Data released last year by the Inspector-General of Taxation showed that small businesses, which includes sole traders, consistently accounted for over 60% of debt owning to the Australian Taxation Office (ATO).
In dollar terms, that’s AU$21 billion of the total AU$34 billion that was owing to the ATO by the end financial year 2020.
However, founders of a New Zealand-based software firm, James and Claire Fuller, have developed a platform called Hnry to help sole traders automatically calculate, deduct, and pay their income tax, goods and services tax, Medicare, and student loan, once they receive a payment.
The business was established in 2017, before it launched in Australia in 2020.
Speaking with ZDNet, Karan Anand, head of Hnry Australia, explained the application has been designed to help sole traders, such as tradies and creative freelancers, take the guesswork out of financial administration, while also ensuring the ATO — and its New Zealand equivalent, Inland Revenue Department (IRD) — are receiving the tax that is owed.
“Ultimately, the ATO is getting the money earlier rather than waiting for a lump sum payment at the end because we’re paying income tax and GST automatically. We process across Australia and New Zealand now more than half a billion dollars in payments a year, so it’s suffice to say that we’ve paid tens and millions of dollars in tax to the ATO and IRD, which is just better for the government,” he said.
Hnry works by setting users up with a new Hnry bank account provided by either the National Australia Bank or Cuscal in Australia, or ASB Bank, a Commonwealth Bank of Australia subsidiary in New Zealand. Once it’s set up, Hnry will automatically deduct the taxable amount before the post-tax amount is paid to a user’s personal bank account, for a total cost of 1% plus GST of the gross income amount. Fees are capped at AU$1,500 a year.
“That happens in an automated fashion as soon as you get every payment in,” Anand said.
He added that the system in the backend relies on evolving algorithms to calculate the amount of tax owing based on a person’s income pattern.
“Thankfully for us, the tax rates are quite clear — the tax rates charged to ABN sole traders are the same charged to individuals, and we know what tax rates to base you on based on the income forecast you give us. If you’ve got salary income, we ask for that as well.
“Then what the system does is it takes your income pattern every time you get paid and re-forecast your income on an annualised basis, and then correctly attributes the right amount of tax that needs to be taken out. You can imagine with our dataset after thousands of customers now having done this for years, we’re constantly evolving the algorithm. But thankfully, it’s not rocket science in the sense the tax thresholds are quite clear.”
Other services wrapped into the platform, include allowing users to create quotes, invoices, upload business expenses, access reports. Plus, Hnry will also lodge income tax returns when they’re due at the end of the financial year.
“We are also your tax agents,” Anand said. “If you’ve got questions on optimising deductions or questions from a tax perspective, we’re always there to help. We’re kind of part payment, part accounting software, and part accountants.”
Five years since its establishment, the company has grown to more than 10,000 customers and a total headcount of 40. It now has more plans for expansion though after raising AU$15 million in a funding round led by New York-based venture capital firm Left Lane Capital.
“We’ve got one and a half million sole traders in Australia and about 400,000 to 500,000 in New Zealand, and we’ve only hit the tip of the iceberg here,” Anand said. He outlined the plan will include doubling the business headcount and exploring expanding into other markets, which he says will be a “very thoughtful” process of where to go next.