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

Utilizing intuitive accounting software as well as cloud storage like Google Drive or Dropbox – as well as tenancy management software like myRent.co.nz can help save businesses time.

Smaller businesses, such as restaurants or retail stores, it’s especially important to keep track of stock levels as the close of the financial year draws near.

If you go to your accountant, and you are unable to recall your stock levels from just a few months ago, that creates difficulties.

A good reminder for small business owners is that a temporary increase of the asset write-off in an instant during COVID-19, from $500 to $5,000 – is set to be lowered back to $1,000 starting 17 March 2021.

It’s a change that could affect a lot of small-scale companies.

3 significant changes for 2021

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

1. Remember that the minimum wage is set to increase by $1.10, taking it between $18.90 to $20 an hour from April 1 2021. It could affect your financial records as well as superannuation benefits.
2. A new personal tax rate will apply to incomes of more than $180,000. The new tax rate is effective from April 1, 2021. Tachibana claims that this is more likely to impact those who make a living by providing personal services instead of those who own an investment and enjoy capital gains.
3. Be aware that the ACC Earners’ levy, that covers the cost associated with employee injuries, will remain at its their current levels until 2022, to help businesses deal with the financial strains of COVID-19. In January 2021, the levy stood at $1.39 each $100 (1.39%).

The fundamental elements of EOFY achievement

Here are some important guidelines and dates from professionals which small-business owners might be able to remember while putting their home up and running for tax time.

1. Finalise your accounts

• Review and approve your invoices, bills and expense claims.
• Follow up overdue accounts and outstanding transactions to get an overview of the entire year.
• Review the debtors’ accounts as of 31 March. Consider the possibility of writing off any bad debts in order to make them an annual deduction at the end of the year.
• Note clients or suppliers who been invoiced on or before 31 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. Clean up and reconcile your files

• Bank statements should be consolidated, tax year-end statements, records, sales, expense and purchase records.
• Check your bank accounts to ensure they are reconciled and check they match the balances on your bank statements.
• Create a profit and loss account to calculate the annual profits your business earned.

3. Review data from your payroll provider and Inland Revenue

• Review the information you have that you have collected during EOFY to determine the current financial position of your business.
• Contact your payroll provider to provide EOFY data as soon as you can so it can be analysed.
• Access to Inland Revenue records, which include PAYE tax obligations as well as any KiwiSaver obligations for employees.

4. Superannuation management

• Make sure you are aware of your employer’s superannuation contribution tax (ESCT) rates*, with the rates differing for each employee based on their salary and the length of service.
• File electronically, as mandated in the event that your business pays at least $50,000 in PAYE tax and ESCT.

*For KiwiSaver businesses, they need to pay ESCT on compulsory employee contributions up to 3%, but not on contributions that are deducted from the wages of employees.

5. Maximise your tax refunds

• Record all expenses and purchases of assets during the year, along with the cost of improvements or maintenance, to claim any EOFY refunds.
• You should consider disposing of old stock, as provisions for obsolete stock or write-downs on stock aren’t typically tax-deductible.
• Consider making payments within 63 days of 31 March to obtain an allowance for employee-related expenses like bonuses, holiday pay, or long-service leaves.
• If your income is higher than last year, consider making an additional voluntary tax payment to make sure your tax payments are aligned with your turnover.

6. Separate personal and business finances Separately

You generally don’t get tax deductions on personal expenses. If you only get deductions for business expenses, you could be adding unnecessary compliance costs If your accountant must divide what is tax-deductible and the rest of it.

Certain tax deadlines for 2021 are crucial.

• 9 Feb 2021 Tax on income for 2020 due for those who do not 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.
• The deadline for filing is 31 March - 2020 income tax return due for clients of tax agents (with an effective extension of the deadline).
• 1. April, 2021 The new financial year begins with New Zealand.
• 7 May 2021 - final installment of the tax proviso for 2020’s fiscal year and last chance to make voluntary provisional tax payments.
• 7 May 2021 Tax return for the year’s end and payment due.

NOTE: Some dates may differ from the official date, for example, if a due date falls on a holiday weekend or public holiday.