Key dates and tips to help small businesses prepare for EOFY

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

Smaller businesses, such as restaurants or retailers It’s crucial to monitor stock levels when the end of financial year looms.

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

A good reminder for smaller business owners 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.

That’s a change that will have a significant impact on small-scale companies.

3 significant changes for 2021

Here are some other important tax-related tax changes which have occurred recently or are in the works for 2021.

1. Don’t forget that your minimum wage is set to increase by $1.10, taking it up from $18.90 to $20 an hour from April 1 2021. It could affect your financial records as well as superannuation payments.
2. A new 39% personal tax rate will be applied on earnings of greater than $180,000. The new rate will apply from 1 April 2021. Tachibana claims that this is likely to be a problem for those who earn income from providing personal services, in contrast to those who hold investment accounts and are able to earn capital gains.
3. Be aware that the ACC Earners’ levy, which funds the costs related to injuries sustained by employees, will remain at its present levels until 2022 to help companies deal with the financial strains of COVID-19. As at January 2021, the levy sits at $1.39 100 cents (1.39%).

The foundational elements for EOFY successful EOFY

Here are some important guidelines and dates from professionals who small business owners might be able to remember to ensure their house is up and running for tax time.

1. Finalise your accounts

• Examine and approve your invoices, bills and expense claims.
• Check overdue accounts and outstanding transactions to get an overview of the year in its entirety.
• Review debtors as at 31 March. Consider writing off any bad debts to be considered an end-of-year deduction.
• Include clients or suppliers that have been invoiced on or before 31 March or earlier but won’t be reimbursed till after April. Consider treating these costs as expenses for 2020-21.

2. Make sure you reconcile and clean up your files

• Consolidate bank statements, tax year-end statements, documents, as well as sales, expense, and purchase records.
• Consolidate your bank accounts and verify that they are in line with the balances from your bank statements.
• Prepare your profit-and-loss statement to determine how much annual profit your business made.

3. Examine the information from your payroll company and Inland Revenue

• Check the information that you have collected during EOFY to assess the financial health of your business.
• Request your payroll provider to send EOFY details as early as possible so that it can be reviewed.
• Access Inland Revenue records, including PAYE tax obligations and KiwiSaver requirements for the employees.

4. Superannuation is a key component of the financial system.

• Update your employer superannuation contribution tax (ESCT) rates*, with the tax rate differing for each employee based on their salary and length of tenure.
• You must file electronically, in accordance with the mandate, if your business pays more than $50,000 per year in PAYE tax and ESCT.

*For KiwiSaver businesses, they need to pay ESCT on employers’ contributions of 3 percent but not on contributions that are deducted from employee wages.

5. Maximise your tax refunds

• Track expenses and asset purchases in the course of the year, and expenditure on improvements or upkeep to claim any refunds from EOFY.
• Take into consideration disposing of stocks that are no longer in use because provisions for the disposal of obsolete stock or stock write-downs are not typically tax-deductible.
• It is recommended to pay within 63 days after 31 March in order to claim an employee-related expense deduction like bonuses, holiday pay, and long-service leaves.
• If your income is more than it was last year, think about making an additional voluntary provisional tax payment to align your tax obligations with your turnover.

6. Make sure that personal and business finances are Separately

There aren’t any tax deductions for personal expenditure; it’s only your company expenses. But you might be adding unnecessary compliance costs in the event that your accountant needs to determine what tax-deductible and what’s not.

Certain tax deadlines for 2021 are crucial.

• 9 Feb 2021 Tax on income for 2020 due for those who don’t have a tax advisor.
• 1 March 2021 GST return and payment due by the end of January for businesses that file each two months.
• 21 March 2020 income tax return due for clients of tax professionals (with a valid extension of time).
• 1 April 2021 The new fiscal year begins in New Zealand.
• 7 May 2021 - final installment of tax provisional due for the 2020 financial year and last chance to make provisional tax payments.
• 7 May 2021 End-of-year GST return and payment due.

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