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

Utilizing intuitive accounting software and cloud storage options like Google Drive or Dropbox – in addition to tenancy administration software like myRent.co.nz - could save businesses time.

For small businesses such as restaurants or retailers It’s particularly important to track stock levels as the closing date of the financial year draws near.

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

A great reminder for small entrepreneurs is that a temporary boost in the asset write-off in an instant during COVID-19 – from $500 up to $5,000 – is set to be lowered back to $1,000 from 17 March 2021.

This is a change that will affect a lot of small-scale enterprises.

3 significant changes for 2021

Below are other important tax-related reforms which have occurred recently or are on the agenda for 2021.

1. Remember that the minimum wage will rise by $1.10 increasing it to $18.90 to $20 an hour on April 1, 2021. This could impact your financial records and superannuation payouts.
2. A new 39% personal tax rate will apply on earnings of greater than $180,000. The new rate will take effect starting on April 1st, 2021. Tachibana claims that it is more likely to impact those who make a living from personal service, in contrast to those who hold the shares and make capital gains.
3. Make sure you are aware that ACC Earners’ levy, which helps cover the costs related to injuries sustained by employees, will remain at their current levels until 2022, to help businesses deal with the financial burdens of COVID-19. As of January 20, 2021 the levy was $1.39 for every $100 (1.39 percent).

The fundamental elements of EOFY success

Here are some important advice and dates from experts that small business owners might need to be aware of to ensure their house is organized for tax season.

1. Finalise your accounts

• Make sure you approve the invoices, bills and expense claims.
• Monitor accounts that are due as well as outstanding transactions to get an overview of the year in its entirety.
• Re-evaluate debtors on 31 March. Consider taking any bad debts off so that they can be counted as a year-end deduction.
• Note clients or suppliers who been invoiced on or before 31 March or earlier but won’t be paid until after April. You might want to consider treating these costs as 2020-21 expenses.

2. Make sure you reconcile and clean up your records

• Incorporate bank statement statements and year-end income tax documents, as well as sales, expenses, and purchase records.
• Reconcile your bank accounts , and check they match the balances from your bank statements.
• Make a profit and loss statement in order to determine the amount of annual profits your business earned.

3. Check the data you received from your payroll company and Inland Revenue

• Assess information that you have collected during EOFY to assess the financial position of your business.
• Ask your payroll vendor to supply EOFY information as early as possible to allow it to be analysed.
• Access to Inland Revenue records, including PAYE tax responsibilities and any KiwiSaver duties for staff.

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

• Make sure you are aware of your employer’s superannuation contribution tax (ESCT) rates*, with the rate different for each employee depending on their earnings and length of service.
• Electronically file, as required in the event that your business pays more than $50,000 per year in ESCT tax and PAYE tax.

*For KiwiSaver businesses, they have to pay ESCT on compulsory employers’ contributions of 3 percent but not on contributions taken from the employee’s wages.

5. Maximise your tax refunds

• Record all expenses and purchases of assets in the course of the year, and spending on repairs or maintenance in order to claim any refunds from EOFY.
• You should consider disposing of old stock in light of the fact that provisions for old stock or write-downs of stock are not generally allowed as tax deductions.
• It is recommended to pay within 63-days after 31 March in order to claim a deduction for employee-related expenses such as bonuses, holiday pay, or long-service leaves.
• If your income is substantially greater than the previous year, you might want to make an additional provisional tax payment to align your tax obligations with your turnover.

6. Keep business and personal finances separate

There aren’t any tax deductions on personal expenses. If only business expenses. You could be racking up unnecessary compliance costs if your accountant has to split up what’s tax deductible and what’s not.

Certain tax deadlines for 2021 are crucial.

• 9 February 2021 Tax on income for 2020 due for those who do not have a tax advisor.
• 1 March 2021 - GST return and tax due for the end of January for businesses filing every two months.
• The deadline for filing is 31 March 2021 – 2020 tax return due for clients of tax agents (with an effective extension of time).
• 1. April, 2021 the start of the new financial year starts from New Zealand.
• 7 May 2021 - final installment of the tax proviso for the fiscal year 2020 and last chance to make voluntary provisional tax payments.
• 7 May 2021 GST tax return at the end of the year and payment due.

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