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

Utilizing intuitive accounting software as well as cloud storage like Google Drive or Dropbox – as well as tenancy management software such as myRent.co.nz and myRent.co.nz – can help businesses save time.

Smaller businesses, such as restaurants or retail stores It’s particularly important to keep track of stock levels as the end of financial year is near.

If you visit your accountant, and you are unable to recall your stock level from just a few months ago and you’re having trouble remembering, it’s a problem.

A good reminder for small entrepreneurs is that an increase in the immediate asset write-off period during COVID-19 – from $500 up to $5,000 – is set to be lowered back to $1,000 starting 17 March 2021.

This is a change that will have a significant impact on small businesses.

3 important changes in 2021

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

1. Don’t forget that the minimum wage will rise by $1.10 and will increase between $18.90 to $20 per hour from April 1 2021. This could affect your financial records as well as superannuation payments.
2. A new personal tax rate is set to 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 be a problem for those who earn income from personal service, instead of those who own the shares and make capital gains.
3. Make sure you are aware that ACC Earners’ levy, that covers the cost related to injuries sustained by employees, will be kept at level until 2022 in order to help businesses deal with the financial strains of COVID-19. As of January 20, 2021 the levy stood at $1.39 for every $100 (1.39%).

The essential elements to EOFY successful EOFY

Here are some key information and dates from experts that small business owners might want to keep in mind while putting their home in order for tax time.

1. Finalise your accounts

• Make sure you approve the invoices, bills and expense claims.
• Check overdue accounts and outstanding transactions to gain an overview of the entire year.
• Examine debtors at the time of 31 March and consider eliminating any outstanding debts so that they can be counted as a year-end deduction.
• You should list clients or suppliers who have invoiced you on 31 March or before, but who won’t be paid until after April. Take these costs into consideration as 2020-21 expenses.

2. Clean up and reconcile your files

• Bank statements should be consolidated, income tax year-end documents, as well as sales, purchase and expense records.
• Check your bank accounts to ensure they are reconciled and verify that they are in line with the balances from your bank statements.
• Prepare your profit and loss statement to determine how much profits your company made annually.

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

• Examine the data that you have collected during EOFY to determine the financial position of your business.
• Contact your payroll provider to submit EOFY data as soon as you can to allow it to be analysed.
• Access Inland Revenue documents, including PAYE tax obligations, as well as KiwiSaver requirements for the employees.

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

• Check your employer’s superannuation contributions tax (ESCT) rates*, with rates differing for each employee based on their income and length of tenure.
• You must file electronically, in accordance with the mandate, if your business pays $50,000 or more a year in ESCT tax and PAYE tax.

*For KiwiSaver, businesses need to pay ESCT for compulsory contribution from employers of up to 3 per cent but not on contributions that are deducted from the wages of employees.

5. Maximise your tax refunds

• Record all expenses and purchases of assets throughout the year, as well as expenses for improvements or maintenance to claim any refunds from EOFY.
• You should consider disposing of old stock, as provisions for obsolete stock or write-downs on stock aren’t usually tax-deductible.
• Consider making payments within 63 calendar days following 31 March to obtain an allowance for employee-related expenses like bonuses, holiday pay, and long-service leaves.
• If your earnings are significantly higher than what you earned last year, consider making an additional provisional tax payment to make sure your tax payments are aligned with turnover.

6. Maintain personal and financial finances Separately

It is not common to get tax deductions on personal expenses. If only company expenses. But you might add unnecessary compliance charges when your accountant is required to determine what tax-deductible and the rest of it.

Certain tax deadlines for 2021 are crucial.

• 9 Feb 2021 Tax on income for 2020 to be paid for those who don’t have a tax professional.
• 1 March 2021 - GST return and due for the end of January for businesses filing every two months.
• 30 March 2021 - 2020 income tax return due for tax professionals (with a valid extension of the deadline).
• 1 April 2021 The new financial year begins in New Zealand.
• 7 May 2021 - final provisional tax instalment due for the 2020 financial year and the last opportunity to make voluntary tax payments.
• 7 May 2021 GST tax return at the end of the year and payment due.

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