Key dates and tips to help small businesses prepare 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 - could save businesses time.

For smaller businesses like restaurants or retailers, it’s especially important to keep track of stock levels as the close of the financial year is near.

If you visit your accountant but aren’t able to recall your stock levels from a couple of months ago, that creates difficulties.

A good reminder for small business owners is that a temporary increase in the write-off of assets in the moment during COVID-19 from $500 to $5,000 – is set to be lowered back to $1,000 as of 17 March 2021.

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

Three important changes to 2021

Below are other important tax-related reforms that occurred recently or are planned for 2021.

1. Don’t forget that the minimum wage is set to increase by $1.10 and will increase from $18.90 to $20 an hour as of 1 April 2021. This could impact your financial records and superannuation payment.
2. A new 39% personal tax rate will be applied for incomes above $180,000. The new tax rate is effective beginning on April 1, 2021. Tachibana says this will more likely impact those who make a living from providing personal services, as opposed to those who have investment accounts and are able to earn capital gains.
3. Take note that ACC Earners’ levy, which helps cover the costs related to injuries sustained by employees, will remain at their current levels until 2022, to help companies deal with the financial burdens of COVID-19. As of January 20, 2021 the levy was $1.39 for every $100 (1.39%).

The fundamental elements of EOFY success

Here are some important advice and dates from experts which small-business owners might need to be aware of to ensure their house is up and running for tax time.

1. Finalise your accounts

• Check and approve your bills, invoices and expense claims.
• Follow up overdue accounts and outstanding transactions to gain an overview of the year’s total.
• Re-evaluate debtors on 31 March and consider taking any bad debts off in order to make them an annual deduction at the end of the year.
• Note clients or suppliers who invoiced you by 31 March or before but won’t be due until the end of April. Think about treating these expenses as 2020-21 costs.

2. Clean up and reconcile your files

• Incorporate bank statement statements and tax year-end statements, records, sales, expense and purchase records.
• Reconcile your bank accounts and check they match the balances on your bank statements.
• Prepare your profit-and-loss statement to determine how much annual profits your business earned.

3. Examine the information from your payroll company and Inland Revenue

• Check the information collected during EOFY to determine the financial condition of your company.
• Ask your payroll vendor to supply EOFY information as early as possible so it can be analysed.
• Access Inland Revenue documents, including PAYE tax obligations, as well as KiwiSaver duties for staff.

4. Superannuation is a key component of the financial system.

• Make sure you are aware of your employer’s superannuation contribution tax (ESCT) rates*, with the rates dependent on their salary and length of employment.
• Electronically file, as required when your business is paying $50,000 or more a year in PAYE tax and ESCT.

*For KiwiSaver companies, they must pay ESCT on mandatory employee contributions up to 3% but not on contributions taken from the wages of employees.

5. Maximise your tax refunds

• Keep track of all expenditures and asset purchases during the year, along with the cost of improvements or maintenance in order to claim any EOFY refunds.
• You should consider disposing of old stock because provisions for the disposal of obsolete stock or stock write-downs are not typically tax-deductible.
• Make sure to make payments within 63 calendar days following 31 March, to receive a deduction for employee-related expenses such as bonuses, holiday pay, or long-service leaves.
• If your earnings are significantly greater than the previous year, you might want to make an additional voluntary tax payment to align your tax obligations with your earnings.

6. Separate personal and business finances Separately

There aren’t any tax deductions for personal expenditure; it’s only your business expenses, you could be racking up unnecessary compliance costs If your accountant must split up what’s tax deductible and the rest of it.

Important tax dates in 2021

• 9 February 2021 2021 – 2020 tax year to be paid for those who don’t have a tax advisor.
• 1 March 2021 GST return and tax due at the end of January for businesses that file each two months.
• The deadline for filing is 31 March Tax year 2020 return due for clients of tax professionals (with an effective extension of time).
• 1 April 2021 The new fiscal year starts from New Zealand.
• 7 May 2021 Final installment of the tax proviso for 2020’s fiscal year and last chance to make voluntary tax payments.
• 7 May 2021 Tax return for the year’s end and due payment.

Note: Some dates may vary from the official deadline, for instance the due date falls on a weekend or public holiday.