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

The use of intuitive accounting software and cloud storage like Google Drive or Dropbox – in addition to tenancy administration software like myRent.co.nz - could save businesses time.

Smaller companies, like restaurants or retailers It’s crucial to monitor stock levels when the close of the financial year draws near.

If you visit your accountant, and you are unable to recall your stock level from the last few months this can lead to problems.

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

It’s a change that could have a big impact on small-scale companies.

Three significant changes are coming in 2021.

Here are some additional important tax-related reforms which have occurred recently or are scheduled for 2021.

1. Do not forget that the minimum wage will increase by $1.10 to increase it up from $18.90 to $20 per hour as of 1 April 2021. This could potentially 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 from April 1, 2021. Tachibana claims that this will more likely impact those who make a living from personal service, instead of those who own an investment and enjoy capital gains.
3. Be aware that the ACC Earners’ levy, which helps cover the costs associated with employee injuries, will be kept at level until 2022 in order to help businesses cope the financial burdens of COVID-19. At the time of January 2021 the levy was $1.39 for every $100 (1.39%).

The foundational elements for EOFY success

Here are some key tips and dates from experts that small-business owners may want to keep in mind to ensure their house is in order for tax time.

1. Finalise your accounts

• Examine and approve your invoices, bills and expense claims.
• Follow up overdue accounts and outstanding transactions to get an overview of the entire year.
• Review debtors as at 31 March. Consider taking any bad debts off so they are considered an end-of-year deduction.
• Include clients or suppliers that have paid you invoices on the 31st of March or earlier, but who won’t be reimbursed till after April. Think about treating these expenses as 2020-21 costs.

2. Clean up and reconcile your files

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

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

• Examine the data collected during EOFY to review the financial condition of your company.
• Ask your payroll vendor to provide EOFY data when you can, to allow it to be analysed.
• Access to Inland Revenue documents, including PAYE tax responsibilities and any KiwiSaver obligations for employees.

4. Manage superannuation

• Check your employer’s superannuation contributions tax (ESCT) rates*, with the rate varying for each employee based on their income and length of their tenure.
• You must file electronically, in accordance with the mandate, if your business pays at least $50,000 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 taken out of the employee’s wages.

5. Maximise your tax refunds

• Track expenses and asset purchases during the year, plus spending on repairs or maintenance to claim any refunds from EOFY.
• Take into consideration disposing of stocks that are no longer in use in light of the fact that provisions for old stock or write-downs of stock are not generally allowed as tax deductions.
• Make sure to make payments within 63 days after 31 March, to receive an employee-related expense deduction like bonuses, holiday pay, or long-service leave.
• If your income is greater than the previous year, you might want to make an additional voluntary tax payment to align your tax obligations to your income.

6. Maintain personal and financial finances distinct

There aren’t any tax deductions for personal expenses; you only get deductions for company expenses. But you might be racking up unnecessary compliance costs when your accountant is required to separate what’s tax-deductible and what’s not.

Important tax dates in 2021

• 9 Feb 2021 - 2020 income tax to be paid for those who don’t have a tax advisor.
• 1 March 2021 GST return and due at the end of January for those who file their GST returns every two months.
• 31 March 2021 Tax year 2020 return due for clients of tax professionals (with an extension valid for the deadline).
• 1. April, 2021 the start of the new financial year begins with New Zealand.
• 7 May 2021 - final proviso tax instalment due for the 2020 financial year and the final opportunity to make voluntary provisional tax payments.
• 7 May 2021 GST tax return at the end of the year and due payment.

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