First-time sole traders who launched their dream business during the COVID-19 pandemic could be in for a shock as they prepare to lodge their returns, tax advisers warn.
Xero adviser Lee Duffield expected plenty of new business owners would be caught out while preparing their paperwork.
“Many could have a much bigger tax bill than they’re expecting,” Ms Duffield said.
Ms Duffield said it was common for first-timers to throw away important papers or receipts and disregard tax legislation.
She urged them not to leave their tax preparations to the last minute and recommended engaging an accountant at least a month before lodging.
A surge in the number of new businesses was sparked by pandemic conditions, which opened new opportunities or forced people hit by reduced hours or unemployment into picking up a side hustle to make ends meet.
Ms Duffield said a change in the corporate sector’s attitudes around outsourcing work had also boosted demand for sole traders.
“Big business is much more open to engaging with off-site workers under flexible working conditions,” she said.
There was also a significant boost in the number of tradespeople turning to solo operation in WA.
“With the construction sector going gangbusters, tradies are realising there can be a lot of money in it for them,” Ms Duffield said.
She advised workers in the gig economy to pay close attention to their tax payments because frequent changes to GST were made.
Callum Chalker turned his vehicle detailing hobby into a business during the pandemic last year.
“I hadn’t done something like this before but I realised there was enough demand to take the leap. Although I was a bit worried about doing it during COVID in case everything slowed down.”
His Chalkers Automotive Detailing company mainly services mining clients to clean the interior of heavy-duty equipment.
Mr Chalker said preparing to lodge a return was a stressful time of year, but recommended sole traders seek professional help.
“Engaging with an accountant early was one of the best things I did setting up the business,” he said.
“It was also really handy to write a detailed business plan and keep referring to that.”
Mr Chalker said the costs of starting a business were higher than he had initially anticipated once insurance, bills, tools and training was factored in.
“I recommend to other sole traders, don’t outlay your costs straight away. You never know when another bill might come through or there are additional costs.”