Key dates and advice to help small businesses prepare for EOFY

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

Smaller companies, like restaurants or retailers it is crucial to monitor stock levels when the end of financial year is near.

If you visit your accountant and can’t remember the levels of your stocks from just a few months ago, that creates difficulties.

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

That’s a change that will be a major impact on small-scale companies.

3 important changes in 2021

Here are some additional important tax-related tax changes that took place recently or are in the works for 2021.

1. Don’t forget that your minimum wage will increase by $1.10 and will increase up from $18.90 to $20 an hour on April 1, 2021. This could impact your financial records as well as superannuation payments.
2. A new 39% personal tax rate will apply on earnings of greater than $180,000. The new rate will apply beginning on April 1, 2021. Tachibana believes this will more likely affect those who earn income by providing personal services in contrast to those who hold investments and earn capital gains.
3. Take note that ACC Earners’ levy, that covers the cost of injuries suffered by employees will remain at the present levels until 2022 to help businesses cope the financial burdens of COVID-19. As of January 20, 2021 the levy stood at $1.39 for every $100 (1.39%).

The foundational elements for EOFY successful EOFY

Here are some key tips and dates from experts which small-business owners might wish to consider while putting their home in order for tax time.

1. Finalise your accounts

• Examine and approve your invoices, bills and expense claims.
• Check overdue accounts and outstanding transactions for a view of the year in its entirety.
• Review the debtors’ accounts as of 31 March, and think about taking any bad debts off so that they can be counted as an annual deduction at the end of the year.
• Include clients or suppliers that have paid you invoices on the 31st of March or before but aren’t reimbursed till after April. Take these costs into consideration as expenses for 2020-21.

2. Clean up and reconcile your files

• Incorporate bank statement statements and tax year-end statements, records, plus sales, expense, and purchase records.
• Consolidate your bank accounts and make sure they are in balance with the amounts from your bank statement.
• Prepare your profit-and-loss statement to determine how much profits your company made annually.

3. Review data from your payroll provider and Inland Revenue

• Examine the data obtained during EOFY to assess the financial condition of your company.
• Request your payroll provider to submit EOFY data as soon as you can so that it can be reviewed.
• Access to Inland Revenue records, including PAYE tax obligations, as well as KiwiSaver duties for staff.

4. Manage 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 income and length of employment.
• You must file electronically, in accordance with the mandate by law, if your company pays more than $50,000 per year in PAYE tax and ESCT.

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

5. Maximise your tax refunds

• Record all expenses and purchases of assets during the year, along with the cost of improvements or maintenance, to claim any refunds from EOFY.
• You should consider disposing of old stock since provisions for obsolete stock or stock write-downs aren’t typically allowed as tax deductions.
• It is recommended to pay within 63 days of 31 March, to receive an employee-related expense deduction such as bonuses, holiday pay, and long-service leaves.
• If your earnings are significantly more than it was last year, you may want to consider an additional voluntary provisional tax payment to ensure that your tax payment is aligned with your earnings.

6. Keep business and personal finances Separately

It is not common to get tax deductions on personal expenses. If it’s just business expenses, you could be adding unnecessary compliance costs when your accountant is required to split up what’s tax deductible and the rest of it.

Some key 2021 tax dates

• 9 February 2021 - 2020 income tax due for those who do not have a tax professional.
• 1 March 2021 GST return and payment due for the end of January for those who file their GST returns every two months.
• The deadline for filing is 31 March 2020 income tax return due for tax professionals (with an extension valid for time).
• 1 April 2021 - the new financial year starts with New Zealand.
• 7 May 2021 Final installment of the tax proviso for the fiscal year 2020 and the final opportunity to make tax provisional voluntary payments.
• 7 May 2021 Tax return for the year’s end and payment due.

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