Common BAS Errors and How to Avoid Them
Managing Business Activity Statements (BAS) is a critical task for businesses in New Zealand. BAS submissions are essential for reporting and paying various tax obligations, including Goods and Services Tax (GST), Pay As You Go (PAYG) instalments, and other levies. However, many businesses encounter common errors when preparing their BAS, which can lead to penalties and interest charges. This article explores these common mistakes and provides practical strategies to avoid them, ensuring compliance and financial accuracy.
Understanding BAS
A Business Activity Statement (BAS) is a form that businesses registered for GST must submit to the Inland Revenue Department (IRD) to report their tax obligations. The BAS summarises the amounts of GST payable and receivable, along with other taxes such as PAYG instalments, Fringe Benefits Tax (FBT), and more. Accurate BAS reporting is crucial for maintaining good standing with the IRD and avoiding costly penalties.
Common BAS Errors
1. Missing or Avoiding Deadlines
One of the most frequent mistakes businesses make is missing the BAS lodgement deadlines. The IRD requires businesses to lodge their BAS either monthly, quarterly, or annually, depending on their GST turnover.
How to Avoid It:
- Use Reminders: Implement a cloud-based calendar with reminders to diarise your BAS lodgement dates. This ensures you are alerted well in advance of the deadlines.
- Regular Scheduling: Incorporate BAS preparation into your regular business operations. For example, set aside time on the last Monday of each month to complete your BAS.
2. Incorrect Information
Submitting incorrect information on your BAS can lead to significant issues, including underpayment or overpayment of taxes. Common errors include incorrect tax codes, misreporting of wages, and incorrect GST calculations.
How to Avoid It:
- Keep Accounts Up to Date: Maintain accurate and up-to-date financial records. Regularly reconcile your accounts to ensure all transactions are correctly recorded.
- Use Accounting Software: Utilise online accounting software like MYOB or Xero to automate calculations and reduce the risk of manual errors. These tools often include built-in checks and balances to help ensure accuracy.
3. Double Dipping on GST
Double dipping occurs when businesses claim the GST component of a purchase more than once. This often happens with hire purchase or lease agreements where the full GST is claimed upfront, and then monthly payments are also incorrectly coded as GST.
How to Avoid It:
- Check Purchase Invoices: Always verify your purchase invoices and BAS records to ensure GST is claimed correctly. Consult with your accountant to set up accurate tax codes in your accounting software.
4. Failing to Maintain Accurate Records
Accurate record-keeping is essential for BAS reporting. Many businesses fail to keep comprehensive records, leading to errors and potential penalties.
How to Avoid It:
- Implement a Record-Keeping System: Develop a robust record-keeping system that includes proof of income, evidence of expenses, receipts, bank statements, and other relevant documents.
- Regular Audits: Conduct regular internal audits to ensure all records are complete and accurate. This helps identify and rectify discrepancies before they become significant issues.
5. Mixing Business and Personal Expenses
Another common error is mixing business expenses with personal expenses. This can lead to incorrect claims on the BAS and potential scrutiny from the IRD.
How to Avoid It:
- Separate Accounts: Maintain separate bank accounts and credit cards for business and personal expenses. This simplifies tracking and ensures only legitimate business expenses are claimed.
- Clear Documentation: Clearly document all business expenses and keep receipts and invoices organised. This makes it easier to verify claims during BAS preparation.
6. Incorrectly Reporting Wages and Superannuation
Misreporting wages and superannuation contributions is a frequent error. Wages should be reported at W1 on the BAS, while superannuation contributions are not reported.
How to Avoid It:
- Follow Guidelines: Ensure you are familiar with the correct reporting guidelines for wages and superannuation. Refer to the IRD’s resources or consult with a tax professional if you are unsure.
- Procedure Document: Create a procedure document that outlines where to enter specific information on the BAS. This serves as a reference for you and your team.
7. Including Dollars and Cents
When completing the BAS, businesses often mistakenly include dollars and cents, leading to calculation errors.
How to Avoid It:
- Round Figures: Round all figures to the nearest whole dollar. Avoid using cents, decimal points, commas, or symbols like $ and n/a.
- Spreadsheet Formulas: Use spreadsheet formulas to automatically round figures to whole dollars, reducing the risk of manual errors.
Fixing BAS Errors
If you realise you’ve made a mistake on your BAS, it’s crucial to address it promptly to avoid penalties. The IRD provides several options for correcting errors:
- In Your Next Return: If the tax difference caused by the mistake is $1,000 or less, you can correct it in your next taxable period.
- Amend the Original Return: You may be able to fix mistakes in the original return through myIR. If not, contact the IRD to request an amendment.
- Voluntary Disclosure: If you discover an error before the IRD does, consider making a voluntary disclosure. This can reduce penalties and demonstrate your commitment to compliance.
Managing BAS effectively is essential for New Zealand businesses to ensure compliance and avoid costly penalties. By understanding common BAS errors and implementing strategies to avoid them, businesses can streamline their reporting processes and maintain accurate financial records.
The key to successful BAS management lies in regular scheduling, accurate record-keeping, and the use of reliable accounting software. Additionally, staying informed about regulatory changes and seeking professional advice when needed can help businesses navigate the complexities of BAS reporting.
By addressing these challenges head-on, New Zealand businesses can achieve greater financial accuracy and compliance, ultimately contributing to their long-term success and stability.