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

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

For smaller businesses like restaurants or retailers it is crucial to monitor the stock levels in advance of the end of financial year draws near.

If you visit your accountant and are unable to remember the stock levels you had a couple of months ago this can lead to problems.

A good reminder for small entrepreneurs is that a temporary boost in the write-off of assets in the moment during COVID-19 – from $500 to $5,000 – will be increased back to $1,000 from 17 March 2021.

It’s a change that could be a major impact on small businesses.

3 important changes in 2021

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

1. Do not forget that the minimum wage will rise by $1.10 and will increase between $18.90 to $20 per hour starting on April 1 2021. This could affect your financial records and superannuation payouts.
2. A new personal tax rate will apply on earnings of greater than $180,000. The new rate will take effect from April 1, 2021. Tachibana claims that this is likely to be a problem for those who earn income from personal service, instead of those who own investment accounts and are able to earn capital gains.
3. It is important to be aware of the ACC Earners’ levy, which helps cover the costs related to injuries sustained by employees, will remain at its level until 2022 in order to help businesses deal the financial burdens of COVID-19. At the time of January 2021 the levy was $1.39 each $100 (1.39 percent).

The building blocks for EOFY successful EOFY

Here are some key advice and dates from experts that small business owners might need to be aware of while putting their home in order for tax time.

1. Finalise your accounts

• Check and approve your bills, invoices and expense claims.
• Review accounts with a late payment as well as outstanding transactions to get an overview of the year in its entirety.
• Review the debtors’ accounts as of 31 March and consider eliminating any outstanding debts in order to make them a year-end deduction.
• Note clients or suppliers who invoiced you on 31 March or before but will not be invoiced until April. Think about treating these expenses as 2020-21 costs.

2. Clean up and reconcile your files

• Incorporate bank statement statements and income tax year-end and sales records, along with expenses, and purchase records.
• Consolidate your bank accounts and make sure they are in balance with the amounts from your bank statement.
• Create a profit and loss account 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

• Examine the data taken during EOFY to assess the financial health of your business.
• Request your payroll provider to send EOFY details in the earliest time possible to allow it to be analysed.
• Access to Inland Revenue records, which include PAYE tax obligations and KiwiSaver requirements for the employees.

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

• Change your employer’s superannuation tax (ESCT) rates*, with rates differing for each employee based on their salary and the length of employment.
• Filing electronically, as required in the event that your business pays at least $50,000 in ESCT tax and PAYE tax.

*For KiwiSaver businesses, they have to pay ESCT on employer contributions of 3%, but not on contributions taken out of wage payments to employees.

5. Maximise your tax refunds

• Record all expenses and purchases of assets in the course of the year, and the cost of improvements or maintenance, to claim any EOFY refunds.
• Consider disposing of obsolete stock, as provisions for obsolete stock or stock write-downs are not typically allowed as tax deductions.
• Consider making payments within 63 calendar days following 31 March to obtain the benefit of a deduction for expenses related to employees such as holiday pay, bonuses and long-service leaves.
• If your income is substantially higher than what you earned last year, you may want to consider an additional voluntary tax payment to align your tax obligations with your turnover.

6. Separate personal and business finances separate

It is not common to get tax deductions for personal expenditure; only business expenses, you could be racking up unnecessary compliance costs If your accountant must split up what’s tax deductible and what’s not.

Certain tax deadlines for 2021 are crucial.

• 9 Feb 2021 Income tax for 2020 due for those who don’t have a tax representative.
• 1 March 2021 - GST return and due for the end of January for businesses that file each two months.
• 21 March Tax year 2020 return due for clients of tax professionals (with an effective extension of time).
• 1. April, 2021 The new financial year begins from New Zealand.
• 7 May 2021 Final installment of the tax proviso for the financial year 2020 and the final opportunity to make provisional tax payments.
• 7 May 2021 - end-of-year GST return and payment due.

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