As you can imagine, accountants make pretty bad builders, plumbers, or sparkies. Even if we are fairly handy around the house, any glimmer of anything remotely decent will likely be through endless trial and error. The same principle applies when it comes to tradies and accounting. However, unlike our home DIY attempts, accounting for tradies is unavoidable.
If you’re a tradie, or if your partner is a tradie, chances are accounting is the one thing you dread the most. There’s not much we haven’t seen over the years. So, we’ve put together a list of common mistakes tradies make when it comes to accounting.
If, however, you need a Cairns accountant to make the pain go away, our team is ready to help.
Registering as a company, instead of a sole trader
It’s a common misconception that being a registered company is a requirement to be able to take on sub-contractors or employ staff. Similarly, you don’t need to be a PTY LTD entity to be able to tender for certain projects.
While there are benefits to being a registered company, it really depends on your circumstances. However, you need to be aware that companies cost more to set up and there’s typically more financial reporting for you to wade through.
Despite what you may have heard, a company structure does not protect you from bad debts. If you are the sole director, you can still be pursued by the ATO or creditors for any debt your company owes.
Miscalculating Vehicle Expenses
You probably spend a fair amount of time and money on the road.
For vehicles designed to carry less than one tonne and fewer than nine passengers, there are two methods of calculation you can use for your vehicle expenses.
These are the cents per kilometre method or the logbook method.
Conversely, for vehicles with a carrying capacity of more than one tonne (such as a panel van) or nine passengers or more, you will need to use the logbook method.
Depending on your circumstances and your vehicle, one method may be more beneficial to you than the other. Talk to our team to help you determine which is most suitable for you.
Mismanagement of GST
This one’s not exclusive to tradies, we see this in almost every industry. There are a couple of issues to be aware of regarding GST.
The first issue is that some tradies do not apply GST correctly when they invoice customers. We recommend applying 10% GST to the value of the work, rather than absorbing 10% and eating into your margins. Your invoices should include the correct amount of GST on all items and services on the invoice, so be sure to include this figure too.
The second issue is regarding completing GST returns. Understanding the GST income and expenses for a reporting period can cause a lot of headaches, especially if you haven’t been recording the data. However, it is necessary to ensure accurate GST returns are provided to avoid any penalties from the ATO.
Superannuation payments and non-compliance
When you employ staff, you must make Superannuation Guarantee (SG) contributions. This applies to anyone over 18, regardless of whether they are full-time, part-time, casual, or a temporary resident of Australia.
Just to make things a little bit more difficult for employers, the Superannuation Guarantee rate has been increasing over the last couple of years and will continue to increase on a scale until the 2025/26 financial year.
Like GST, you need to keep a record of your superannuation payments and ensure all deadlines are met.
Underpaying employees and inaccurate payroll
Tradies who employ staff need to ensure their employees are paid in accordance with the Award or Enterprise Agreement they fall into. In addition, keeping a record of any annual or sick leave accrued is vital.
Ensuring timely payment of wages and taxes is a crucial aspect of running a business. However, calculating the correct pay and tax can be a daunting task, especially if you have casual staff or are paying overtime. Fortunately, there are several accounting programs available that can ease the burden and provide you with the assurance that your reporting is accurate.
To ensure you’re on top of your finances, talk to our accountants in Cairns so you can avoid these mistakes and more.