Important dates and tips to help small businesses prepare for end of financial year

Using intuitive accounting software and cloud storage options like Google Drive or Dropbox – along with tenancy management software such as myRent.co.nz can help save businesses time.

For small businesses such as restaurants and retailers it is crucial to track stock levels as the closing date of the financial year draws near.

If you go to your accountant and can’t remember the levels of your stocks from the last few months and you’re having trouble remembering, it’s a problem.

A good reminder for smaller entrepreneurs is that an increase in the immediate asset write-off period during COVID-19, from $500 to $5,000 – is being scaled back to $1,000 beginning 17 March 2021.

That’s a change that will have a big impact on small-scale enterprises.

Three important changes to 2021

Below are other important tax-related reforms that took place recently or are in the works for 2021.

1. Do not forget that the minimum wage will rise by $1.10, taking it to $18.90 to $20 per hour from April 1 2021. This could potentially affect your financial records and superannuation payment.
2. A new 39% personal tax rate will apply on income above $180,000. The new rate will take effect from April 1, 2021. Tachibana believes this is likely to affect those who earn a living from personal service, instead of those who own investment accounts and are able to earn capital gains.
3. It is important to be aware of the ACC Earners’ levy, that covers the cost associated with employee injuries, will remain at their current levels until 2022, to help companies deal with the financial strains of COVID-19. As of January 20, 2021 the levy sits at $1.39 each $100 (1.39%).

The fundamental elements of EOFY success

Here are some helpful guidelines and dates from professionals which small-business owners might wish to consider when getting their house organized for tax season.

1. Finalise your accounts

• Examine and approve your bills, invoices and expense claims.
• Review accounts with a late payment and outstanding transactions to get an overview of the entire year.
• Review the debtors’ accounts as of 31 March. You may also consider writing off any bad debts so that they can be counted as an expense at the end of the year.
• List suppliers or clients who’ve paid you invoices on the 31st of March or earlier but aren’t due until the end of April. You might want to consider treating these costs as 2020-21 expenses.

2. Make sure you reconcile and clean up your files

• Bank statements should be consolidated, tax year-end statements, records, plus sales, expense, and purchase records.
• Check your bank accounts to ensure they are reconciled and make sure they are in balance with the amounts on your bank statements.
• Make a profit and loss statement in order to determine the amount of annual revenue your business has earned.

3. Check the data you received from your payroll company and Inland Revenue

• Examine the data obtained during EOFY to review the current financial position of your business.
• Ask your payroll vendor to submit EOFY data as early as possible so that it can be analyzed.
• Access to Inland Revenue information, including PAYE tax obligations and KiwiSaver obligations for employees.

4. Superannuation management

• Make sure you are aware of your employer’s superannuation contribution tax (ESCT) rates*, with the rate different for each employee depending on their salary and length of service.
• Filing electronically, as required in the event that your business pays more than $50,000 per year in ESCT tax and PAYE tax.

*For KiwiSaver businesses, they need to pay ESCT on employee contributions up to 3% but not on contributions deducted from the employee’s wages.

5. Maximise your tax refunds

• Log expenses and asset purchases in the course of the year, and expenses for improvements or maintenance for claiming any refunds from EOFY.
• You should consider disposing of old stock because provisions for the disposal of obsolete stock or stock write-downs are not typically tax-deductible.
• Make sure to make payments within 63 days of 31 March to obtain an employee-related expense deduction such as holiday pay, bonuses and long-service leaves.
• If your income is substantially greater than the previous year, consider making an additional tax provisional payment to align your tax payments with your earnings.

6. Maintain personal and financial finances Separately

It is not common to get tax deductions for personal expenditure; only business expenses. However, you may be racking up unnecessary compliance costs in the event that your accountant needs to split up what’s tax deductible and what’s not.

Tax dates for 2021 are important.

• 9 Feb 2021 2021 – 2020 tax year due for those who don’t have a tax representative.
• 1 March 2021 GST return and due by the end of January for businesses filing every two months.
• The deadline for filing is 31 March - 2020 income tax return due for tax professionals (with an extended the deadline).
• 1. April, 2021 the start of the new financial year starts from New Zealand.
• 7 May 2021 - final proviso tax instalment due for the fiscal year 2020 and the last opportunity to make voluntary tax payments.
• 7 May 2021 GST tax return at the end of the year and due payment.

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