Being in the building trade comes with its unique set of challenges and responsibilities. To ensure your business remains robust and compliant, here are five crucial aspects every builder should be aware of:
- Monitor Work in Progress (WIP)
What You Should Know: Builders often invoice periodically, such as monthly or at various stages of a project. However, expenses continue to accrue as the work progresses.
Why it’s important: Reviewing profit at a specific time can be misleading if the expenses are recorded but the income isn’t (since it hasn’t been invoiced yet). WIP allows readers of financial reports to consider what could have been invoiced based on the work done to date, providing a more accurate representation of the business’s performance.
Hammering It Home: Imagine you’re working on a house renovation project. You’ve purchased materials and paid your workers, but you haven’t invoiced the client yet because the work isn’t complete. Reviewing your finances at this point might show a loss, but considering WIP, you realise the value of work done so far would actually result in a profit once invoiced.
- Current Ratio
What You Should Know: While one of QBCC’s Minimum Financial Requirements is that the Current Assets of a business must always exceed its Current Liabilities, it is recommended for all businesses (not just builders).
Why it’s Important: This ensures the business has enough cash or easily accessible assets (liquidity) to cover its short-term bills and obligations within a 12-month period, which is essential for keeping the business financially healthy.
Nailing It Down: If you’re a builder with several ongoing projects, you need to make sure you have enough cash on hand to pay for materials, wages, and other expenses. By regularly checking your current ratio, you can avoid situations where you’re unable to meet your financial commitments, ensuring smooth operations.
- Contractors vs Employees
What You Should Know: Contractors can sometimes be deemed employees, which can make your business liable to withhold tax and pay superannuation for them, as well as include them in your Workcover and Payroll Tax calculations. The ATO, WorkCover, and Payroll Tax have different rules distinguishing between contractors and employees, which can be confusing.
Why it’s Important: The ATO uses data-matching information from TPAR reports to find contractors who might be considered employees, and contractors could potentially file complaints regarding non-payment of superannuation, so it’s crucial to correctly classify your workers.
Measure Twice, Cut Once: If you hire a carpenter for a renovation project, but they work under your direction and use your tools, the ATO might classify them as an employee. This means you’ll need to withhold tax and pay superannuation. Misclassifying them could lead to fines and unexpected expenses.
- Pay Superannuation on Time
What You Should Know: The minimum superannuation rate for each eligible employee is 11.5% of Ordinary Time Earnings (OTE) from 1 July 2024, increasing to 12% from 1 July 2025. This superannuation must be received by the employee’s super fund by the 28th day following the end of each quarter (e.g., December quarter super must be received by 28 January).
Why it’s Important: The ATO tracks super fund information and can detect late payments. When late, a Superannuation Guarantee Charge form must be lodged to the ATO, and the payment of the super then becomes non-deductible. Most businesses can’t afford to miss out on a tax deduction for their superannuation payments. If you need to, superannuation can be paid more frequently than quarterly to help manage this. It’s also important to remember that when paying superannuation from your business bank account, allow sufficient time for the payment to reach the super funds before the due date, as clearing houses can take up to 10 days to process payments.
Don’t Get Hammered: If you employ labourers and apprentices, you need to ensure their superannuation payments are made on time. Missing a payment deadline can result in fines and losing the tax deduction, which can be costly for your business.
- Planning
What You Should Know: Builders should meet with their accountants at least once a year before 30 June to check the business’s performance for the current year.
Why it’s Important: This can help confirm business profitability and give the owner a forecast of the upcoming tax implications. It provides time to make decisions to help manage the tax position—after 30 June is too late! Planning also allows for a review of the business’s compliance with QBCC’s Minimum Financial Requirements. If a business is growing and may need to increase its revenue limit, planning ahead ensures the business has enough assets for the change to be approved.
Blueprint for Success: If you’re planning to expand your business and take on larger projects, meeting with your accountant before 30 June will help you understand your financial position and tax obligations. This way, you can make informed decisions and ensure you meet all requirements for success and growth.
Taking these steps will not only help you stay compliant but also ensure your building business runs smoothly and efficiently.
Keeping an eye on these key aspects will keep you ahead of the game and ready to tackle any challenges that come your way.
Disclaimer
The content provided in this article is for informational purposes only and does not constitute legal or financial advice. While we strive to ensure accuracy, we recommend that readers consult with an appropriate specialist for professional guidance specific to their individual circumstances. The information presented here may not cover all aspects of the employment regulations or tax implications. It is essential to conduct further research and consider seeking personalised advice before making any decisions related to your workers. Grenfell Murray Pty Ltd disclaims any liability arising from reliance on the information contained in this article. Readers should exercise due diligence and verify details independently.
