Working With Taxable Payments using MYOB software

Table of Contents TABLE OF CONTENTS FIGURING OUT WHETHER YOUR BUSINESS NEEDS TO REPORT FOR TAXABLE PAYMENTS I Don t Earn All My Business Income From Building. Do I Still Have to Report for Taxable Payments? Do I Have to Report All Payments to Subcontractors, Including Materials? FINDING OUT WHETHER YOUR VERSION OF MYOB CAN DO THE JOB What Version of MYOB Do I Require in Order to Get Taxable Payments Reporting? I Can t Afford to Upgrade? Can I Get Taxable Payments Reporting Any Other Way? PREPARING MYOB FOR TAXABLE REPORTS Do I Need to Modify My Preferences? How Do I Set Up My Subcontractors? What If I Don t Have an ABN for a Subcontractor? What If I ve Set Up Subcontractors with Employee as the Card Type? I ve Recorded Heaps of Subcontractor Payments Already Without Marking the Supplier as Taxable. Will MYOB Adjust the Report Retrospectively? I Notice I Can Flag Individual Purchases as Reportable Payments. Do I Have to Do This? GENERATING YOUR TAXABLE PAYMENTS REPORT I Use Accountright 2013. How Do I Create My Report? I Use Accountright Version 19. How Do I Create My Report? Why Does My Report Show Only the ABN for Each Subcontractor, and Not the Name, or Only the Name for Each Subcontractor, and Not the ABN? I m Still on an Older Version of MYOB. Do I Need to Upgrade in Order to Report for Taxable Payments? What s the Deadline for Reporting These Payments? CHECKING YOUR REPORT IS CORRECT Why Does the Total on My Taxable Payments Report Not Balance With Other Reports? Is There Anything I Can Balance This Report Against to Check it s Correct? How Do I Check That the Electronic File I m Lodging with the ATO Has All the Correct Info? OTHER PUBLICATIONS MYOB Software For Dummies -The Simple MYOB Guide For Everyone Making The Most Of MYOB AccountRight -- The Comprehensive MYOB Guide Bookkeeping For Dummies The Comprehensive Guide Small Business For Dummies And Business Plans For Dummies 2 Working With Taxable Payments using MYOB Software

Working with Taxable Payments using MYOB Figuring out whether you need to worry about taxable payments, or not Checking whether your version of MYOB can do the job Preparing for taxable payment reporting Generating taxable payment reports Ensuring your taxable payment reports are correct Taxable Payments reporting is one of those bits of legislation that seems to have caught most businesses unawares. Although announced over a year ago by the government, most businesses haven t yet taken the steps to ensure that their accounts are set up correctly to generate Taxable Payments reports. There are many issues to consider. Does this legislation apply to your business? Can your version of MYOB generate the reports you need? What s the best way to create your Taxable Payments report? Hopefully, this short ebook explains everything you need to know in order to complete this process. Figuring Out Whether Your Business Needs to Report for Taxable Payments You know how every year you give payment summaries (formerly called group certificates) to your employees? From July 2012, if your business is part of the building industry, the same deal applies to any subcontractors who work for you. In other words, you have to send the Tax Office a summary of all payments made to subcontractors at the end of each year. Why is this happening? The Tax Office has a sneaking suspicion that many subcontractors in the building industry don t declare all their income in their tax returns. So by getting the companies who pay subcontractors to lodge annual payment reports, the Tax Office hope to tighten the screws a couple of turns on those subcontractors. Incidentally, it doesn t matter whether the subcontractors you employ are sole traders, partnerships, companies or trusts. You have to declare payments you make to them, no matter what their business structure is. Working With Taxable Payments using MYOB Software 3

I don t earn all my business income from building. Do I still have to report for taxable payments? That depends. If your business earned more than 50% of its income from building and construction in the current financial year then yes, you do have to report for taxable payments. Or, if you didn t earn more than 50% from building and construction in the current year, but you did in the year before or the year before that, then you also have to report for taxable payments. Building and construction services include alterations, assembly, construction, demolition, design, destruction, dismantling, erection, excavation, finishing, improvement, installation, maintenance, management of building services, modification, organisation of building and construction services, removal, repair and site preparation. Here are a couple of examples that might help: Steve is a house painter. He runs a small business painting houses in the local area. From time to time when he has more work than he can handle, he pays a friend of his to help him on some jobs. His friend has an ABN and gives him an invoice. This year, in July 2013, Steve has to lodge a Taxable Payments report that lists all payments he has made to this friend. Tree Gum Builders are a large building company building spec homes. They employ many different types of subcontractors throughout the year. In July 2013, Tree Gum Builders will have to lodge a Taxable Payments report detailing all payments made to all subcontractors. Cassie has a small guest house, and this year she renovated several rooms and employed several different subcontractors. However, because Cassie doesn t earn any income from building and construction services she earns all her income from charging for accommodation she doesn t need to lodge a Taxable Payments report. If you re unsure whether your income counts as building and construction income or not, go to www.ato.gov.au and search for taxable payments reporting. Do I have to report all payments to subcontractors, including materials? You don t have to report for payments for materials only, such as building supplies and materials. However, if an invoice from a subcontractor includes both building supplies and materials, then you include the materials when you report on payments to this subcontractor. In other words, you report the whole value of the invoice, and you don t need to separate out the labour component. What you ll find in practice is that subcontractors very rarely send an invoice for materials only. In most situations, the only bills you ll get that are just for materials are usually from businesses such as hardware stores and timber yards. 4 Working With Taxable Payments using MYOB Software

Finding Out Whether Your Version of MYOB Can do the Job One of the first things you need to figure out before trying to generate your Taxable Payments report is whether the version of MYOB that you re using is up to the job. If you re using an older version, you will need to decide whether it s worth your while to upgrade, or whether you are going to complete this report using a more convoluted (and time-consuming) method. What version of MYOB do I require in order to get taxable payments reporting? Good question. The answer depends on what MYOB product you currently use. (Not sure? Go to the Help menu in MYOB, and select About MYOB. Here you ll see the name of the version that you re currently using.) If you re using MYOB AccountRight version 19 or earlier Taxable Payments reporting was introduced as part of AccountRight version 19.7. The same level of reporting is also included in version 19.8. (The only difference between versions 19.7 and 19.8 is that version 19.8 is able to run on Windows 8.) Sounds good, but sadly the Taxable Payments report in versions 19.7 and 19.8 report can t be lodged electronically with the Australian Taxation Office (ATO), meaning that you either have to handwrite the information onto the ATO s forms or re-key the information into the online portal. If you have more than a handful of subcontractors, this will be very time-consuming. However, Version 19.9 (released in June 2013), includes the ability to create an electronic file that you can lodge online. If you re using AccountRight 2013 or AccountRight Live 2013 If you re using AccountRight 2013, then you need version 2013.1 or later in order to generate Taxable Payments reports. (In other words, AccountRight 2011, 2012 and 2013.0 do not include this functionality.) Remember that AccountRight Live is a different product from MYOB LiveAccounts. (And if you re feeling confused, you re not the only one.) AccountRight Live 2013 is almost identical to the desktop edition of AccountRight 2013, but with the notable difference that you store your data online in the cloud. Be aware that there were a couple of issues with Taxable Payments reporting in the first release of AccountRight 2013 (version 2013.1), most notably that the report didn t include supplier ABNS. Working With Taxable Payments using MYOB Software 5

I can t afford to upgrade? Can I get Taxable Payments reporting any other way? You can, but the solution isn t elegant. (See I m still on an older version of MYOB. Do I need to upgrade? later in this document for the details of how to do this.) In brief, this kind of workaround is fine if you only have a handful of subcontractors to report for. However, if you have paid ten or more subcontractors over the course of the last 12 months, it s definitely going to be worth it to pay for an upgrade. Preparing MYOB for Taxable Reports In the next section of this document, it s assumed that you either have AccountRight 2013.1 or later, or AccountRight version 19.7 or later. If you have an earlier version of AccountRight, skip ahead to I m still on an older version of MYOB. Do I need to upgrade? for more details. Do I need to modify my preferences? If you re using AccountRight 2013, you do. If you re using AccountRight 19.7 or 19.8, you don t. To adjust this preference, go to your Preferences menu and click the Reports & Forms tab. Click the preference labelled I Report Taxable Payments Made to Subcontractors. How do I set up my subcontractors? The next step in preparing MYOB for taxable reporting is to complete all the relevant information for each subcontractor. Unless you do this, payments to this subcontractor won t appear on your Taxable Payments report, or the information you lodge with the Tax Office will be incomplete. Here s what you need to do: 1. Ensure that you have a card in MYOB for every subcontractor, with Supplier as the Card Type. (Not sure? Go to Cards in the Card File command Centre, and ensure you have a card for each subcontractor.) You can check the Card Type in the top-left corner. This step sounds really obvious, but sometimes newbies to MYOB record payments to people by entering transactions in Spend Money and completing the Payee field, but not creating a card. 2. Ensure you complete the ABN and phone number for every supplier. The instructions for completing the Taxable Payments report from the ATO specify that you need to list the name, ABN and phone number for each supplier, but they also say not to worry if you don t have the phone number to hand. It s not clear from the ATO s instructions whether missing phone numbers are a big deal or not. (However, missing ABN numbers are more a big deal skip ahead to What if I don t have an ABN for a subcontractor? for more details.) You record the phone number under the Profile tab, and the ABN under the Buying Details tab. 3. Still on the Buying Details tab for each supplier, tick the option to Report on Taxable Payments. Remember that you only need to report for subcontractors who are working in the building and construction industry. For example, you wouldn t need to generate a report for a bookkeeper that you employ on a subcontract basis, because bookkeeping work is of an administrative nature, and isn t on the list of building and construction activities. 6 Working With Taxable Payments using MYOB Software

What if I don t have an ABN for a subcontractor? First double-check recent invoices from this subcontractor if this subcontractor has an ABN, they should quote it on every invoice. No luck? Then phone the subcontractor and ask them if they have an ABN. If this subcontractor doesn t have an ABN, that s not great for you, because the law is that if someone works for you without an ABN, you re meant to deduct withholding tax at a rate of 46.5%. If you didn t withhold tax and you can t get hold of the subcontractor, then you need to complete the subcontractor s full name and address on the form, and simply leave the ABN blank. Of course, the Tax Office may well query this transaction with you later, especially if amounts were substantial, simply because you didn t withhold tax. What if I ve set up subcontractors with Employee as the Card Type? No worries. If you have a supplier that s set up as an employee, you can still report for payments to this person. First ensure the address details are complete. Then go to the Personal Details side menu under the Payroll Details tab and select Other as the Employment Basis. When you do this, you activate the Report on Taxable Payments checkbox which you can then select, along with the subcontractor s ABN. With these steps in place, this employee will appear on your Taxable Payments report in MYOB. I ve recorded heaps of subcontractor payments already without marking the supplier as taxable. Will MYOB adjust the report retrospectively? Yes, it will. As soon as you tick Report on Taxable Payments for a subcontractor, MYOB includes all payments made to this subcontractor in your Taxable Payments report. Payments. Do I have to do this? (This option currently appears in AccountRight 2013.1 but not in AccountRight version 19.7 or 19.8.) Not really. If you ve already ticked to report on taxable payments for a subcontractor, then when you go to record a purchase in AccountRight 2013, the Reportable Payment box is automatically ticked. However, if you haven t ticked this box in the past when recording a purchase, you still get an option to flag all payments to this subcontractor when you generate your final end-of-year report. Realistically, the only time this feature is really useful is if you sometimes receive bills from a subcontractor which are for materials only. In this instance, you would unclick the Reportable Payments box at the top of this bill. Working With Taxable Payments using MYOB Software 7

Generating Your Taxable Payments Report Assuming you ve set up your subcontractors (marking them for Reportable Payments, and completing ABN numbers and phone numbers), then you re ready to generate your Taxable Payments report. However, pause one moment. In order for this report to be correct, you need to be sure that your accounts in MYOB are relatively up to date and correct also. For example, if you haven t yet recorded all your transactions for June, then there s no point in generating your Taxable Payments report, as it will almost certainly be wrong. The best guarantee that the information will be relatively accurate is to ensure that all your bank accounts are reconciled up to June 30. With this in place, you can proceed with relative confidence. I use AccountRight 2013. How do I create my report? Easy. Follow these steps: 1. Go to the Purchases command centre and click the new Report Taxable Payments function. If you can t see something by this name then either you have an older version of MYOB of you haven t changed your preferences. Refer to What version of MYOB do I require? and Do I need to modify my preferences? earlier in this chapter for details. 2. Select your financial year and click Next. Unless you re reading this document a long time after it was written, this should be 2013. 3. Check your company details and click Next. If any of these details aren t correct, change them now. 4. Click Review Your Transactions. You ll see something similar to Figure 1 with all subcontractors listed. Browse down this list and see if it s making sense. If you think that some payments to a subcontractor could have been for materials only (rather than labour only, or a mix of labour and materials) click the arrow to the left of the Date. Review the bill in question and if it was for materials only, unclick the Reportable Payment checkbox at the top of the bill, below the supplier name. 5. Change the Transactions setting at the top to Not Reportable and click Update. The logic behind reviewing transactions that are Not Reportable is to double-check that you haven t missed any subcontractors. If you find a subcontractor listed here as Not Reportable, you can mark off their invoices at this point in the list and click Record. When you return to viewing Reportable transactions, these invoices will be included. 6. Click Record and then Next. 7. Click View Taxable Payments Report. You can click in the top-left of this report to print it or to save it as PDF. Either is definitely a good idea. Meanwhile, look through the report and see if it makes sense. 8. Minimise the report and click Create Taxable Payments File. 9. Navigate to a sensible location and click Save. The default location for this file is some typically obscure location that only a programmer could find. You re probably best to save this file to your desktop for the time being as it ll be easy to find this way. 10. Click Finish. You may have a feeling of completion, but you re not done yet. Skip ahead to How do I make sure my report is right? for more details. 8 Working With Taxable Payments using MYOB Software

Figure 1: Review your taxable payment transactions I use AccountRight version 19. How do I create my report? If you re using 19.7 or 19.8, then follow these steps: 1. Go to the Purchases command centre and click the new Print Taxable Payments function. If you can t see something by this name then you almost certainly have an older version of MYOB. Refer to What version of MYOB do I require? earlier in this chapter for details. 2. Select your financial year. Unless you re reading this document a long time after it was written, this should be 2013. 3. Check your company details. If anything needs fixing, click the white arrow to the left of your company name to change these details. 4. Click Next. You ll see something similar to Figure 2 with all subcontractors listed. 5. Check that every supplier has an ABN. If a supplier is missing an ABN, click the arrow to the left of the supplier s name to complete these details. 6. If you think it necessary, check what bills are listed for each supplier. If you think that some payments to a subcontractor could have been for materials only (rather than labour only, or a mix of labour and materials) click the arrow to the right of the Amount. Unclick any bills that were for materials only, then click OK. 7. Click in the left-hand column to place a tick against each subcontractor s name, and then click Print. At this point you can either print to your local printer, or if you have a PDF print driver, you can print to PDF and generate a soft copy instead Working With Taxable Payments using MYOB Software 9

Figure 2: Reviewing supplier ABNs and totals using AccountRight version 19 Note that neither version 19.7 nor 19.8 allow you to create a report that you can lodge direct with the ATO. Instead, you can only generate a report to use as a reference. However, in version 19.9, you simply click the Create a Taxable Payments report to generate a special electronic file that includes all the required information. You can then either send this report to your accountant or, if you have an AUSkey, lodge this report electronically. Why does my report show only the ABN for each subcontractor, and not the name, or only the name for each subcontractor, and not the ABN? Start by bemoaning computer programmers who follow instructions at the expense of any common sense. Unbelievably, the Taxable Payments report currently generated by AccountRight v19.7 and v19.8 only contains the subcontractor s or employee s ABN, and doesn t include the subcontractor or employee name. However, version 19.9 (the update that was released in June 2013) includes the subcontractor/employee name on the report. Similarly, one of the earlier releases of AccountRight 2013 included the subcontractor s name but not the ABN. The June release of AccountRight 2013 did fix this problem however. 10 Working With Taxable Payments using MYOB Software

I m still on an older version of MYOB. Do I need to upgrade in order to report for taxable payments? If you have AccountRight version 19.6 or earlier, or AccountRight 2013.0 or earlier, then you won t have the Taxable Payments reporting that comes with the MYOB upgrade. This means that reporting for taxable payments gets a whole lot trickier. Here s a workaround. It s not ideal, but it may help if you don t have many subcontractors to report for, and you can t afford an upgrade right now. 1. Go to Reports, click the Purchases tab and click the Supplier Purchases Summary report. 2. In the Suppliers drop menu at the top, select your subcontractors. 3. Click Customise and in the report filters, customise this report to only include Closed bills in the Purchase Status. (You only have to report for supplier bills you ve paid in full, so you don t include purchase orders or unpaid bills here.) 4. As the Date Range, select 1/7/12 to 30/6/13 and click Display. 5. This report will give you all payments made to suppliers for the period, and lists the GST amount and the total amount separately (which is important for your taxable payments report). 6. If you need to separate out invoices that are for materials only, you can click the Excel button to send this report to Excel. From here, you can delete the invoices that you don t need to include, and then recalculate the totals. Although this report looks fine at first glance, it unfortunately has a major problem in that it doesn t include any bills that you received before 30/6/2012 but paid after that date. For example, if you received a bill in mid-june 2012 and you only paid it in July 2012, then you re meant to include this bill in your taxable payments. However, this report only shows bills according to the date you received them, not the date you paid them. The only workaround here is to generate a Payables Reconciliation Summary report (found under the Purchases tab of your Reports menu) with 30/6/12 as the date. This report shows all creditors to whom you owed money at 30 June. If there are any subcontractors included in this report, and assuming that you ve since paid these bills (you should have, because by now they ll be at least one year old!) you should add these amounts to the amounts on the Supplier Purchases Summary report. Together, these figures combine to give you the totals required for your Taxable Payments report. What s the deadline for reporting these payments? If you lodge your BAS monthly, you must submit your Taxable Payments report by 21 July 2013. If you lodge your BAS quarterly, you must submit your Taxable Payments by 28 July 2013. Working With Taxable Payments using MYOB Software 11

Checking Your Report is Correct At the time of writing, the Tax Office haven t given much indication of how stringent they re going to be about auditing these reports and ensuring that they are correct. Certainly, it seems likely that the checks and balances for this report will be less strict than for employee payment summaries. Probably, the requirements will be clearer by this time next year, and we ll have the experience of knowing what queries the Tax Office raises, and how strict they are about missing information such as missing supplier ABNs or phone numbers. However in the meantime, it s good to ensure that the report you generate is as good as can be. Why does the total on my taxable payments report not balance with other reports? You can find totals of supplier bills in a few places in MYOB, including your Purchases Register, your Purchases Summary report, your Supplier Ledger report, and so on. However, almost all of these reports show supplier bills on an accruals basis, rather than a cash basis. In other words, these reports show supplier bills according to the date of the bill, rather than according to the date of the payment. In contrast, your Taxable Payments report shows this information on a cash basis, only including supplier bills that have been paid for the year that you select. Is there anything I can balance this report against to check it s correct? If you re a conscientious bookkeeper, you probably balance your employee payment summaries against your Payroll Register report and possibly even your Profit & Loss report. (For more about these procedures, see our ebook relating to Starting a New Payroll Year.) However, because you almost certainly allocate subcontractor payment to a cost of goods sold account or an expense account to which you also allocate other kinds of payments, this balancing routine gets a little trickier. The most pragmatic approach is probably to accept that you can t balance things perfectly for the year just gone, but you can set up your accounts to make this process possible for the years to come. To do this, create separate cost of goods sold or expense accounts specifically for reportable subcontractor payments. For example, in the past you may have had a cost of goods sold account called Building Materials and Subcontractors. What you could do now is create a new account and separate these two, so that you have one account called Building Materials and another called Subcontractor Expense. What this means is that in a year s time, when you come to do the Taxable Payments report for 2014, you will be able to do the following: 1. Generate a Profit & Loss report on a cash basis. Note down the total value of Subcontractor Expense in this report. (This shows the total amount paid to subcontractors before GST.) 2. Generate a Taxable Payments report for the year. Note down the total value of the Amount Paid column and deduct the total value of the Tax Paid column from this amount. 3. Check that the amount in Step 1 matches with the amount in Step 2. 12 Working With Taxable Payments using MYOB Software

with the ATO has all the correct info? First, ensure that you have AccountRight version 2013.2 (or later) or AccountRight version 19.9 (or later). These versions were released in June 2013 and included full taxable payment reporting. You can then log onto your ATO account (if you have an AUSkey) or ask your accountant to log onto your account via the Tax Portal and follow the prompts to submit this file electronically. When you work in this way, the ATO will confirm that the file you re submitting is in the correct format. Working With Taxable Payments using MYOB Software 13

Other Publications All titles are available from www.veechicurtis.com.au MYOB Software for Dummies -the Simple MYOB Guide for Everyone MYOB Software For Dummies provides you with a jargon-free, plain English guide that explains how to use MYOB for beginners. Now in its seventh edition, MYOB Software for Dummies has sold over 60,000 copies in Australia alone, and covers all new software versions. Click here to view sample chapters, table of contents and other details. Making the Most of MYOB AccountRight -- The Comprehensive MYOB Guide Making the Most of MYOB AccountRight was the first MYOB book published in Australia and has sold over 75,000 copies. Beginning with the basics and building to more advanced topics, this MYOB bible takes a question-and-answer approach, providing concise solutions to over 600 of the most commonly asked questions. The ninth edition covers all new software versions. Click here to view sample chapters, table of contents and other details. Bookkeeping For Dummies the Comprehensive Guide Bookkeeping for Dummies provides a step-by-step bookkeeping health check, defining all of the common jargon for both the bookkeeping novice and the seasoned expert. This book teaches you how to build your own list of accounts and create systems for calculating employee payroll, superannuation and employee leave. Bookkeeping for Dummies provides an expert guide to determining business profitability and growth as well as lots of tips for non-profit organisations. The answer to all of your bookkeeping questions... Small Business For Dummies and Business Plans For Dummies Providing the perfect companion to our MYOB books are the titles Small Business For Dummies and Business Plans For Dummies. Now in its second edition, the popular Small Business for Dummies is packed with information about starting and growing a business in Australia, making the essential pocket-companion for any small business person. With Business Plans For Dummies, you discover how to create a blueprint for growth and profits, differentiate your business from the competition, create financial projections, be a great manager and last but not least, expand your business. 14 Working With Taxable Payments using MYOB Software