Xero for Trades Businesses in Mornington Peninsula: The Setup Guide

The Problem with Most Trades Xero Files

Most tradespeople in Mornington Peninsula either set up Xero themselves, had their accountant do a bare-minimum setup, or inherited a file from the previous owner. The result is usually the same: bank feeds years behind, GST codes applied at random, and a P&L that shows nothing useful.

Xero is genuinely excellent software for a trades business, but only when it's set up correctly. This guide covers what that looks like.

Choosing the Right Xero Plan

For most active trades businesses in Mornington Peninsula, Xero Standard ($70/month) is the right starting point. Here's why Starter ($35/month) usually isn't enough:

• Starter limits you to 20 invoices and 5 bills per month, a single busy week on site will blow through that
• Standard includes unlimited invoices, bills, bank reconciliation, and payroll for your team
• Premium ($115/month) adds multi-currency, only relevant if you're importing materials internationally

Chart of Accounts for a Trades Business

The default Xero chart of accounts is built for a generic business. A trades business needs it restructured. At minimum, you need:

• Revenue: Labour (main trade), Materials on-sold, Call-out fees, Emergency work, separate income lines let you see your margin by job type
• Cost of Sales: Materials purchased, Subcontractor labour, these sit above gross profit so you can see your true job margin
• Vehicles: Fuel, registration, insurance, repairs, separate from general expenses
• Tools & Equipment: Under $300 expensed immediately (instant asset write-off); over $300 depreciated, your accountant will thank you for separating these
• Subcontractor Payments: Separate from employee wages, critical for BAS accuracy and PAYG reporting

Job Management: Xero + an Integration

Xero's native job tracking (Xero Projects) works for simple hourly billing. For a trades business quoting, scheduling, and tracking materials per job, you need a dedicated job management platform connected to Xero:

• ServiceM8, popular with small trade operators (plumbers, electricians under 5 staff). Quotes, scheduling, job cards, and invoices push straight to Xero
• Fergus, widely used by Mornington Peninsula plumbing and electrical businesses. Stronger job costing and reporting than ServiceM8
• Tradify, simple interface, good for sole traders and small teams. Integrates cleanly with Xero

The integration means your job invoices and material purchases flow directly into Xero, no double entry, no manual exports, no transactions lost between systems.

Handling Subcontractors Correctly

This is where a lot of Mornington Peninsula trades businesses create problems. Subcontractor payments must be handled correctly in both Xero and your BAS:

• Create a supplier contact for each subcontractor in Xero with their ABN
• Record their invoice as a bill, this creates a clear paper trail
• Pay via bank transfer and reconcile in Xero to the bill
• If a subcontractor cannot provide an ABN, you are legally required to withhold 47% of their payment, this is "no-ABN withholding" and must be reported on your BAS (W4 field)

Getting this wrong can mean underpaying your BAS, which triggers ATO scrutiny and potential audit. A qualified bookkeeper ensures every subcontractor payment is categorised and reported correctly.

GST Coding for Trades

Every transaction in Xero needs the right GST code. For a trades business, the most common codes are:

• GST (10%), labour charged to clients, materials sold to clients, most supplier invoices
• BAS Excluded, wages (PAYG handled separately via STP), bank fees, ATO payments, owner drawings
• GST Free, rare for trades, but includes some insurance and export services
• Input Taxed, bank interest received (uncommon for most trades)

If you've been coding bank fees as GST (10%), you've been claiming GST credits you're not entitled to, and your BAS is understating what you owe. This is fixable, but the longer it goes on, the bigger the correction.

Getting BAS-Ready: What We Check Before Lodgement

Every quarter, before lodging your BAS, your bookkeeper runs through:

• All transactions reconciled (no gaps in the bank feed)
• GST codes reviewed, particularly for large or unusual transactions
• Subcontractor payments checked for ABN status
• PAYG withholding matched to actual wages paid
• Fuel tax credits calculated if applicable (common for trades with fleet vehicles)

For a Mornington Peninsula trades business turning over $500k+, a well-maintained Xero file takes about 2–3 hours to prepare a BAS from. A messy file takes 6–8 hours, at $200+/hr if your accountant is doing it, that's the difference between a $400 and $1,600 BAS bill.