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

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

For small businesses such as retailers or restaurants, it’s especially important to monitor stock levels when the end of financial year approaches.

If you go to your accountant but aren’t able to recall your stock levels from the last few months this can lead to problems.

A good reminder for small business owners is that a temporary increase of 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 businesses.

Three important changes to 2021

These are just a few of the important tax-related changes that occurred recently or are on the agenda for 2021.

1. Don’t forget that the minimum wage will rise by $1.10, taking it up from $18.90 to $20 an hour from April 1 2021. This could potentially affect your financial records as well as superannuation payment.
2. A new 39% personal tax rate will apply on income above $180,000. The new tax rate is effective beginning on April 1, 2021. Tachibana states that this will more likely impact those who make a living by providing personal services rather than those who hold investment accounts and are able to earn capital gains.
3. Be aware that the ACC Earners’ levy, that covers the cost associated with employee injuries, will remain at its current levels until 2022 to help companies deal with the financial pressures of COVID-19. As at January 2021, the levy stood at $1.39 for every $100 (1.39 percent).

The fundamental elements of EOFY achievement

Here are some guidelines and dates from professionals that small business owners might want to keep in mind to ensure their house is in order for tax time.

1. Finalise your accounts

• Review and approve your invoices, bills and expense claims.
• Review accounts with a late payment and outstanding transactions to gain a view of the year in its entirety.
• Review debtors as at 31 March. You may also consider taking any bad debts off so they are considered an annual deduction at the end of the year.
• List suppliers or clients who’ve paid you invoices on the 31st of March or before, but who won’t be due until the end of April. Think about treating these expenses as 2020-21 expenses.

2. Clean up and reconcile your files

• Combine bank accounts, income tax year-end documents, as well as sales, expenses, and purchase records.
• Consolidate your bank accounts and check they match the balances from your bank statements.
• Prepare your profit-and-loss statement to determine how much annual revenue your business has earned.

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

• Check the information obtained during EOFY to review the financial position of your business.
• Contact your payroll provider to supply EOFY information as early as possible so that it can be reviewed.
• Access to Inland Revenue information, including PAYE tax obligations as well as any 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 dependent on their salary and length of tenure.
• File electronically, as mandated in the event that your business pays at least $50,000 in PAYE tax and ESCT.

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

5. Maximise your tax refunds

• Track expenses and asset purchases during the year, plus expenses for improvements or maintenance for claiming any refunds from EOFY.
• Consider disposing of obsolete stock, as provisions for obsolete stock or write-downs on stock aren’t typically allowed as tax deductions.
• You should consider making your payments within 63-days after 31 March, to receive the benefit of a deduction for expenses related to employees like bonuses, holiday pay, and long-service leaves.
• If your earnings are significantly more than it was last year, think about making an additional provisional tax payment to align your tax obligations with turnover.

6. Maintain personal and financial finances Separately

It is not common to get tax deductions for personal expenses. you only get deductions for business expenses, you could be adding unnecessary compliance costs if your accountant has to split up what’s tax deductible and the rest of it.

Certain tax deadlines for 2021 are crucial.

• 9 February 2021 2021 – 2020 tax year due for taxpayers who don’t have a tax representative.
• 1 March 2021 - GST return and due for the end of January for businesses filing every two months.
• 21 March - 2020 income tax return due for tax professionals (with an effective extension of the deadline).
• 1 April 2021 The new financial year begins with New Zealand.
• 7 May 2021 - final provisional tax instalment due for the fiscal year 2020 and last chance to make tax provisional voluntary payments.
• 7 May 2021 - end-of-year GST return and payment due.

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