Keeping it all on the record

IT PAYS for small business to be tax compliant, is the advice from accounting and finance organisation CPA Australia.
A recently released report by CPA pointed out that there was a direct link between poor recordkeeping and the likelihood of an adversely amended assessment where a small business has been subjected to a tax audit.
CPA Australia’s small business policy adviser, Judy Hartcher, said that the report ‘RecordKeeping: Its Effect on Tax Compliance’ proved that it payed for small business (SMEs) to have a good system in place.
“This is not only in the event of a tax audit, but also from a strong business management perspective,” she said.
Ms Hartcher said it was crucial for small business to have a correct system in place to avoid future tax compliance problems.
“Correct record management could potentially save a business thousands of dollars in the event of a tax audit, when hefty fines can be imposed on those who have made mistakes in their tax reporting, whether intentional or not,” she said.
“Our research indicates that those small businesses who do so are less likely to have their tax assessment aversely affected.”
Ms Hartcher said it made good business practice to get it right from the beginning, or otherwise costs would increase significantly later on in the event of an audit.
The research, conducted for CPA Australia by the University of New South Wales’ Australian Taxation Studies Program (Atax), explores the relationship between the recordkeeping practices of small businesses and their potential exposure to tax and related businesscompliance problems.
It used a mixture of qualitative and quantitative methodologies and involved tax practitioners, small business owners and managers and ATO auditors.
The report also found that:
•SMEs that had been audited recently by the ATO were more likely in the future to prepare more comprehensive sets of accounting reports as a result of the audit.
•SMEs that had been recently audited were far more likely to view tax compliance as the main reasons for recordkeeping than those small businesses that had not been exposed to an audit.
•Onethird of tax practitioners were not confident in the accuracy of clients’ recordkeeping systems, but 80 per cent believed the systems were adequate for tax compliance.
•Both SMEs and accountants saw cost savings and improved accuracy in computerising record keeping.
Ms Hartcher said the research delivered a clear message that good record keeping led to better tax compliance and better business management.