Important dates and advice to help small businesses get ready for EOFY

The use of intuitive accounting software and cloud storage such as Google Drive or Dropbox – in addition to tenancy administration software such as myRent.co.nz - could save businesses time.

For small businesses such as retailers or restaurants it is crucial to monitor stock levels when the end of financial year draws near.

If you visit your accountant, and you are unable to recall your stock level from a couple of months ago it can cause problems.

A great reminder for small business owners is that a temporary increase in the instant asset write-off during COVID-19 – from $500 up to $5,000 – is being scaled back to $1,000 as of 17 March 2021.

That’s a change that will have a significant impact on small-scale companies.

Three important changes to 2021

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

1. Don’t forget that the minimum wage will increase by $1.10, taking it up from $18.90 to $20 an hour as of 1 April 2021. This could potentially affect your financial records as well as superannuation payouts.
2. A new 39% personal tax rate will be imposed to incomes of more than $180,000. The new tax rate will be in effect from 1 April 2021. Tachibana believes this is likely to be a problem for those who earn income by providing personal services 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 funds the costs that are incurred by injuries to employees, will be kept at present levels until 2022 to help companies deal the financial burdens of COVID-19. At the time of January 2021 the levy sits at $1.39 each $100 (1.39 percent).

The fundamental elements of EOFY successful EOFY

Here are some guidelines and dates from professionals that small business owners might need to be aware of to ensure their house is ready for tax time.

1. Finalise your accounts

• Make sure you approve the invoices, bills and expense claims.
• Monitor accounts that are due and outstanding transactions to gain an overview of the year’s total.
• Examine debtors at the time of 31 March. You may also consider taking any bad debts off so they are considered an end-of-year deduction.
• Note clients or suppliers who invoiced you by 31 March or before but will not be invoiced until April. You might want to consider treating these costs as 2020-21 expenses.

2. Make sure you reconcile and clean up your files

• Combine bank accounts, year-end income tax records, sales, purchase and expense records.
• Check your bank accounts to ensure they are reconciled and make sure they are in balance with the amounts from your bank statements.
• Prepare your profit-and-loss statement to determine how much annual profit your business made.

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

• Review the information you have taken during EOFY to evaluate the current financial situation of your business.
• Get your payroll company to provide EOFY data in the earliest time possible to allow it to be analysed.
• Access Inland Revenue records, which include PAYE tax responsibilities and any KiwiSaver obligations for employees.

4. Manage your superannuation

• Make sure you are aware of your employer’s superannuation contribution tax (ESCT) rates*, with the tax rate different for each employee depending on their salary and length of service.
• Filing electronically, as required in the event that your business pays more than $50,000 per year in ESCT tax and PAYE tax.

*For KiwiSaver businesses, they have to pay ESCT for compulsory employer contributions of 3% but not on contributions taken out of the employee’s wages.

5. Maximise your tax refunds

• Log expenses and asset purchases throughout the year, as well as expenditure on improvements or upkeep, to claim any EOFY refunds.
• You should consider disposing of old stock in light of the fact that provisions for old stock or write-downs of stock are not generally allowed as tax deductions.
• It is recommended to pay within 63 calendar days following 31 March to get a deduction for employee-related expenses like bonuses, holiday pay, and long-service leave.
• If your income is substantially higher than what you earned last year, consider making an additional provisional tax payment to align your tax obligations to your income.

6. Maintain personal and financial finances Separately

Tax deductions are not usually available for personal expenses. deductions for personal expenses. only business expenses, you could add unnecessary compliance charges if your accountant has to divide what is tax-deductible and what’s not.

Certain tax deadlines for 2021 are crucial.

• 9 February 2021 Income tax for 2020 due for those who don’t have a tax advisor.
• 1 March 2021 - GST return due and payment due at the end of January for those who file their GST returns every two months.
• 21 March Tax year 2020 return due for clients of tax professionals (with an extended time).
• 1. April, 2021 The new financial year starts in New Zealand.
• 7 May 2021 Final installment of the tax proviso for the financial year 2020 and the last opportunity to make tax provisional voluntary payments.
• 7 May 2021 - end-of-year GST return and due payment.

NOTE: Some dates may be different from the official deadline, for example the due date falls on a weekend or public holiday.