Key dates and advice to help small businesses prepare for EOFY

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

For small businesses such as restaurants or retail stores, it’s especially important to monitor stock levels when the time for the end of the fiscal year approaches.

If you go to your accountant, and you are unable to recall the levels of your stocks from the last few months this can lead to problems.

A good reminder for small entrepreneurs is that a temporary boost in the immediate asset write-off period during COVID-19 – from $500 to $5,000 – will be increased back to $1,000 starting 17 March 2021.

It’s a change that could have a big impact on small-scale businesses.

3 significant changes for 2021

Here are some additional important tax-related changes that took place recently or are in the works for 2021.

1. Don’t forget that the minimum wage is set to increase by $1.10 to increase it to $18.90 to $20 per hour from April 1 2021. This could impact your financial records and superannuation payment.
2. A new 39% personal tax rate will be imposed for incomes above $180,000. The new tax rate is effective from April 1, 2021. Tachibana states that this is more likely to affect those who earn a living by providing personal services rather than those who hold investments and earn capital gains.
3. It is important to be aware of the ACC Earners’ levy, that covers the cost that are incurred by injuries to employees, will remain at the their current levels until 2022, to help businesses cope with the financial pressures of COVID-19. At the time of January 2021 the levy is $1.39 per $100 (1.39 percent).

The fundamental elements of EOFY the success of EOFY

Here are some helpful advice and dates from experts who small business owners might wish to consider as they get their home organized for tax season.

1. Finalise your accounts

• Make sure you approve the invoices, bills and expense claims.
• Check overdue accounts and outstanding transactions for an overview of the year’s total.
• Re-evaluate debtors on 31 March and consider taking any bad debts off to be considered an end-of-year deduction.
• You should list clients or suppliers who have been invoiced on or before 31 March or before but aren’t due until the end of April. Consider treating these costs as 2020-21 costs.

2. Make sure you reconcile and clean up your records

• Combine bank accounts, tax year-end statements, and sales records, along with expense and purchase records.
• Check your bank accounts to ensure they are reconciled and check they match the balances from your bank statements.
• Create a profit and loss account to work out how much annual profit your business made.

3. Review data from your payroll vendor as well as Inland Revenue

• Review the information you have that you have collected during EOFY to determine the current financial condition of your company.
• Get your payroll company to provide EOFY data in the earliest time possible so it can be analysed.
• Access to Inland Revenue information, including PAYE tax obligations as well as any KiwiSaver duties for staff.

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

• Change your employer’s superannuation tax (ESCT) rates*, with the rates dependent on their earnings and length of tenure.
• File electronically, as mandated in the event that your business pays $50,000 or more a year in PAYE tax and ESCT.

*For KiwiSaver companies, they must pay ESCT on employer contributions of 3% but not on contributions taken out of the employee’s wages.

5. Maximise your tax refunds

• Keep track of all expenditures and asset purchases during the year, plus spending on repairs or maintenance for claiming any refunds from EOFY.
• Consider disposing of obsolete stock, as provisions for obsolete stock or write-downs of stock are not typically tax-deductible.
• Consider making payments within 63 days after 31 March to get an allowance for employee-related expenses like bonuses, holiday pay, or long-service leave.
• If your income is substantially higher than last year, consider making an additional provisional tax payment to align your tax obligations to your income.

6. Make sure that personal and business finances are Separately

There aren’t any tax deductions for personal expenditure; only business expenses. However, you may add unnecessary compliance charges If your accountant must separate what’s tax-deductible and the rest of it.

Certain tax deadlines for 2021 are crucial.

• 9 February 2021 2021 – 2020 tax year due for taxpayers who don’t have a tax professional.
• 1 March 2021 - GST return and due by January for businesses that file each two months.
• 31 March 2021 2020 income tax return due for clients of tax agents (with an extended the deadline).
• 1. April, 2021 The new fiscal year starts from New Zealand.
• 7 May 2021 Final installment of tax provisional due for the fiscal year 2020 and last chance to make provisional 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 example when a due date occurs on a weekend, or a public holiday.