28TH JULY, 2020
As the ATO begins knocking on the doors of SMEs and sole traders with queries about their JobKeeper eligibility, quality record keeping is proving to be critical when asked to substantiate a claim.
Just like with most tax related matters, businesses and sole traders looking to claim JobKeeper payments are expected to self-assess their eligibility before applying.
In most cases, payments are automatically made to the applicant, but they are subject to reviews and audits by the ATO, even after the money has been paid out. In fact, according ABC News, the ATO has allocated some 3,000 staff to conduct ‘compliance reviews’, and has already rejected more than 6,500 applications as a result of ineligibility or fraud.
The ATO has also sent out letters to 8,000 businesses with warnings that they may have to repay their JobKeeper stipends due to being unable to adequately demonstrate their eligibility upon review.
If COVID-19 has shown us anything, it’s that SMEs are very vulnerable when they don’t have access to cash, and JobKeeper has single handedly kept the doors of thousands of Australian businesses with weak balance sheets open.
For many businesses, being forced to repay these funds will send them into duress and fast track their downfall. But just because you believe that your business is eligible, there’s no guarantee that the ATO will agree, which highlights the importance of doing everything possible to present a strong case of eligibility in the event of an ATO audit.
Three areas to focus when preparing for a JobKeeper audit
There are three key components to accessing JobKeeper:
- Being an eligible entity/business
- Claiming for eligible staff
- Making a valid and correct claim
Each of these components are being scrutinised by ATO representatives conducting compliance reviews, and here are some ways to increase the quality of record keeping for all three of them, so that if the ATO comes knocking, your business can be ‘review-ready’.
1. Are you using reliable accounting software?
Being eligible to receive JobKeeper payments comes down to whether a business has seen a 30 percent drop in revenue in comparison to the same period 12 months earlier.
Given the high number of tip-offs about system-rorting that the tax watchdog has received, it has been asking businesses to present older versions of their accounts to see whether any deliberate manipulation has taken place.
For those sole traders and SMEs that use excel spreadsheets and basic filing systems to track their finances, being able to present defensible versions of old accounts can be very challenging and may not be sufficient for the ATO in the event of a review.
If you haven’t been doing so already, make sure to use an accounting software system that tracks your every move.
Using a system that has been specifically revamped to include JobKeeper-related functionality (like MYOB Essentials or AccountRight) is certainly the gold standard and will make it easier for you to maintain compliance and prove eligibility to the ATO.
2. Make sure all recipients are accounted for
For those businesses claiming JobKeeper payments for their employees, part of the due-diligence that the ATO expects is that all employees are accounted for. In the event that a business needs to exclude an employee from its JobKeeper claim, records need to be kept explaining why they’ve been excluded.
Failing to include all eligible employees in a JobKeeper application renders the business ineligible to receive payment.
If the ATO conducts a JobKeeper review on your business, providing records that were created retrospectively will never look as good as those that were prepared as each claim was being made.
So, as part of your process of claiming JobKeeper, make sure that adequate and up-to-date documentation is being kept on all employees regarding their employment and eligibility for JobKeeper.
3. Retain advice and outsource if you need to
When it comes to matters that relate to the tax system or the ATO, it never pays to do things whimsically or without proper process and due-diligence.
It may come at an extra cost but retaining advice from a registered tax agent on your business’s eligibility, the quality of its record keeping and everything in between, is the safest way to go about claiming JobKeeper payments.
Relying on the advice of an accredited tax practitioner (and outsourcing record keeping processes to them) will allow you to rest assured that valid claims are being made each fortnight, record keeping and reporting process are at the highest of standards, subsequently removing panic from an ATO-administered JobKeeper compliance review.