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

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

Smaller companies, like restaurants or retailers it is crucial to monitor the stock levels in advance of the closing date of the financial year is near.

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

A good reminder for smaller entrepreneurs is that a temporary increase of the asset write-off in an instant during COVID-19 – from $500 to $5,000 – is set to be lowered back to $1,000 starting 17 March 2021.

This change will have a big impact on small-scale businesses.

3 important changes in 2021

Below are other important tax-related changes that took place recently or are in the works for 2021.

1. Don’t forget that the minimum wage will increase by $1.10, taking it between $18.90 to $20 an hour starting on April 1 2021. This could potentially affect your financial records and superannuation payment.
2. A new 39% personal tax rate is set to apply on earnings of greater than $180,000. The new rate will take effect from April 1, 2021. Tachibana states that this is more likely to affect those who earn a living by providing personal services rather than those who hold the shares and make capital gains.
3. It is important to be aware of the ACC Earners’ levy, that helps pay for the expenses related to injuries sustained by employees, will be kept at present levels until 2022 to assist businesses in coping with the financial strains of COVID-19. At the time of January 2021 the levy is $1.39 for every $100 (1.39 percent).

The building blocks for EOFY achievement

Here are some key advice and dates from experts which small-business owners might need to be aware of 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 to gain an overview of the entire year.
• Review the debtors’ accounts as of 31 March. Consider taking any bad debts off in order to make them a year-end deduction.
• You should list clients or suppliers who have been invoiced on or before 31 March or before but won’t be paid until after April. Take these costs into consideration as 2020-21 costs.

2. Clean up and reconcile your records

• Consolidate bank statements, tax year-end statements, records, sales, expense and purchase records.
• Reconcile your bank accounts and ensure that the balances are the same from your bank statement.
• Create a profit and loss account to calculate the 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 financial condition of your company.
• Get your payroll company to submit EOFY data in the earliest time possible so it can be analysed.
• Access Inland Revenue documents, including PAYE tax obligations and KiwiSaver obligations for employees.

4. Manage superannuation

• Check your employer’s superannuation contributions tax (ESCT) rates*, with the rate dependent on their salary and length of employment.
• File electronically, as mandated, if your business pays at least $50,000 in ESCT tax and PAYE tax.

*For KiwiSaver businesses, they need to pay ESCT on compulsory contribution from employers of up to 3 per cent, but not on contributions taken from employee wages.

5. Maximise your tax refunds

• Log expenses and asset purchases during the year, along with expenses for improvements or maintenance for claiming any refunds from EOFY.
• Consider disposing of obsolete stock in light of the fact that provisions for old stock or write-downs on stock aren’t typically tax-deductible.
• Consider making payments within 63 calendar days following 31 March, to receive an allowance for employee-related expenses like bonus pay, holiday pay and long-service leave.
• If your income is significantly more than it was last year, you might want to make an additional tax provisional payment to align your tax payments to your income.

6. Separate personal and business finances separate

There aren’t any tax deductions for personal expenses; it’s just business expenses, you could be incurring unnecessary compliance costs If your accountant must determine what tax-deductible and the rest of it.

Some key 2021 tax dates

• 9 Feb 2021 Income tax for 2020 due for taxpayers who don’t have a tax representative.
• 1 March 2021 - GST return and tax due by the end of January for companies that file every two months.
• 30 March 2021 2020 income tax return due for 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 tax provisional due for the fiscal year 2020 and the last opportunity to make voluntary tax payments.
• 7 May 2021 GST tax return at the end of the year and due payment.

NOTE: Some dates may vary from the official deadline, such as if a due date falls on a weekend or public holiday.