“Embrace your tax audit” are the last words you’d expect to drop from the lips of a financial advisor, but that’s exactly what the head bean-counter from First Class Accounts is asking us to do.
Clive Barrett, Executive Chairman of First Class Accounts, said the very idea of a tax audit struck fear into the hearts of small business owners across the country, however that frown could be turned upside down if we instead looked at the situation as an opportunity for growth.
“With a tax audit, the ATO is simply telling us they’ve found something amiss,” Clive said. “And our immediate response is to put our heads in the sand and hope it will all go away.
“However, if your doctor told you they’d found something amiss, you’d want to know immediately what the problem was and how to correct it. Wouldn’t you?”
With that in mind, Clive said the dreaded tax audit should instead be viewed as an opportunity to get to understand the health of your business and how to address problem areas before they became too big to manage.
“An audit forces you to conduct financial forensics in a way you never would do voluntarily. However, you can’t manage something as big as a tax audit alone,” he said. “In the same way you need a team of medical professionals to help with a serious health problem you also need a team of financial professionals to help with a tax problem.”
“Ensure you have a good support network to guide you, and you’ll save yourself a lot of unnecessary pain.”
For many small business owners however the expense of engaging accountants and bookkeepers for the extended period required of an audit, is prohibitive, and Clive said many tried to go it alone.
“While you might be a wizz at preparing your own BAS, unfortunately there are just too many pitfalls in tax audits for someone who doesn’t deal with the tax system on a regular basis.”
Clive said there were many small and inexpensive things small business owners could implement today that could save them thousands of dollars, not to mention their sanity, should the tax auditor come knocking in the future:
- Get organised:
Ensure your filing is in order and you have easy access to all your financial records.
“We see small business owners lose receipts, misplace important documents and not know how to access information from their own accounting software.
“Take advantage of the time-saving and stress-reducing cloud-based software available on the market today. Rather than wade through mountains of paperwork and receipts you can hit Ctrl F to find the exact document you’re looking for.
“There are programs available that allow you to take a picture of an expense and upload it into your account management software automatically, also storing it for easy access. “
- Take out tax audit insurance:
Tax audit insurance is an inexpensive step business owners can take to protect themselves but it is a little known option. Research conducted by First Class Accounts showed that 48 percent of business owners had no idea that tax audit insurance existed.
“Tax audit insurance costs just a few hundred dollars a year for most small business owners. When you compare this to the potential thousands of dollars it can cost to engage accountants, bookkeepers and lawyers, tax audit insurance starts to make sound economic sense.”
- Volunteer information
Fast-track the whole audit process by helping the ATO do their job. Volunteer information and records that the ATO are looking for.
“The ATO would prefer that you volunteer the problem area straight up, correct the error and pay the fine. It saves all parties a lot of time, money and hassle.
“And if you voluntarily disclose any errors in a prompt fashion, the ATO may even revoke any fines imposed and you can avoid the whole gruelling audit process. That’s the best case scenario that we all aim for.”
- Get in the professionals
Hire a professional accountant or bookkeeper to keep an eye on things and advise financial planning options.
“A professional takes out the guesswork and gives you peace of mind, especially at a time when you need it most.”
Clive Barrett is the Executive Chairman of First Class Financial Group, Australia’s largest financial support services franchise providing bookkeeping, finance and tax services. www.firstclassaccounts.com.au