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 – along with tenancy management software such as myRent.co.nz can save businesses time.

For small businesses such as restaurants and retailers, it’s especially important to track stock levels as the end of financial year approaches.

If you visit your accountant, and you are unable to recall the levels of your stocks from a couple of months ago this can lead to problems.

A useful reminder for small business owners is that a temporary boost in the immediate asset write-off period during COVID-19 – from $500 to $5,000 – will be scaled back to $1,000 as of 17 March 2021.

That’s a change that will affect a lot of small-scale businesses.

Three significant changes are coming in 2021.

Here are some other significant tax-related changes that have recently occurred or are on the agenda for 2021.

1. Remember that the minimum wage is set to increase by $1.10 and will increase to $18.90 to $20 per hour as of 1 April 2021. This could affect your financial records and superannuation benefits.
2. A new personal tax rate will apply to incomes of more than $180,000. The new tax rate is effective beginning on April 1, 2021. Tachibana claims that this is more likely to impact those who make a living from personal service, in contrast to those who hold investments and earn capital gains.
3. Take note that ACC Earners’ levy, which helps cover the costs of injuries suffered by employees will remain at current levels until 2022 to help businesses deal with the financial pressures of COVID-19. At the time of January 2021 the levy stood at $1.39 each $100 (1.39%).

The building blocks for EOFY achievement

Here are some key advice and dates from experts who small business owners might want to keep in mind when getting their house in order for tax time.

1. Finalise your accounts

• Examine and approve your invoices, bills and expense claims.
• Monitor accounts that are due and outstanding transactions for an overview of the year’s total.
• Re-evaluate debtors on 31 March, and think about the possibility of writing off any bad debts so that they can be counted as an end-of-year deduction.
• Note clients or suppliers who been invoiced on or before 31 March or before but won’t be paid until after April. Think about treating these expenses as 2020-21 costs.

2. Make sure you reconcile and clean up your files

• Consolidate bank statements, tax year-end statements, records, plus sales, expense, and purchase records.
• Consolidate 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. Re-read the information you receive from your payroll provider and Inland Revenue

• Assess information obtained during EOFY to assess the financial position of your business.
• Contact your payroll provider to provide EOFY data when you can, to allow it to be analysed.
• Access to Inland Revenue records, including PAYE tax obligations, as well as KiwiSaver requirements for the employees.

4. Manage superannuation

• Make sure you are aware of your employer’s superannuation contribution tax (ESCT) rates*, with the tax rate varying for each employee based on their income and length of their tenure.
• You must file electronically, in accordance with the mandate, if your business pays more than $50,000 per year in ESCT and PAYE taxes.

*For KiwiSaver businesses, they have to pay ESCT on mandatory employee contributions up to 3%, but not on contributions taken out of the wages of employees.

5. Maximise your tax refunds

• Track expenses and asset purchases throughout the year, as well as expenditure on improvements or upkeep in order to claim any refunds from EOFY.
• Take into consideration disposing of stocks that are no longer in use, as provisions for obsolete stock or stock write-downs aren’t generally allowed as tax deductions.
• You should consider making your payments within 63 calendar days following 31 March to obtain a deduction for employee-related expenses like bonus pay, holiday pay and long-service leaves.
• If your income is significantly greater than the previous year, you may want to consider an additional voluntary provisional tax payment to align your tax payments with your turnover.

6. Keep business and personal finances separated

You generally don’t get tax deductions for personal expenditure; only business expenses. You could be racking up unnecessary compliance costs if your accountant has to determine what tax-deductible and what’s not.

Important tax dates in 2021

• 9 February 2021 Tax on income for 2020 due for those who do not have a tax professional.
• 1 March 2021 GST return and payment due at the end of January for businesses that file each two months.
• The deadline for filing is 31 March - 2020 income tax return due for tax agents (with a valid extension of the deadline).
• 1. April, 2021 The new fiscal year begins from New Zealand.
• 7 May 2021 - final proviso tax instalment due for the 2020 financial year and the final opportunity to make voluntary tax payments.
• 7 May 2021 End-of-year GST return and payment due.

Note: Some dates may differ from the deadline, for instance when the due date is a weekend or public holiday.