you have only one business bank account where all your business transactions go through, you may be able to do your own bookkeeping. Just make sure you:
- enter all money flowing in from your sales that has GST attached
- check any money flowing out from a transaction that has GST allocated.
If anything doesn’t fall into these two categories, check with your accountant.
If you can manage this, GST reporting is sorted, as all major accounting software has a function that calculates your BAS amount. You just have to transfer this amount into your BAS statement or just send it straight to the ATO.
The same goes for PAYGW reporting. If you have good payroll software that calculates staff wages correctly and withholds the correct amount of tax, reporting only requires the press of a button.
But again, if your data input is incorrect, the output will be incorrect. If you don’t follow correct procedures, the data output will be corrupted. Then you’ll become the star in another tax professional’s messy clean-up story!
So, should you lodge your own BAS?
In my opinion – considering recent software innovations – business owners can do their own BAS if they get set up by a professional who will provide support and set-up procedures, and monitor transactions.
You don’t usually need a highly trained professional to do data entry if you have a controlling process in place that stops big mistakes occurring.
If your current tax professional isn’t giving you the support you need, shop around for business accountants and financial controllers. They’ will be by your side and don’t need to lodge your BAS for you.
And, honestly, if you’ve made it to this point and you’re still reading, I’m pretty confident that you can do it!
The information on this article is provided by Anconsult Pty Ltd ABN 29 648 663 772 (Anconsult). It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. While all care has been taken to ensure the information is correct at the time of publishing, tax and financial legislation can change from time to time and Anconsult is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional and tax advice before making any financial and tax related decisions.
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