Accounting support built for consultants & service firms.

In practice

The issues that actually decide a consultant's tax position

Personal services income is the one most consultants have never heard of until it matters. Where income is mainly a reward for one person's personal efforts or skills, specific rules can apply that limit which deductions are available and can attribute the income back to that individual, regardless of whether a company or trust sits in between. Several tests determine whether the rules apply — including whether at least 75% of income in a year comes from producing a result with your own equipment, and whether no single client accounts for 80% or more of that income. Getting this wrong does not usually surface at the time; it surfaces on review, with the structure already in place.

Structure is the second. A company or trust can be the right answer, but it brings obligations that a sole trader does not have — ASIC requirements, separate returns, and a hard rule about taking money out. Division 7A means a loan or payment from your own company to you is not simply a withdrawal; without a complying loan agreement and minimum repayments it can be treated as an unfranked dividend. This is the most common unpleasant surprise we see in owner-managed professional firms.

The third is timing. Professional services bill in arrears, often well after the work. Work in progress and unbilled time are real value that never appears in the bank, and a practice can look busy, be profitable, and still be short of cash because the lag between doing the work and being paid for it keeps stretching. Prepaid subscriptions, professional indemnity premiums and practising certificates add their own timing questions.