The new GST hike will kick in by January 2023 – and it is vital that your business is prepared to handle this change. Failure to comply or delaying your preparation might result in devastating financial losses that could have easily been avoided. IRAS, for example, may fine businesses up to $10,000 and a penalty of 10% of the tax due for businesses that are late or failed to register for GST. It’s essential therefore to understand the key steps you need to take to ensure you don’t unknowingly run foul of the law. Here’s how:
1. Have a clear understanding of whether you need to register for GST or not
In summary, all companies with a turnover that exceeds $1 million (or are expecting more than $1 million in the next 12 months) must apply to become a GST-registered company. Failure to do so would result in unexpected expenses. For instance, if a company does not register for GST on time, you will be expected to pay GST on the date you should have paid GST. On that of that, you’re expected to pay GST on behalf of your customers even if you didn’t collect any from them!
This could be financially devastating, especially for small businesses that do not necessarily have a buffer to absorb all these costs. It’s understandable that business owners get overwhelmed, and there is real concern that details such as these are missed. As such, having a good accountant to have your back is a blessing and an asset in helping you avoid such issues.
2. What goods and services are actually taxable?
Zero-rated? Standard-rated? Exempt? What does this all mean and how can you know which category your company comes under?
Standard-rated supplies are the ones that are GST chargeable at 8%. Zero-rated supplies on the other hand incur no GST. As such, if you’re a GST-registered company, you’ll charge 0% GST on your supplies – but you can claim GST paid on your purchases to make those supplies. This usually applies to the export of goods and international services.
Exempt supplies also incur no GST. The company will not charge any GST on exempt supplies, and, unlike a Zero-rated supply, they also cannot claim GST incurred on goods or services used in the process of making these exempt supplies. Such services usually include the sale and lease of residential properties, investments in precious metals, and so on.
Fair warning though – incorrect reporting could have a dire impact on your business. For example, incorrectly reporting your supply as zero-rated instead of standard-rated will mean you still need to pay IRAS the tax, but you’re not able to claim the GST from your customer.
3. Hire an accountant to help facilitate a smooth transition to the new GST rate
Running a business is hard enough without having to take care of the details needed to ensure you’re in compliance with statutory requirements. We are already aware that failure to accurately account for GST supplies at the correct rate leads to massive fines and unexpected penalties. Thus, instead of stressing out about these details, why not hire an expert to deal with all of this?
Tax liability and penalties put a serious dent in your finances, but a good accountant knows all the ins and outs of businesses and is able to take the necessary steps and actions to avoid a financial disaster. For instance, your accountant will be able to help you with record-keeping compliance and oversee the transition as you move toward implementing the new GST rate.
In summary, with the new GST rate looming round the corner, it’s time to update your systems to incorporate the new GST rate including accounting and invoicing, receipting and more. To ensure you stay on top of this new transitional period, it is valuable to consider seeking advice and assistance from your accountant to ensure you have considered all processes, ensuring a successful transition.
Find out how you too can remove the stress of managing your business today. Give us a call now.