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

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

Smaller businesses, such as restaurants and retailers it is crucial to keep track of stock levels as the end of financial year draws near.

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

A great reminder for small entrepreneurs is that a temporary boost in the asset write-off in an instant during COVID-19 from $500 to $5,000 – will be scaled back to $1,000 from 17 March 2021.

This change will affect a lot of small-scale companies.

3 significant changes for 2021

These are just a few of the important tax-related reforms which have occurred recently or are planned for 2021.

1. Remember that the minimum wage will increase by $1.10, taking it from $18.90 to $20 an hour as of 1 April 2021. This could potentially affect 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 will be in effect beginning on April 1, 2021. Tachibana states that it is more likely to impact those who make a living by providing personal services instead of those who own investment accounts and are able to earn capital gains.
3. Make sure you are aware that ACC Earners’ levy, that helps pay for the expenses that are incurred by injuries to employees, will remain at the present levels until 2022 to help businesses deal with the financial burdens of COVID-19. At the time of January 2021 the levy stood at $1.39 100 cents (1.39 percent).

The foundational elements for EOFY success

Here are some advice and dates from experts which small-business owners might be able to remember to ensure their house is organized for tax season.

1. Finalise your accounts

• Examine and approve your invoices, bills and expense claims.
• Monitor accounts that are due and outstanding transactions to gain a view of the entire year.
• Re-evaluate debtors on 31 March, and think about taking any bad debts off to be considered an end-of-year deduction.
• You should list clients or suppliers who have been invoiced on or before 31 March or earlier, but who won’t be due until the end of April. Take these costs into consideration as 2020-21 expenses.

2. Clean up and reconcile your files

• Combine bank accounts, tax year-end statements, records, sales, expense, and purchase records.
• Consolidate your bank accounts and make sure they are in balance with the amounts from your bank statements.
• Create a profit and loss account to determine the amount of profits your company made annually.

3. Re-read the information you receive from your payroll provider and Inland Revenue

• Check the information obtained during EOFY to review the current financial condition of your company.
• Get your payroll company to submit EOFY data when you can, to allow it to be analysed.
• Access to Inland Revenue documents, including PAYE tax obligations, as well as KiwiSaver obligation for workers.

4. Manage superannuation

• Make sure you are aware of your employer’s superannuation contribution tax (ESCT) rates*, with the rate dependent on their earnings and length of their tenure.
• Electronically file, as required by law, if your company pays $50k or more in ESCT and PAYE taxes.

*For KiwiSaver companies, they must pay ESCT on compulsory contribution from employers of up to 3 per cent, but not on contributions taken from wage payments to employees.

5. Maximise your tax refunds

• Log expenses and asset purchases during the year, along with expenditure on improvements or upkeep in order to claim any refunds from EOFY.
• You should consider disposing of old stock since provisions for obsolete stock or write-downs on stock aren’t typically tax-deductible.
• It is recommended to pay within 63 days after 31 March in order to claim the benefit of a deduction for expenses related to employees such as bonuses, holiday pay, or long-service leave.
• If your earnings are significantly higher than what you earned last year, you may want to consider an additional voluntary tax payment to make sure your tax payments are aligned with your earnings.

6. Make sure that personal and business finances are Separately

It is not common to get tax deductions for personal expenditure; it’s only your company expenses. But you might add unnecessary compliance charges when your accountant is required to split up what’s tax deductible and what’s not.

Certain tax deadlines for 2021 are crucial.

• 9 February 2021 - 2020 income tax due for taxpayers who don’t have a tax professional.
• 1 March 2021 - GST return due and payment due at the end of January for those who file their GST returns every two months.
• The deadline for filing is 31 March 2021 – 2020 tax return due for tax agents (with an effective extension of time).
• 1. April, 2021 The new financial year starts with New Zealand.
• 7 May 2021 - final proviso tax instalment due for the 2020 financial year and the last opportunity to make voluntary provisional tax payments.
• 7 May 2021 - end-of-year GST return and payment due.

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