Christmas is just around the corner. It’s a time for festivities and good cheer, but it can also be a time for undue stress and expenses. Additional costs may arise when it comes to your businesses Christmas party, staff holidays and gifts for clients and employees. Here are some tips to help you with your Christmas budget.
Christmas and the end of year is a time where your permanent staff may take leave. This may mean that you need to employ Christmas casual staff or contractors. Casual staff will need to be advertised and budgeted for, as well as going through an on boarding process. You’ll need to make sure you have their Tax File Number (TFN) and superannuation fund when you bring them on board. If they don’t have their own super fund, you may need to open a new account for them and set them up. You might be required to pay superannuation to some contractors even if they do have their own ABN.
Make sure your accounting software is Single Touch Payroll (STP) compliant so can manage the ATO’s tax and superannuation requirements.
Pro Tax Tip: Make sure your employee agreements, procedures and paperwork are ready for use when employing any new staff.
This is the time of year when it’s a nice idea to reward staff with a Christmas bonus. It’s important to be fair and reasonable with what you can afford. It’s a good idea to set a budget and make sure you can cover costs without affecting your cash flow or profitability.
Any bonuses you pay your staff will need to be reported on your employee’s income statement. You’ll need to make sure your PAYG is updated and will be higher when you lodge your December BAS. Your BAS may not need to be payable until February, but tax will still need to be withheld.
Pro Tax Tip: Consider giving a gift if you can’t afford a Christmas bonus. Gifts under $300 per employee are exempt from attracting Fringe benefits Tax (FBT). Make sure your gift is classified as non-entertainment for it to be tax deductible, for example a gift voucher or chocolates. Gifts classed as entertainment under $300 will not be tax deductible but will still be exempt from FBT.
Keep a budget so you know how much your Christmas bonuses and/or gifts is going to cost your business. You may need to put off other purchases so the costs don’t eat into your budget. If repairs or maintenance can wait, it may be best to put off closer to tax time where you can get the benefits closer to lodging your tax return while delaying costs.
Pro Tax Tip: Make sure you complete your invoicing pre-Christmas to allow your customers time to pay. They’ll also be looking after their Christmas budgets.
It’s time to collect your debts on invoices already issued to get as much cash in before Christmas to avoid delays with other business staff taking leave or suffering from a post-Christmas hangover. With some accounting departments closing between 2 or 4 weeks, you might be getting paid after a lengthy delay.
Pro Tax Tip: Make sure you’ve set aside enough cash in your budget to manage a shutdown period. There may be rent and utilities to pay, even if your business isn’t earning an income during this time. And extra cash in your account will also manage the dip after you’ve returned to work and are waiting for fresh invoices to be sent out and paid.
Keep your eyes open for little expenses that do add up over this time, such as:
- Petrol for extra trips you’ve had to make
- Postage and shipping gifts
- Greeting cards and wrapping paper
- IT support
- Bookkeeping support
- Utility costs
- Cleaning supplies
- Office supplies
Business expenses are tax deductible. This includes gifts, Christmas parties and extra staff you need to employ. In order to stay on top of your spending, manage your cash flow and make those all-important tax deductions, it’s important to make sure your record keeping is first-class. You can only claim tax deductions if:
- You’ve already incurred the expense
- The expense work-related
- You can back up your claim with receipts, tax invoices, contracts, financial statements and other pertinent paperwork.
Christmas can put extra stress on the budget, but with careful planning and maintenance it doesn’t have to be. ITP have helped Aussie businesses for over 50 years. That’s a lot of Christmas parties under our belt. If you’re feeling overwhelmed and need to reach out for some tax advice, our tax agents are happy to help.