Important 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 can help save businesses time.

For smaller businesses like restaurants and retailers it is crucial to monitor the stock levels in advance of the time for the end of the fiscal year approaches.

If you visit your accountant and are unable to remember the levels of your stocks from the last few months this can lead to problems.

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

This is a change that will have a significant impact on small-scale businesses.

Three important changes to 2021

Below are other important tax-related reforms which have occurred recently or are on the agenda for 2021.

1. Do not forget that the minimum wage will rise by $1.10 to increase it from $18.90 to $20 per hour as of 1 April 2021. It could affect your financial records as well as superannuation payments.
2. A new 39% personal tax rate will be imposed on income above $180,000. The new rate will take effect from 1 April 2021. Tachibana claims that this is likely to affect those who earn a living from providing personal services, instead of those who own investment accounts and are able to earn capital gains.
3. Make sure you are aware that ACC Earners’ levy, which helps cover the costs that are incurred by injuries to employees, will be kept at their current levels until 2022, to help businesses deal with the financial strains of COVID-19. In January 2021, the levy is $1.39 for every $100 (1.39%).

The foundational elements for EOFY achievement

Here are some important information and dates from experts that small-business owners may want to keep in mind as they get their home up and running for tax time.

1. Finalise your accounts

• Make sure you approve the bills, invoices and expense claims.
• Follow up overdue accounts and outstanding transactions to get a view of the year’s total.
• Review the debtors’ accounts as of 31 March. You may also consider taking any bad debts off so that they can be counted as a year-end deduction.
• Include clients or suppliers that have invoiced you by 31 March or before but will not be reimbursed till after April. Consider treating these costs as 2020-21 expenses.

2. Clean up and reconcile your records

• Combine bank accounts, income tax year-end and sales records, along with purchase and expense records.
• Reconcile your bank accounts and verify that they are in line with the balances on your bank statements.
• Prepare your profit and loss statement to calculate the annual profit your business made.

3. Re-read the information you receive from your payroll company and Inland Revenue

• Examine the data collected during EOFY to determine the financial position of your business.
• Request your payroll provider to provide EOFY data as soon as you can so that it can be reviewed.
• Access to Inland Revenue records, which include PAYE tax obligations as well as any KiwiSaver duties for staff.

4. Manage your superannuation

• Change your employer’s superannuation tax (ESCT) rates*, with the rate differing for each employee based on their earnings and length of tenure.
• You must file electronically, in accordance with the mandate when your business is paying $50,000 or more a year in ESCT and PAYE taxes.

*For KiwiSaver businesses, they have to pay ESCT on mandatory employer contributions of 3%, but not on contributions that are deducted from wage payments to employees.

5. Maximise your tax refunds

• Keep track of all expenditures and asset purchases throughout the year, as well as expenses for 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 are not generally allowed as tax deductions.
• Consider making payments within 63 days after 31 March to obtain the benefit of a deduction for expenses related to employees such as bonuses, holiday pay, or long-service leave.
• If your income is substantially higher than what you earned last year, think about making an additional provisional tax payment to make sure your tax payments are aligned with turnover.

6. Make sure that personal and business finances are separate

It is not common to get tax deductions on personal expenses. If it’s just business expenses. However, you may be adding unnecessary compliance costs If your accountant must divide what is tax-deductible and what’s not.

Some key 2021 tax dates

• 9 February 2021 Tax on income for 2020 due for those who don’t have a tax advisor.
• 1 March 2021 - GST return and tax due by January for companies that file every two months.
• 31 March 2021 2021 – 2020 tax return due for tax professionals (with an extension valid for time).
• 1 April 2021 the start of the new financial year starts on the island of New Zealand.
• 7 May 2021 Final proviso tax instalment due for the fiscal year 2020 and the final opportunity to make provisional tax payments.
• 7 May 2021 Tax return for the year’s end and payment due.

NOTE: Some dates may differ from the official deadline, for example the due date is a weekend or public holiday.