Important dates and advice to help small businesses get ready for end of financial year

The use of intuitive accounting software and cloud storage options like Google Drive or Dropbox – in addition to tenancy administration software like myRent.co.nz can help save businesses time.

Smaller companies, like restaurants and retailers it is crucial to monitor stock levels when the time for the end of the fiscal year approaches.

If you visit your accountant and are unable to remember the levels of your stocks from the last few months this can lead to problems.

A great reminder for small entrepreneurs is that an increase in the immediate asset write-off period during COVID-19, from $500 to $5,000 – is set to be lowered back to $1,000 starting 17 March 2021.

This change will be a major impact on small-scale companies.

Three significant changes are coming in 2021.

Here are some additional important tax-related reforms which have occurred recently or are on the agenda for 2021.

1. Don’t forget that the minimum wage will rise by $1.10, taking it between $18.90 to $20 per hour starting on April 1 2021. This could potentially affect your financial records as well as superannuation payments.
2. A new 39% personal tax rate will be applied on income above $180,000. The new rate will apply starting on April 1st, 2021. Tachibana states that it is more likely to impact those who make a living from providing personal services, as opposed to those who have investments and earn capital gains.
3. Be aware that the ACC Earners’ levy, that covers the cost of injuries suffered by employees will be kept at their current levels until 2022, to help businesses cope the financial burdens of COVID-19. At the time of January 2021 the levy was $1.39 for every $100 (1.39 percent).

The essential elements to EOFY achievement

Here are some key information and dates from experts that small business owners might want to keep in mind as they get their home up and running for tax time.

1. Finalise your accounts

• Make sure you approve the bills, invoices and expense claims.
• Monitor accounts that are due and outstanding transactions to get a view of the entire year.
• Examine debtors at the time of 31 March. You may also consider writing off any bad debts so they are considered an end-of-year deduction.
• List suppliers or clients who’ve invoiced you by 31 March or earlier but aren’t paid until after April. You might want to consider treating these costs as 2020-21 costs.

2. Make sure you reconcile and clean up your records

• Bank statements should be consolidated, year-end income tax documents, as well as sales, purchase and expense records.
• Reconcile your bank accounts , and ensure that the balances are the same on your bank statements.
• Make a profit and loss statement in order to determine the amount of profits your company made annually.

3. Re-read the information you receive from your payroll vendor and Inland Revenue

• Examine the data taken during EOFY to determine the financial situation of your business.
• Contact your payroll provider to send EOFY details as early as possible to allow it to be analysed.
• Access to Inland Revenue information, including PAYE tax obligations as well as any KiwiSaver obligation for workers.

4. Superannuation management

• Check your employer’s superannuation contributions tax (ESCT) rates*, with the rates differing for each employee based on their earnings and length of their tenure.
• You must file electronically, in accordance with the mandate by law, if your company pays more than $50,000 per year in tax on PAYE and ESCT.

*For KiwiSaver, businesses need to pay ESCT for compulsory employers’ contributions of 3 percent, but not on contributions taken from wage payments to employees.

5. Maximise your tax refunds

• Keep track of all expenditures and asset purchases during the year, along with expenditure on improvements or upkeep in order to claim any refunds from EOFY.
• Think about disposing of stock that is no longer needed, as provisions for obsolete stock or stock write-downs aren’t typically allowed as tax deductions.
• You should consider making your payments within 63 days after 31 March to obtain an employee-related expense deduction such as holiday pay, bonuses and long-service leaves.
• If your income is substantially higher than last year, you might want to make an additional voluntary provisional tax payment to align your tax payments to your income.

6. Separate personal and business finances separated

You generally don’t get tax deductions on personal expenses. If only business expenses, you could add unnecessary compliance charges if your accountant has to split up what’s tax deductible and the rest of it.

Tax dates for 2021 are important.

• 9 Feb 2021 2021 – 2020 tax year due for taxpayers who don’t have a tax advisor.
• 1 March 2021 GST return and tax due at the end of January for those who file their GST returns every two months.
• 31 March 2021 - 2020 income tax return due for clients of tax professionals (with an effective extension of the deadline).
• 1 April 2021 The new fiscal year starts in New Zealand.
• 7 May 2021 Final provisional tax instalment due for the financial year 2020 and last chance to make voluntary tax payments.
• 7 May 2021 - end-of-year GST return and payment due.

NOTE: Some dates may vary from the official deadline, for instance when the due date occurs on a weekend, or a public holiday.