Key dates and tips to help small businesses prepare for EOFY

Using intuitive accounting software and cloud storage services like Google Drive or Dropbox – along with tenancy management software such as myRent.co.nz - could save businesses time.

Smaller businesses, such as retailers or restaurants it is crucial to monitor stock levels when the time for the end of the fiscal year approaches.

If you visit your accountant and are unable to remember the levels of your stocks from just a few months ago this can lead to problems.

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

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

Three important changes to 2021

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

1. Don’t forget that your minimum wage will rise by $1.10 and will increase between $18.90 to $20 per hour on April 1, 2021. This could impact your financial records as well as superannuation payments.
2. A new 39% personal tax rate is set to apply on earnings of greater than $180,000. The new tax rate is effective beginning on April 1, 2021. Tachibana says this is likely to affect those who earn a living from providing personal services, in contrast to those who hold the shares and make capital gains.
3. Make sure you are aware that ACC Earners’ levy, which funds the costs associated with employee injuries, will remain at its current levels until 2022 to assist businesses in coping with the financial strains of COVID-19. At the time of January 2021 the levy stood at $1.39 each $100 (1.39%).

The essential elements to EOFY achievement

Here are some key guidelines and dates from professionals that small business owners might need to be aware of as they get their home in order for tax time.

1. Finalise your accounts

• Examine and approve your bills, invoices and expense claims.
• Check overdue accounts and outstanding transactions to gain a view of the entire year.
• Review debtors as at 31 March, and think about the possibility of writing off any bad debts so they are considered an end-of-year deduction.
• Note clients or suppliers who paid you invoices on the 31st of March or before but aren’t due until the end of April. You might want to consider treating these costs as 2020-21 expenses.

2. Make sure you reconcile and clean up your files

• Bank statements should be consolidated, year-end income tax documents, as well as sales, purchase and expense records.
• Reconcile your bank accounts , and ensure that the balances are the same from your bank statements.
• Create a profit and loss account to calculate the annual profit your business made.

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

• Examine the data obtained during EOFY to evaluate the financial position of your business.
• Ask your payroll vendor to submit EOFY data as early as possible so that it can be analyzed.
• Access 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.

• Make sure you are aware of your employer’s superannuation contribution tax (ESCT) rates*, with rates dependent on their salary and length of their tenure.
• You must file electronically, in accordance with the mandate in the event that your business pays at least $50,000 in ESCT tax and PAYE tax.

*For KiwiSaver companies, they must pay ESCT on mandatory employers’ contributions of 3 percent but not on contributions that are deducted from the wages of employees.

5. Maximise your tax refunds

• Track expenses and asset purchases during the year, along with expenses for improvements or maintenance in order to claim any refunds from EOFY.
• Think about disposing of stock that is no longer needed in light of the fact that provisions for old stock or write-downs on stock aren’t generally allowed as tax deductions.
• Make sure to make payments within 63-days after 31 March to obtain an allowance for employee-related expenses like bonuses, holiday pay, or long-service leave.
• If your income is higher than what you earned last year, think about making an additional voluntary tax payment to ensure that your tax payment is aligned with your turnover.

6. Separate personal and business finances distinct

It is not common to get tax deductions for personal expenses; only business expenses, you could be adding unnecessary compliance costs if your accountant has to divide what is tax-deductible and the rest of it.

Important tax dates in 2021

• 9 February 2021 - 2020 income tax to be paid for those who don’t have a tax advisor.
• 1 March 2021 - GST return and due by January for businesses that file each two months.
• The deadline for filing is 31 March 2020 income tax return due for tax agents (with an effective extension of time).
• 1 April 2021 - the new financial year begins from New Zealand.
• 7 May 2021 Final proviso tax instalment due for the financial year 2020 and last chance to make voluntary provisional tax payments.
• 7 May 2021 End-of-year GST return and due payment.

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