Important dates and advice to help small businesses prepare for EOFY

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

Smaller businesses, such as retailers or restaurants it is crucial to track stock levels as the end of financial year looms.

If you go to your accountant, and you are unable to recall the stock levels you had the last few months it can cause problems.

A good reminder for smaller entrepreneurs is that a temporary increase of the asset write-off in an instant 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 be a major impact on small-scale enterprises.

Three significant changes are coming in 2021.

Below are other significant tax-related changes which have occurred recently or are in the works for 2021.

1. Do not forget that the minimum wage is set to increase by $1.10 to increase it from $18.90 to $20 per hour starting on April 1 2021. This could affect your financial records and superannuation payouts.
2. A new 39% personal tax rate will be applied to incomes of more than $180,000. The new rate will take effect starting on April 1st, 2021. Tachibana says it is more likely to affect those who earn a living from personal service, rather than those who hold investment accounts and are able to earn capital gains.
3. Make sure you are aware that ACC Earners’ levy, which funds the costs that are incurred by injuries to employees, will be kept at present levels until 2022 to help businesses cope with the financial pressures of COVID-19. As of January 20, 2021 the levy sits at $1.39 100 cents (1.39 percent).

The fundamental elements of EOFY success

Here are some guidelines and dates from professionals who small business owners might wish to consider when getting their house in order for tax time.

1. Finalise your accounts

• Make sure you approve the bills, invoices and expense claims.
• Monitor accounts that are due and outstanding transactions to gain a view of the year’s total.
• Examine debtors at the time of 31 March and consider writing off any bad debts in order to make them a year-end deduction.
• Note clients or suppliers who invoiced you on 31 March or earlier but will not be reimbursed till after April. Think about treating these expenses as 2020-21 expenses.

2. Clean up and reconcile your records

• Consolidate bank statements, income tax year-end records, plus sales, expenses, and purchase records.
• Reconcile your bank accounts and make sure they are in balance with the amounts from your bank statement.
• Prepare your profit-and-loss statement to work out how much annual profits your business earned.

3. Review data from your payroll company and Inland Revenue

• Examine the data obtained during EOFY to determine the financial condition of your company.
• Get your payroll company to supply EOFY information as early as possible so that it can be analyzed.
• Access to Inland Revenue documents, including PAYE tax obligations as well as any KiwiSaver obligations for employees.

4. Manage superannuation

• Check your employer’s superannuation contributions tax (ESCT) rates*, with the rate differing for each employee based on their salary and the length of service.
• Electronically file, as required when your business is paying $50k or more in tax on PAYE and ESCT.

*For KiwiSaver businesses, they need to pay ESCT on compulsory employers’ contributions of 3 percent but not on contributions that are deducted from employee wages.

5. Maximise your tax refunds

• Keep track of all expenditures and asset purchases during the year, plus spending on repairs or maintenance in order to claim any EOFY refunds.
• You should consider disposing of old stock since provisions for obsolete stock or stock write-downs are not typically allowed as tax deductions.
• Make sure to make payments within 63 days of 31 March to obtain an employee-related expense deduction like bonuses, holiday pay, or long-service leaves.
• If your earnings are significantly higher than last year, you may want to consider an additional voluntary provisional tax payment to make sure your tax payments are aligned with your earnings.

6. Separate personal and business finances distinct

There aren’t any tax deductions on personal expenses. If it’s only your business expenses, you could be racking up unnecessary compliance costs in the event that your accountant needs to determine what tax-deductible and the rest of it.

Some key 2021 tax dates

• 9 February 2021 Income tax for 2020 due for taxpayers who don’t have a tax agent.
• 1 March 2021 - GST return due and payment due by January for companies that file every two months.
• 21 March - 2020 income tax return due for tax professionals (with a valid extension of time).
• 1. April, 2021 the start of the new financial year starts on the island of New Zealand.
• 7 May 2021 Final installment of the tax proviso for the financial year 2020 and the last opportunity to make provisional tax payments.
• 7 May 2021 - end-of-year GST return and due payment.

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