Thinking of starting your own tax consulting business? You could be offering a valuable service to others! Taxes are a necessary part of existing in modern society. Although, it’s not exactly the greatest part of it – taxes are usually that dreaded task many people like to put off as long as they can. However, taxes often play a significant role in one’s financial situation, so it’s important to have a clear understanding of how they work. 

Those who have considerable expertise, skills and experience when it comes to knowing a thing or two about taxes are often sought out for their advice. If this is you and you’ve always liked the idea of starting your own tax consulting business, then you may be on the right path. 

Before you kick start your tax consulting business though, it’s important to understand the legal aspects of starting and running a tax consulting business. That way, you’ll be protected while you help your clients – keep reading to learn more. 

What Do Tax Consultants Do?  

There’s actually no official definition of what a tax consultant actually does. The exact services offered by tax consultants might differ based on the individual tax consultant. Overall however, tax consultants are known to offer advice based on their clients taxes, help their clients better understand their financial situation and come up with strategies related to their financial well being. 

What Is The Difference Between A Tax Consultant And A Tax Agent?

A tax agent can be an individual or a business. Tax agents are considered to be different from tax consultants, as they are the ones who not only provide taxation advice however, they can lodge tax returns and represent their clients to the Australian Taxation Office (ATO). In order to complete these tasks, a tax agent needs to be properly qualified and registered according to Australian standards. 

The terms tax agent and tax consultant can sometimes get confused with one another. However, understanding their distinction is important. A tax agent is able to act as a tax consultant. However, if a tax consultant doesn’t have the credentials of a tax agent, then their tasks are going to be limited. 

It’s important to properly understand all the necessary distinctions and their different requirements, then act accordingly. This way, you can avoid being in breach of regulations.  

What Is A Tax Consulting Business?

A tax consulting business is an organisation that provides tax advice. If your tax consulting business wants to go beyond providing advice and complete other tax related tasks, let’s say that of a tax agent (as we discussed above) then it’s important to have the registration and qualifications of a tax agent. 

It’s fine if you’re not interested in doing tax agent tasks in your tax consultancy business. However, it’s imperative you understand what your limitations and possibilities are as a tax consultant and work within that framework. 

If you’re confused about what you can and can’t do as a tax consultant, then your best bet is to talk to a Regulatory Compliance Expert. They will be able to better explain what laws impact your industry and you’ll be able to walk away with a much clearer understanding of your responsibilities. 

Do I Need An ABN To Start My Tax Consultancy? 

Once you’ve figured out important matters like what services your tax consulting business will offer, you’re ready to begin the process of registering your business.  

All Australian businesses are required to have an Australian Business Number (ABN). An ABN is pretty easy to attain. You just need to go online, fill out the relevant information and wait for your application to be processed. Once that’s done, it shouldn’t take long for you to receive your ABN. 

Your next steps will depend on the kind of legal structure you want your tax consulting business to have. There’s three common types of business structures in Australia: Sole traders, partnerships and companies. 

Sole traders and partners simply need to attain an ABN. If you’re a sole trader or a partner and want a business name that’s different to your personal one, then you will need to Register A Business Name. Partners also need to work out the details of their partnership, such as profit share, management rules and partnership termination. It’s best to have everything you’ve agreed on written down in one document, like a Partnership Agreement. After that, you’re all set to go. 

As quick and easy as registering a sole trader or partnership business may be, it does have a pretty considerable downside. A partnership or sole trader structure offers very limited legal protection as the business has no legal separation from you personally. Therefore, all the business’s liabilities, debts, court matters and anything else will impact you personally. 

We always recommend having some kind of legal separation from your business, as this can better protect you. For serious tax consulting businesses, a company structure is highly recommended. 

How Do I Register My Tax Consulting Business As A Company? 

Setting up a company is more expensive and complicated. However, once the company is set up, it is to be considered a legal entity on its own. This means, the company is able to do things like have court matters to its name, incur debts, earn a profit or buy property. 

A company structure offers far more legal protection. As the company is separate from you, your personal liability is limited. Moreover, if you have plans to grow your tax consulting business in the future, then having a company structure set up from the start puts you in a great position for this. 

To register your company, you need to work out matters like who the directors and shareholders will be and submit an application with ASIC where you’ll get an Australian Company Number (ACN) – you’ll still need to have an ABN though. Companies also have ongoing obligations with ASIC, such as annual reporting. You’ll likely need the help of a legal expert when setting up a company – ours are happy to help out. 

To learn more about the process of setting up a company, read our article Steps To Incorporate Your Small Business In Australia

Do I Need Any Legal Documents For My Tax Consulting Business?

Yes, you’ll need legal documents for your tax consulting business. Having the right legal agreements in place can help protect your business by limiting your liabilities, establishing strong boundaries, securing your revenue streams and much more! 

A few legal agreements to consider are: 

Consultancy Agreement: It’s important to have a contract with your clients covering matters like scope of work, obligations, key dates, payment and termination. Having a well drafted consultancy agreement in place can ensure both parties know what to expect from one another. 

Privacy Policy: If you’re going to be collecting information from your business website’s users, then it’s necessary to have a privacy policy visible on your website. A privacy policy lets others know what is being done with their data – it’s their legal right to know this and your responsibility to comply.  

Website Terms and Conditions: Along with a privacy policy, you should consider having terms and conditions on your website.  Terms and conditions can help protect your website, as there’s a lot of risks online. A Web T&C’s can help limit your liability and establish controls, making it much easier to  navigate the online world of business. 

Employment Agreement: If you plan on hiring employees, you should have a legal agreement in place with them. It’s important for both parties to establish their rules and expectations so the relationship can be off to a good start, which is always better for the business. 

What Other Legal Obligations Do I Need To Be Aware Of? 

Running your tax consulting business means being legally compliant with all the relevant rules and regulations that will apply. This is an important factor when it comes to being a business owner as failing to comply with regulations can lead to legal penalties and even a loss to your business’s good reputation. It’s best to avoid this situation altogether and be prepared by knowing what laws impact your business. 

A few legal obligations to consider are: 

Australian Consumer Law (ACL)

Along with industry specific regulations, basic consumer law principles are still going to apply to your business. As the provider of a service, it’s important your business is fair, transparent and honest. Additionally, as a small business you also have certain protections under the ACL. It’s best to get familiar with the ACL so you can be informed every step of the way. 

Data and Privacy 

As well as having a privacy policy (see above), there’s other data and privacy regulations you will need to adhere to. As a tax consultancy business, there’s a good chance you will be storing the private information of individuals or organisations in your systems. Taking reasonable measures to ensure the information is secured is part of your legal duty towards your clients, so look into being prepared with things like a Data Breach Response Plan

Financial Service Provider Regulations 

Depending on the services your tax consulting business offers, you may qualify as a financial service provider. If that’s the case, then there’s a number of regulations you’ll need to follow that vary from other business types, as financial services are regulated pretty strictly. While financial service regulations isn’t something we specifically help with at Sprintlaw, it’s still a good idea to do your due diligence before opening up your tax consultancy business.

Next steps 

Starting a tax consulting business is an exciting way for you to share your knowledge with future potential clients. However, before you jump into helping others with their tax issues, it’s important to protect your business with the correct legal considerations. 

To summarise what we’ve discussed: 

  • Tax consulting businesses offer valuable advice on taxes and financial well-being to their clients
  • Tax consultants and tax agents have different roles and qualifications
  • Australian businesses need to have an Australian Business Number (ABN)
  • Different legal structures for businesses include sole traders, partnerships, and companies
  • Sole trader and partnership structures are easy to set up however, they don’t offer much legal protection
  • Companies offer more legal protection, but they are more complex to set up
  • Legal documents, such as consultancy agreements and privacy policies, are essential for the business
  • Understand the legal obligations relevant to your business to avoid legal penalties
  • Tax consultants may need to follow strict financial service regulations
  • Basic consumer law principles apply to tax consulting businesses
  • Data and privacy regulations require securing client information
  • Protecting your business with proper legal considerations is essential before starting a tax consulting business

If you would like a consultation on starting a tax consulting business, you can reach us at 1800 730 617 or for a free, no-obligations chat.

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