Key dates and tips to help small businesses prepare for end of financial year

Using intuitive accounting software and cloud storage like Google Drive or Dropbox – and tenancy management software like myRent.co.nz and myRent.co.nz – can help businesses save time.

For small businesses such as restaurants or retailers It’s crucial to track stock levels as the time for the end of the fiscal year approaches.

If you visit your accountant but aren’t able to recall your stock level from a couple of months ago and you’re having trouble remembering, it’s a problem.

A great reminder for small entrepreneurs is that an increase in the instant asset write-off during COVID-19 – from $500 to $5,000 – is being scaled back to $1,000 beginning 17 March 2021.

This change will be a major impact on small businesses.

3 important changes in 2021

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

1. Do not forget that the minimum wage is set to increase by $1.10 increasing it to $18.90 to $20 per hour on April 1, 2021. This could potentially affect your financial records as well as superannuation payments.
2. A new 39% personal tax rate will be applied on earnings of greater than $180,000. The new tax rate will be in effect from 1 April 2021. Tachibana states that it is more likely to be a problem for those who earn income through personal services, instead of those who own an investment and enjoy capital gains.
3. It is important to be aware of the ACC Earners’ levy, that helps pay for the expenses of injuries suffered by employees will remain at its current levels until 2022 to help businesses deal with the financial burdens of COVID-19. As of January 20, 2021 the levy is $1.39 per $100 (1.39 percent).

The essential elements to EOFY the success of EOFY

Here are some key tips and dates from experts which small-business owners might want to keep in mind when getting their house ready for tax time.

1. Finalise your accounts

• Make sure you approve the invoices, bills and expense claims.
• Review accounts with a late payment as well as outstanding transactions to get a view of the year in its entirety.
• Re-evaluate debtors on 31 March. You may also consider eliminating any outstanding debts so that they can be counted as a year-end deduction.
• List suppliers or clients who’ve invoiced you on 31 March or before but aren’t paid until after April. You might want to consider treating these costs as 2020-21 costs.

2. Make sure you reconcile and clean up your records

• Incorporate bank statement statements and year-end income tax documents, as well as sales, purchase and expense records.
• Check your bank accounts to ensure they are reconciled and ensure that the balances are the same from your bank statement.
• Prepare your profit and loss statement to determine how much annual profits your business earned.

3. Review data from your payroll company and Inland Revenue

• Assess information obtained during EOFY to review the financial health of your business.
• Get your payroll company to send EOFY details as early as possible so that it can be reviewed.
• Access Inland Revenue documents, including PAYE tax obligations as well as any KiwiSaver requirements for the employees.

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 differing for each employee based on their income and length of service.
• Electronically file, as required in the event that your business pays at least $50,000 in ESCT tax and PAYE tax.

*For KiwiSaver businesses, they need to pay ESCT for compulsory employee contributions up to 3%, but not on contributions that are deducted from the employee’s wages.

5. Maximise your tax refunds

• Track expenses and asset purchases in the course of the year, and expenditure on improvements or upkeep for claiming any EOFY refunds.
• You should consider disposing of old stock, as provisions for obsolete stock or stock write-downs aren’t typically allowed as tax deductions.
• Make sure to make payments within 63 days after 31 March, to receive a deduction for employee-related expenses like bonus pay, holiday pay and long-service leave.
• If your income is significantly greater than the previous year, you may want to consider an additional tax provisional payment to ensure that your tax payment is aligned to your income.

6. Maintain personal and financial finances Separately

You generally don’t get tax deductions on personal expenses. If you only get deductions for company expenses. But you might add unnecessary compliance charges in the event that your accountant needs to divide what is tax-deductible and what’s not.

Certain tax deadlines for 2021 are crucial.

• 9 Feb 2021 Tax on income for 2020 due for those who don’t have a tax agent.
• 1 March 2021 GST return due and payment due for the end of January for those who file their GST returns every two months.
• 31 March 2021 Tax year 2020 return due for tax agents (with an extension valid for time).
• 1 April 2021 the start of the new financial year starts from New Zealand.
• 7 May 2021 - final proviso tax instalment due for the fiscal year 2020 and the last opportunity to make provisional tax payments.
• 7 May 2021 - end-of-year GST return and payment due.

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