Important dates and advice to help small businesses prepare for EOFY

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

Smaller businesses, such as restaurants or retailers, it’s especially important to keep track of stock levels as the end of financial year is near.

If you go to your accountant and can’t remember the stock levels you had a couple of months ago and you’re having trouble remembering, it’s a problem.

A useful reminder for small entrepreneurs is that a temporary increase of the write-off of assets in the moment during COVID-19, from $500 to $5,000 – will be scaled back to $1,000 beginning 17 March 2021.

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

Three important changes to 2021

Here are some other important tax-related reforms that took place recently or are scheduled for 2021.

1. Do not forget that the minimum wage will rise by $1.10 increasing it between $18.90 to $20 an hour from April 1 2021. This could potentially affect your financial records as well as superannuation benefits.
2. A new personal tax rate is set to apply on earnings of greater than $180,000. The new tax rate will be in effect beginning on April 1, 2021. Tachibana states that this is more likely to be a problem for those who earn income from personal service, as opposed to those who have investment accounts and are able to earn capital gains.
3. Be aware that the ACC Earners’ levy, that covers the cost of injuries suffered by employees will remain at the present levels until 2022 to help companies deal with the financial pressures of COVID-19. As of January 20, 2021 the levy sits at $1.39 per $100 (1.39%).

The building blocks for EOFY achievement

Here are some helpful information and dates from experts that small business owners might want to keep in mind to ensure their house is organized for tax season.

1. Finalise your accounts

• Check and approve your invoices, bills and expense claims.
• Check overdue accounts and outstanding transactions to get an overview of the entire year.
• Review debtors as at 31 March. You may also consider eliminating any outstanding debts in order to make them a year-end deduction.
• Note clients or suppliers who invoiced you by 31 March or earlier but won’t be reimbursed till after April. Take these costs into consideration as 2020-21 costs.

2. Clean up and reconcile your records

• Bank statements should be consolidated, tax year-end statements, records, sales, expenses, and purchase records.
• Reconcile your bank accounts and make sure they are in balance with the amounts from your bank statement.
• Prepare your profit and loss statement to determine the amount of annual revenue your business has earned.

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

• Review the information you have obtained during EOFY to assess the current financial position of your business.
• Request your payroll provider to supply EOFY information in the earliest time possible so that it can be reviewed.
• Access Inland Revenue records, including PAYE tax responsibilities and any KiwiSaver duties for staff.

4. Manage your superannuation

• Make sure you are aware of your employer’s superannuation contribution tax (ESCT) rates*, with the rate dependent on their income and length of employment.
• Filing electronically, as required in the event that your business pays $50k or more in ESCT and PAYE taxes.

*For KiwiSaver companies, they must pay ESCT on compulsory contribution from employers of up to 3 per cent but not on contributions that are deducted from employee wages.

5. Maximise your tax refunds

• Record all expenses and purchases of assets throughout the year, as well as expenditure on improvements or upkeep in order to claim any EOFY refunds.
• Take into consideration disposing of stocks that are no longer in use since provisions for obsolete stock or write-downs on stock aren’t typically tax-deductible.
• Make sure to make payments within 63 days of 31 March in order to claim a deduction for employee-related expenses like bonuses, holiday pay, or long-service leaves.
• If your earnings are significantly greater than the previous year, you may want to consider an additional provisional tax payment to make sure your tax payments are aligned with turnover.

6. Keep business and personal finances Separately

You generally don’t get tax deductions for personal expenditure; you only get deductions for business expenses, you could be adding unnecessary compliance costs If your accountant must split up what’s tax deductible and what’s not.

Certain tax deadlines for 2021 are crucial.

• 9 February 2021 - 2020 income tax due for those who don’t have a tax professional.
• 1 March 2021 - GST return and payment due at the end of January for companies that file every two months.
• 31 March 2021 2020 income tax return due for clients of tax professionals (with a valid extension of time).
• 1 April 2021 the start of the new financial year starts in New Zealand.
• 7 May 2021 - final installment of tax provisional due for the 2020 financial year and the last opportunity to make tax provisional voluntary payments.
• 7 May 2021 End-of-year GST return and payment due.

NOTE: Some dates may differ from the date, for example, when the due date is a weekend or public holiday.