Key dates and advice to help small businesses prepare for EOFY

The use of intuitive accounting software and cloud storage options like Google Drive or Dropbox – along with tenancy management software such as myRent.co.nz - could save businesses time.

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

If you go to your accountant and are unable to remember the stock levels you had a couple of months ago this can lead to problems.

A good reminder for smaller entrepreneurs is that an increase in the write-off of assets in the moment during COVID-19 from $500 to $5,000 – will be scaled back to $1,000 starting 17 March 2021.

It’s a change that could affect a lot of small-scale businesses.

Three important changes to 2021

Below are other important tax-related reforms that took place recently or are on the agenda for 2021.

1. Don’t forget that your minimum wage will increase by $1.10, taking it between $18.90 to $20 per hour from April 1 2021. This could potentially affect your financial records as well as superannuation payment.
2. A new personal tax rate is set to apply on income above $180,000. The new tax rate will be in effect beginning on April 1, 2021. Tachibana says this is more likely to impact those who make a living through personal services, rather than those who hold investments and earn capital gains.
3. Take note that ACC Earners’ levy, which helps cover the costs associated with employee injuries, will remain at the present levels until 2022 to assist businesses in coping with the financial burdens of COVID-19. At the time of January 2021 the levy is $1.39 per $100 (1.39%).

The essential elements to EOFY success

Here are some advice and dates from experts that small business owners might be able to remember as they get their home organized for tax season.

1. Finalise your accounts

• Examine and approve your bills, invoices and expense claims.
• Review accounts with a late payment and outstanding transactions to get a view of the year in its entirety.
• Re-evaluate debtors on 31 March and consider writing off any bad debts so that they can be counted as an annual deduction at the end of the year.
• You should list clients or suppliers who have invoiced you by 31 March or before but will not be due until the end of April. Take these costs into consideration as 2020-21 expenses.

2. Clean up and reconcile your records

• Incorporate bank statement statements and year-end income tax records, sales, expense and purchase records.
• Consolidate your bank accounts and ensure that the balances are the same from your bank statements.
• Prepare your profit and loss statement to work out how much annual revenue your business has earned.

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

• Examine the data that you have collected during EOFY to assess the current financial condition of your company.
• Ask your payroll vendor to supply EOFY information as soon as you can so that it can be analyzed.
• Access to Inland Revenue records, which include 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 the rate dependent on their salary and the length of service.
• Electronically file, as required in the event that your business pays at least $50,000 in tax on PAYE and ESCT.

*For KiwiSaver businesses, they have to pay ESCT on contribution from employers of up to 3 per cent, but not on contributions deducted from wage payments to employees.

5. Maximise your tax refunds

• Record all expenses and purchases of assets during the year, along with spending on repairs or maintenance for claiming any refunds from EOFY.
• Think about disposing of stock that is no longer needed since provisions for obsolete stock or write-downs of stock are not generally allowed as tax deductions.
• You should consider making your payments within 63 days of 31 March to obtain an employee-related expense deduction such as bonuses, holiday pay, and long-service leaves.
• If your income is substantially greater than the previous year, you may want to consider an additional provisional tax payment to ensure that your tax payment is aligned with your earnings.

6. Make sure that personal and business finances are separate

Tax deductions are not usually available for personal expenses. deductions on personal expenses. If you only get deductions for business expenses, you could be incurring unnecessary compliance costs when your accountant is required to separate what’s tax-deductible and what’s not.

Some key 2021 tax dates

• 9 Feb 2021 2021 – 2020 tax year to be paid for those who don’t have a tax agent.
• 1 March 2021 GST return and tax due by the end of January for businesses that file each two months.
• 21 March Tax year 2020 return due for tax professionals (with an effective extension of time).
• 1. April, 2021 the start of the new financial year begins from New Zealand.
• 7 May 2021 - final proviso tax instalment due for the 2020 financial year and the last opportunity to make tax provisional voluntary payments.
• 7 May 2021 Tax return for the year’s end and due payment.

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