Key dates and advice to help small businesses get ready for end of financial year

Utilizing intuitive accounting software as well as cloud storage such as Google Drive or Dropbox – in addition to tenancy administration software such as myRent.co.nz and myRent.co.nz – can help businesses save 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 looms.

If you visit your accountant but aren’t able to recall the levels of your stocks from just a few months ago this can lead to problems.

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

It’s a change that could be a major impact on small businesses.

3 important changes in 2021

Here are some other important tax-related changes that occurred recently or are on the agenda for 2021.

1. Remember that the minimum wage is set to increase by $1.10 to increase it up from $18.90 to $20 an hour from April 1 2021. This could affect your financial records as well as superannuation payouts.
2. A new 39% personal tax rate will apply for incomes above $180,000. The new tax rate is effective beginning on April 1, 2021. Tachibana believes this is likely to be a problem for those who earn income from personal service, rather than those who hold investments and earn capital gains.
3. Take note that ACC Earners’ levy, that helps pay for the expenses related to injuries sustained by employees, will remain at their current levels until 2022, to help businesses deal with the financial strains of COVID-19. As of January 20, 2021 the levy sits at $1.39 per $100 (1.39%).

The fundamental elements of EOFY successful EOFY

Here are some key advice and dates from experts that small business owners might wish to consider while putting their home organized for tax season.

1. Finalise your accounts

• Check and approve your bills, invoices and expense claims.
• Review accounts with a late payment as well as outstanding transactions to get a view of the entire year.
• Review the debtors’ accounts as of 31 March. Consider writing off any bad debts in order to make them an end-of-year deduction.
• Include clients or suppliers that have been invoiced on or before 31 March or earlier but won’t be invoiced until April. You might want to consider treating these costs as 2020-21 costs.

2. Clean up and reconcile your files

• Incorporate bank statement statements and year-end income tax records, sales, expense, and purchase records.
• Reconcile your bank accounts , and make sure they are in balance with the amounts from your bank statement.
• Prepare your profit and loss statement to work out how much profits your company made annually.

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

• Assess information that you have collected during EOFY to review the financial condition of your company.
• Get your payroll company to send EOFY details when you can, so it can be analysed.
• Access to Inland Revenue information, including PAYE tax obligations and KiwiSaver duties for staff.

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

• Change your employer’s superannuation tax (ESCT) rates*, with rates varying for each employee based on their earnings and length of employment.
• Electronically file, as required by law, if your company pays $50k or more in tax on PAYE and ESCT.

*For KiwiSaver businesses, they need to pay ESCT on mandatory employers’ contributions of 3 percent, but not on contributions that are deducted from the employee’s wages.

5. Maximise your tax refunds

• Track expenses and asset purchases during the year, along with the cost of improvements or maintenance, to claim any EOFY refunds.
• Consider disposing of obsolete stock, as provisions for obsolete stock or write-downs of stock are not usually tax-deductible.
• Consider making payments within 63 days after 31 March, to receive an employee-related expense deduction like holiday pay, bonuses and long-service leaves.
• If your income is significantly higher than what you earned last year, you might want to make an additional voluntary tax payment to ensure that your tax payment is aligned with your earnings.

6. Make sure that personal and business finances are separated

There aren’t any tax deductions for personal expenses; only company expenses. But you might be racking up unnecessary compliance costs in the event that your accountant needs to separate what’s tax-deductible and what’s not.

Certain tax deadlines for 2021 are crucial.

• 9 February 2021 2021 – 2020 tax year due for those who do not have a tax agent.
• 1 March 2021 GST return and due by the end of January for companies that file every two months.
• 30 March 2021 2020 income tax return due for tax agents (with an effective extension of the deadline).
• 1. April, 2021 The new financial year starts on the island of New Zealand.
• 7 May 2021 - final installment of tax provisional due for the 2020 financial year and last chance to make voluntary tax payments.
• 7 May 2021 GST tax return at the end of the year and payment due.

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