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

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

Smaller companies, like restaurants and retailers, it’s especially important to monitor the stock levels in advance of the end of financial year looms.

If you visit your accountant and are unable to remember the stock levels you had a couple of months ago this can lead to problems.

A good reminder for smaller business owners is that an increase in the write-off of assets in the moment during COVID-19 – from $500 to $5,000 – is set to be lowered back to $1,000 beginning 17 March 2021.

It’s a change that could have a significant impact on small businesses.

3 important changes in 2021

Here are some additional important tax-related changes that occurred recently or are scheduled for 2021.

1. Don’t forget that your minimum wage will rise by $1.10 increasing it from $18.90 to $20 an hour from April 1 2021. This could impact your financial records and superannuation payouts.
2. A new personal tax rate will apply for incomes above $180,000. The new rate will apply starting on April 1st, 2021. Tachibana claims that this will more likely affect those who earn income by providing personal services as opposed to those who have investment accounts and are able to earn capital gains.
3. Be aware that the ACC Earners’ levy, which funds the costs that are incurred by injuries to employees, will remain at the present levels until 2022 to help businesses cope with the financial strains of COVID-19. In January 2021, the levy sits at $1.39 per $100 (1.39%).

The foundational elements for EOFY success

Here are some key advice and dates from experts which small-business owners might need to be aware of when getting their house in order for tax time.

1. Finalise your accounts

• Examine and approve your invoices, bills and expense claims.
• Review accounts with a late payment and outstanding transactions for a view of the entire year.
• Re-evaluate debtors on 31 March. You may also consider writing off any bad debts to be considered an annual deduction at the end of the year.
• Include clients or suppliers that have invoiced you by 31 March or before but will not be reimbursed till after April. Consider treating these costs as expenses for 2020-21.

2. Make sure you reconcile and clean up your records

• Combine bank accounts, year-end income tax documents, as well as sales, expenses, and purchase records.
• Reconcile your bank accounts and verify that they are in line with the balances from your bank statements.
• Prepare your profit and loss statement to calculate the annual profit your business made.

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

• Review the information you have taken during EOFY to determine the current financial condition of your company.
• Request your payroll provider to supply EOFY information as soon as you can so that it can be reviewed.
• Access to Inland Revenue records, which include PAYE tax obligations and KiwiSaver obligation for workers.

4. Superannuation management

• Check your employer’s superannuation contributions tax (ESCT) rates*, with the rate dependent on their earnings and length of their tenure.
• You must file electronically, in accordance with the mandate, if your business pays at least $50,000 in ESCT and PAYE taxes.

*For KiwiSaver companies, they must pay ESCT for compulsory contribution from employers of up to 3 per cent, but not on contributions taken from the employee’s wages.

5. Maximise your tax refunds

• Keep track of all expenditures and asset purchases in the course of the year, and expenses for improvements or maintenance to claim any refunds from EOFY.
• You should consider disposing of old stock since provisions for obsolete stock or stock write-downs are not usually tax-deductible.
• Make sure to make payments within 63 calendar days following 31 March to get an employee-related expense deduction like bonuses, holiday pay, and long-service leaves.
• If your earnings are significantly greater than the previous year, think about making an additional provisional tax payment to align your tax obligations with your earnings.

6. Maintain personal and financial finances Separately

You generally don’t get tax deductions for personal expenses; 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.

Important tax dates in 2021

• 9 Feb 2021 2021 – 2020 tax year due for those who don’t have a tax professional.
• 1 March 2021 - GST return and due by January for those who file their GST returns 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 new fiscal year begins in New Zealand.
• 7 May 2021 Final installment of tax provisional due for 2020’s fiscal year and the final opportunity to make voluntary provisional tax payments.
• 7 May 2021 End-of-year GST return and due payment.

Notice: Some dates may be different from the official deadline, for example the due date occurs on a weekend, or a public holiday.