4 crucial 2020 tax changes for small business you need to be aware of
As small business owners are busy running different aspects of their business, it’s not always feasible to stay on top of every piece of financial news that has a direct impact on their operations – especially in 2020. Still, if you are a small business owner, you need to be aware of any changes (big or small) in taxation, reporting, and invoicing that has an impact on your business moving forward.
With this in mind, we have outlined the 4 key changes in tax regulations and compliance that you need to know about so that you can more effectively plan and manage accordingly.
1. Expansion of the Single Touch Payroll system
Single Touch Payroll (STP) is a government initiative to streamline employer reporting obligations. According to the Australian Taxation Office (ATO), Single Touch Payroll is a simpler way of reporting your weekly, fortnightly, or monthly payments to employees. Whilst employee payment cycles remain unchanged, by paying employees through this system, you are reporting your employees’ salaries and wages, pay as you go (PAYG) withholding and super information at the same time they are paid. This means that you no longer need to submit an annual payment summary to the ATO as this information is already reported during the year.
This new software system has already been introduced and reporting started on 1 July 2018 for employers with 20 or more employee. From 1 July 2019 it was extended to small employers with 19 or less employees. As the rollout continues, any new business should start reporting through STP, although with the impacts of COVID-19, the ATO will be advising on revised dates for Phase 2 STP rollout across Australia.
If your business is not using Single Touch payroll yet, the ATO will contact you to invite you to make the transition. It could be convenient for you to take the chance to adopt the new system as soon as you can to streamline your financial reporting obligations to the ATO.
2. Transitioning from AUSkey to a new reporting service.
The Verizon-developed authentication system AUSkey, as well as its tool Manage ABN Connections, were retired in April 2020, after a 10-year run. This was due to the impossibility to implement necessary technology updates to the system.
The AUSkey system was a solution that let businesses communicate with the government offices securely. Its replacement service is comprised of myGovID (an identity authentication app that can be run on smart devices) and RAM (Relationships Authentication Manager, which links that personal account to a business and allows you to operate on its behalf).
This affects your small business only in that you need to set up the new myGovID key and prove both your identity and connection to your business through RAM.
The government has assured business people that this reporting system is more reliable, flexible, and data-secure than its predecessor.
3. Modifications to the Taxable payments annual report.
If your small business uses contractors or subcontractors, you may be affected by the expansion of TPAR obligations. These involve informing the government of payments made to these parties via a taxable payments annual report every August.
While this has long been limited to building and construction services, this year it has been extended to:
- Cleaning services.
- IT services.
- Courier and road freight services.
- Government entities.
- Surveillance, security, and investigation services.
Even if your small business doesn’t belong to one of these industries or if it’s only a minor aspect, you still have to make this report including payments to contractors or subcontractors that provide the service. When in doubt, talk to your tax specialist.
4. Easy switch to more efficient e-invoicing.
Slow payment times have been a long-standing issue for small businesses in Australia. It’s reported that around 20% of late payments are directly linked to errors on invoices often associated with manual entry. The cost of processing a paper invoice amounts to $30, with its PDF alternative lies at $27. By comparison, processing the ATO-promoted option of e-invoicing costs only $9 to process – approximately 70% cheaper and will get paid within 5 days.
By adopting e-invoicing (which will be a compulsory tax change by July 2022), you can improve the cash flow and resilience of your small business. It’s estimated that e-invoicing will save the Australian economy $28 billion over the ten years.
If you are unsure bout any of these changes or need professional assistance to make sure you are compliant with payments or reporting, please speak to your accountant today.