Running a business will always mean incurring certain expenses, or ‘spend’.

Whether you’re a large family business or a small fledgling startup, there will be costs, overheads and supplier bills that mount up – and these expenses will gradually chip away at your cash position, making it more difficult to grow and make a profit.

So, what can you do to reduce your spend levels? And what impact will this have on your overall margins, profits and ability to fund the next stage in your business journey?

Getting proactive with your spend management

Spend management is all about getting in control of your expenses – and, where possible, aiming to reduce the level of costs and overheads that you incur as a company.

Why does this matter? Well, excessive spending eats into your cashflow, reduces your profit margins and stops you from achieving the profits that you’re capable of as a business. So if you can get proactive with your spend management, you can actually make your company a far more financially productive enterprise – and that’s great for your overall business health.

So, what can you do to reduce spend and slim down your company expenses?

Here are some key ways to reduce expenses:

• Reduce your overheads – Your overheads are the unavoidable costs of running your business, producing your products or supplying your services. If you have bricks and mortar premises, these overheads will include rental payments, utility bills and even the cost of paying your staff. Drill down into the numbers and see where there are opportunities to reduce these overhead costs. That could mean moving to smaller premises, or reducing the size of your workforce, to reduce payroll expenditure.
• Put limits on staff expenses – If your employees can claim expenses, or buy raw materials and equipment with the company’s money, these costs can soon start to rack up. It’s a good idea to put a spending limit in place, so each staff member can only spend up to an agreed amount. Having a clear expenses policy helps, as will training up your staff in good spend management techniques. Specialist expenses card software allows you to quickly set spend limits, track expenses and pull your expenses data through to your cloud accounting platform for processing.
• Look for cheaper suppliers – If you can reduce your supplier costs, this will go a long way to bringing down your overall spend. If you’ve been with certain key suppliers for years, look around for new quotes, look at current market prices and see if you can negotiate better deals. And if your old suppliers aren’t flexible enough, try swapping to newer, more eager suppliers who will be willing to meet you in the middle on price.
• Make your operations leaner – the bigger your operational costs are, the less margin you’ll make on your end products and services. One way to resolve this is to aim for a ‘lean approach’, paring back your staff, resources and operational complexity to the bare minimum. By making the business as lean as possible, whilst still delivering the same output, you keep your revenue stable, but reduce the spend level that’s eating into your cost of goods sold (COGS). The smaller your COGS, the more profit you make on each unit or sale – and that means better cashflow, more working capital and bigger profits.
• Explore tax reliefs – Tax costs are an unavoidable expense when running your business, but it’s worth exploring which tax reliefs, grants or other business benefits you may benefit from. For example, research and development (R&D) tax credits may be available to you to help cut your corporation tax expenses.
  

If you’d like to get in control of your expenses, we’d love to chat. We’ll review your current costs and will highlight the key areas where expenses can be cut. Then we’ll help you formulate a proactive spend management program, to reduce your unnecessary spending.

Get in touch to start reducing your spend.

Whether it’s for reaching a sales target, a birthday, Christmas or just to say thanks, sometimes you want to buy gifts for your employees.

Although it’s a nice gesture, as a business owner it can be unexpectedly complex to provide staff perks. Perks like subsidised gym memberships and discounted products will attract fringe benefit tax, while cash and cash-redeemable vouchers are taxed as part of PAYE.

Any cash, or vouchers redeemable for cash, are taxable

A gift that comes in the form of cash, or that can be exchanged for cash, is considered part of your employee’s total remuneration. That means it must go through your usual payroll system.

The value of gifts must be below $300 a month or $1,200 a year to be exempt from FBT

There is an exemption for employer gifts, provided they stay below a certain value threshold.

You can give your employees vouchers, prizes or gifts up to a certain value without triggering an FBT liability, if:

• The value of the gifts does not exceed $300 in a quarter for any one individual.
• Or, if you file annual returns, the maximum is $1,200 each year for an employee.
• The maximum exemption you can claim is $22,500 each year, across all your employees.

There are a few other exemptions, including uniforms, car parks and membership reward schemes that can also be provided to employees without you needing to pay FBT.

You can read more about FBT exemptions here.

Once you exceed the exemption threshold, you will trigger an FBT liability.

We can help with FBT questions

Rewarding employees can be complex, whether it’s company vehicles, vouchers, discounts or insurance policy contributions. We can help you navigate the tax landscape and help you know when tax will and won’t apply.

Get in touch, we’d love to hear from you.

A new financial year is upon us and that means that it’s time to check the accuracy of your financial information in your accounting software for the past financial year, and to gather the documentation that we, as your accountant, will need to finalise your accounts and file your tax returns.The sooner we have this information the sooner we can complete your accounts and notify you of your tax position. It’s a good idea to have this information as soon as possible so that you can make informed business decisions based on accurate data.

If you feel that your business is going to look significantly different this financial year you need to talk to us so that we can more accurately estimate any provisional tax.

Here’s a list of what to check, gather and look for:

Bank Reconciliations

All bank Reconciliations, including credit card and loan accounts, should be up to date to the end of March. This means that all transactions have been entered, that there are no unreconciled transactions, and that the bank account balance at your bank matches the balance in your accounting software. Your accountant may also need to see verification of bank account balances in the form of bank statements (pdf copies are usually OK).

Accounts Receivable

Make sure all sales for the previous financial year have been invoiced (dated in March or prior months) and run your Aged Receivables report to verify that the information on this report - what’s owed to you - is accurate. Follow up any overdue customer balances and consider whether or not any are uncollectible and should be written off as bad debts.

Accounts Payable

Make sure all supplier bills for the previous financial year have been received and entered into your accounting system. Check the statements from your suppliers and verify that their balance owed is the same as what you have recorded. Run your Aged Payables report to verify that the information on this report - what you owe - is accurate.

Inventory

If you carry inventory you need to complete a stock take at the end of each financial year to account for all the stock that you have purchased but not sold. This means doing a manual count of all of your stock on hand as at March 31st.

Fixed Assets and Depreciation

Have a look at your fixed asset register from last year and let your accountant know if anything on that register has been sold or disposed of. Fixed Assets are any asset over $1000*. The rules around these assets are that the cost of them gets spread over the expected lifetime of the asset rather than expensed all in one financial year. The spreading of the cost is called depreciation. As your accountant, we may need to see invoices for fixed asset purchases so attach them to the transaction in your accounting software or create a file or folder that you can share with us.

*The threshold went to $5000 from 17 March 2020 to 16 March 2021, then back down to $1000 from 17 March 2021.

Payroll and Wage and Leave Liabilities

If you have staff, ensure that the final payroll for the financial year has been run and entered into your accounting software. You need to account for any wages owed to staff (this can sometimes happen with timing between the end of the pay week and pay day) and annual leave liabilities at the end of the financial year in order to accurately reflect the business’s liabilities on the balance sheet. If you’re using payroll software you will be able to generate a report telling you how much these are. These two liability accounts also need to be reconciled to verify the accuracy of the balances.

Loans and Hire Purchases

Any loans or hire purchase balances will need to be verified and accurately accounted for at the end of year. Gather up your loan documentation that includes the balance at year end along with the interest accrued and payments made.

GST

Ensure your final period GST Return (usually ending March 31st) has been finalised and filed with Inland Revenue.

Cash on Hand

Do you keep petty cash for small purchases? If so you will need to ensure that all cash expenditure is entered and accounted for and that you accurately account for the value of cash on hand.

Vehicle Expenses

Your accountant will need to know if you use your personal vehicle for business use, or vice versa, so that they can accurately account for motor vehicle expense.

Home Office

If you use part of your home for business use you can claim a portion of household expenses, such as rent, insurance, power, against your business income. How much you can claim depends on how much of your house you use. Total up your household bills for the year and talk to your accountant about how much you can claim.

Other Balance Sheet Items

All items on your balance sheet must be able to be verified and have supporting evidence for that. If you are unable to verify a balance talk to your accountant or bookkeeper about it.

Profit & Loss Report

Run your Profit & Loss report for the year and check if your figures look reasonable and as expected. It can be helpful to run this report by month so you can easily see variations from month to month. You may also compare against budget and/or last year’s actual figures. If things don’t look quite right, consider whether any variances may be caused by transactions miscoded to the wrong account.

Lock your accounting system

Once your month end and subsequently year end results are complete, set your accounting system’s lock date for “All users” on the last day of the month (e.g. 31 March). This stops anybody accidentally entering transactions into the past year(s) after they have been finalised and closed.

Are you recording, measuring and analysing enough of the data being generated by your business?

With so many apps and digital solutions now available to businesses, there's a wealth of useful data to trawl through – and plenty of hidden insights for you to benefit from.

Here are 5 ways to get more insights from your business data

1. Track your business finances

Managing your business accounts used to be something you left to your finance director. But with cloud accounting now the norm, every business now has 24/7 online access to detailed information about its financial position and performance. Deeper analysis and insights are usually available at the click of a button, helping you spot the pitfalls and potential opportunities.

Your accounting platform can show you:

• Profit & loss reports and balance sheets, with real-time data to help decision-making
• Cashflow forecasts and projections, to help plan your future cash position
• Budget tracking and spending reports, to stay in full control of your expenditure.

2. Review your credit score

The credit risk rating your company is given by the big credit agencies can have a huge impact on your ability to borrow. A high risk-rating will mean that banks and other lenders will be reluctant to offer you funding. And suppliers will be less open to offering you trade credit.

Some credit bureaus, like Experian, now offer ways to check your business credit score. With a better understanding of your credit data, you can take action to improve your score.

To get in control of your credit position, you should:

• Find out your current credit score and how this is impacting on your ability to borrow
• Check out your payment history and take action to improve performance
• Regularly check this credit data to track improvements or drops in your score

3. Monitor your sales and marketing data

Steady sales revenues are a must for any business that wants to grow, but how much oversight do you have over your historic and future sales data? Using a sales and marketing platform like Salesforce helps you track your sales, campaigns and customer relationships – giving you a goldmine of data to sift through and analyse:

Key data areas to analyse will include:

• Which products and/or services are making the most sales, and why
• Which customer demographic is the biggest spender, and why they’re advocates
• Which campaigns are delivering the best return on investment (ROI)

4. Track your staff performance

Your people are one of the company’s most important assets. But do you really know how well your employees are performing, or how engaged they are with the goals of the business? Today’s HR software makes it easy to set core skills and capabilities and track how each team member is performing over the course of the year.

As an employer, you can:

• Set performance and training targets, and see how your employees are tracking
• Run satisfaction surveys and staff feedback to check in on team engagement
• Use your data to drive improved performance and happiness in your workforce

5. Measure your performance against targets

One of the big benefits of tracking your business data is the ability to measure your performance against a given target. Whether it’s a budget target for a new department, or a sales target for a new marketing campaign, you have the performance data at your fingertips. This helps you motivate the team, work towards a common goal and ‘gamify’ your progress as a business.

If you share these targets and performance data with your people at monthly team meetings, this transparency can work wonders for motivation. When your employees, management team and executive team are all aiming for the same goals, you’re a more effective team.

Talk to us about getting more from your data

Transforming your company into a digital business may seem like the end of the process. But the reality is that getting in control of your data sharing, analytics and performance tracking is the genuine goal for any ambitious business in 2022.

We can help you connect up your app stack and focus on analysing the most important data for business success.

Transforming into a digital business sets the best possible infrastructure for your future growth. And, as your business scales, the benefits of going digital will start to become obvious.

Running your key business processes in the cloud and using the latest digital software and apps adds to both your efficiency and your productivity. And, most importantly, digital systems are designed to scale with you as your enterprise grows and the need for resources increases.

Here are some of the big reasons for taking the plunge and diving into digital.

Automate your key manual process to increase efficiency

A scalable business has to systemise its processes and procedures. If your business model is still tied to manual processes and a system that only exists in the owner’s head, you’ll eventually come up against a capacity brick wall. Systemising and automating your processes is a fundamental step when you make the jump to digital.

Look at every internal and external step in your operations and write down how these systems work. Note down each task, who actions what and how the whole system links in with the next step in your operational chain. If there are opportunities to automate a step, automate it. Many business apps now include artificial intelligence (AI) or automation features that can chase up unpaid invoices, send automated replies to customers in live chats, or take automatic payments etc.

Work in the cloud to stay more connected

Since the start of the 2020 pandemic, the world has seen a quantum shift to remote working – and that’s only been possible because of cloud technology. Instead of working from local applications on our laptops or office-based servers, most tech-savvy businesses now use cloud-based apps that are accessible anywhere you have an internet connection.

Switching to cloud-based systems is a game-changer. You and your team are no longer tied to a physical office and can be productive from any WiFi-enabled location. That could be your home, your customer’s warehouse, your regional office or your local coffee shop. And the benefits aren’t just limited to remote working. With your applications and databases in the cloud, you can access customer information, sales data or financial numbers wherever you happen to be. Everything is securely backed up and available at the press of a button – that’s an invaluable benefit if you want to be flexible, connected and scalable as a business.

Create your own custom app stack

Your business systems and software no longer have to remain static and based on the office server. By combining a business and accounting platform like Xero, MYOB, QuickBooks or Sage with your own choice of business apps, you can create a truly tailored ‘app stack’.

Apps use an API (application programming interface) to connect with each other, share data and form a larger business system. This can include apps to:

• Manage and automate your bookkeeping and accounting tasks
• Send out e-invoices to your customers to speed up payments
• Take automated payments and reconcile your transactions
• Automatically chase late-paying customers and carry out credit control duties
• Project manage your operations and provide detailed reporting
• Manage your job utilisation and time spend on each project
• Keep a detailed real-time inventory of your products
• Send out marketing campaigns and social media posts to your audience
• Interact more closely with your end customers and learn their habits

Record and track your business data

App integrations and a customer app stack don’t just improve your productivity. Because your apps are connected via APIs and are sharing your business data, you also have access to a wealth of data, information and reporting features.

Look in detail at your cashflow, expenses and spending to improve your cash position. Take a deep dive into your sales and marketing information to find out who your best (and most profitable) customers are. Run projections and ‘What if…’ scenarios, based on your historical data to forecast the future path of the business. There are plenty of ways to make use of this bountiful data to help you review, understand and improve your performance as a company.

Make better-informed business decisions

A business in the pre-computer age would have had very little information on which to base its decision-making. Annual accounts, cashflow statements and some basic management information would have been available, but there was very little real-time data to refer to.

In the digital age, you can literally see every aspect of your company’s performance in real-time – and, in some cases, in the future as well. That’s a game-changer in so many ways, and something every business owner should be using to improve strategy, financial management, customer experience and business decision-making.

To summarise, a digital business:

• Creates systems that are integrated and connected
• Shares and records all your business data
• Reviews, analyses and finds insights in your business information
• Connects with your customers in more meaningful ways
• Makes better-informed business decisions, as a result.

*The End of the Year… not the Zombie Apocalypse

With 31^st March coming soon, it’s that time of year for businesses that sell stuff to count their stuff. 

Seems simple – it’s just adding up right?  But for many this can be a chaotic and stressful day that causes minor hair loss.  However, like anything, planning and preparation is the best way to make things as easy as possible.

So here’s a timely blog on stocktaking to help you keep your hair on.

Hold up.  Do I even need to do a stocktake?

• NO:    If your stock value is less than $10,000NZD *cost.
• YES:    If your stock value is more than $10,000NZD *cost.
• DEBATABLE: If it’s a dollar either side…come at me.  I love a good debate.

Now For Some Quick Tips Before You Get Started:

1. Your stock is valued at cost price - not recommended retail.
2. “Closing stock” is the $ value of the stock you have counted.  This will appear as an ‘asset’ on your Statement of Financial Position.
3. “Opening stock” is what you started the current financial year with.
4. Accuracy is key to points 2 and 3, as they have a direct effect on your profit; and are the basis on which your tax is calculated.
5. Count the ghosts… the invisible stuff.  It’s in your system, but not physically in the store.  E.g on a truck, courier, or in your car boot…
6. Don’t count broken or obsolete stock.  The market for broken/useless stuff is empty, write it off.

Pro tip:   Don’t conduct a stocktake after a staff party. It doesn’t end well.

Prepare For The Count! (Not Dracula)

For a smooth stock count, planning and preparation are your best friends.

Before-hand

• Block out a date for completing stock take.
• Figure out how many assistants you need, set allocated roles and communicate well ahead of time.
• Create a clear system for the assistants to follow.

On the day:

• Cut off purchases and sales during stocktake so this doesn’t mess with your figures.
• Provide stock sheets either from your stock management system or in a standard format for counting stock.
• Count each item of stock in a systematic manner.
• After counting, enter any adjustments to the physical stock count into your stock management system.

Not Recommended:  Playing techtronic or death metal music during counting.  Sorry, no ‘Sandstorm’ today.

Then:

• Provide the value of stock to your accountant for the end of financial year. 

Some Things Don’t Add Up!

It happens.  Sometimes there will be discrepancies between the final count vs. the inventory system.  Possible causes include:

• Humans.
• Previous stocktakes not being accurate.
• Mistakes made in the input or management of the inventory system itself.
• Items not being sold or labelled correctly, so not recorded correctly when sold.
• Stock arrivals not being verified when entering the building (order vs. delivery discrepancies).
• Worst case scenario is unfortunately theft.

This is quite common, but don’t panic.  As always, the team at EBS are available to help you sort through these scenarios from an accounting perspective.  Take the lessons and make sure to put a plan in place to mitigate the same scenarios for Stock Count 2024!

Happy counting day!

The world today seems to be filled with many choices and this is no different when you are making decisions for your business. Add marketing into that and how do you know that you are making the right decision on any accounting system you are using for your business and not just choosing based on clever marketing?

Like anything in business this is a decision not to be rushed and careful thought needs to be given to make the correct choice. A wrong choice in the system can cause lots of stress and additional cost to your business.

What are you trying to achieve with a new system?

• Are you trying to improve your processes? Provide better customer service or save time on internal processes?
• Are you looking for reporting options? What are the KPI’s you want to be able to report on?

Who is going to be affected by this change internally and externally?

• Which members of staff will be affected by this change in system? Have you talked to them for their feedback?
• Externally, who will be affected by the change, for example your accountant, will the new system still work for them?
• Are importing from any other systems, for example a builder completing quotes may be importing a price list from Bunnings, is this functionality still available in your new system?

It may help to investigate the above questions and talk to your staff and external parties that will be affected and make a list of what they need, categorise them into must have, nice to have and not important (or similar labelling). This list could form the basis of questions for talking to prospective software suppliers, to make sure they can provide the must haves.

• Budget is always going to be a consideration, depending on the software some is going to have an upfront cost and an ongoing subscription, others may just have an ongoing subscription. How does this fit with your financial goals? Perhaps you can consider the savings you will make from any improvements with the new software which will have an effect on your financial budget.

• What kind of ongoing support and training is provided by the software supplier? In our humble opinion this is one of the more important questions, if there is no ongoing support or you have to pay a third party to help upskill your team to use the software, this can cause a budget blow out for this project. What is the response if you have a problem with the software - most online suppliers provide a status page for software issues - what do past issues look like? Are the constant outages and what is their response time for fixing the outages? What support do they provide? Is there a number to call or is everything completed online through automated systems? None of these are incorrect but will be a consideration for what works best for your team, some people like to be able to phone for support - others are happy to work via an online portal or email.

Other points to consider

Most accounting software has thousands of integrations or addons available, so you don’t need to find one software that does it all, you can supplement with an addon for missing functionality.

Ask around, there are plenty of facebook groups or online forums where you can ask what people in your industry are using and how they find the software. 

There is also the option to trial software, most online softwares offer a set amount of time to trial the software before signing up for a subscription. However it can be a fair amount of work to setup the trial just to see if the software will work for you.

Unfortunately there is no right or wrong answer here as every business is unique and has specific requirements which need to be considered.

Please reach out to the team at EBS if you want to chat.

As accountants our job is to work with our clients to help them ensure they are compliant with tax law and answer questions they may have along the way. At EBS we enjoy talking to our clients and we are here to help so we get lots of questions and often they are the same.

We jokingly refer to these as ‘Accounting Myths’ having been passed through people and are often based in fact but have become slightly misunderstood along the way.

This article is going to attempt to clarify some of the available deductions which we get questioned about. 

Some key points to think about when deciding what can be claimed as a tax deduction;

• Is the cost incurred in the course of you earning your business income?
  • Yes, then this is likely a deductible expense
  • No, then this is not a deductible expense
• If you weren’t in business, would you still have this expense?
  • Yes, then this is probably not a deductible expense
  • No, then this is likely a deductible expense
• If you are purchasing an item, will it be used personally or in the business exclusively?
  • If there is an element of personal use, then we may be able to claim some of it.
  • If there is no personal element to the item purchased then we should be able to claim it entirely as a business expense.

Some common expenses that are claimed by almost all businesses and are clearly business expenses

• Accounting Fees, if you weren’t in business you likely wouldn’t have this cost so can be claimed as a full business expense.
• ACC Levies, these are payable when you are in business or contracting.
• Bank Fees, for your business bank account
• Salaries & Wages, for paying employees who work in your business
• Purchases of goods for on sale
• Depreciation on business assets

Then as with all accounting things start to get a bit murkier with other expenses, some examples below

• Vehicles, who owns the vehicle is a consideration, type of vehicle and whether or not another vehicle is available for private trips. Depending on the setup we may need to claim only a % of vehicle expenses.
• Interest on loans, what the loan is borrowed for is a consideration here for deductibility.
• Clothing, items of protective clothing, hi vis and work boots are a given, or clothing that is permanently branded with your logo. Clothes you would be happy to pop to the supermarket in usually don’t make it as a tax deduction.
• Income Protection Insurance, normally forgotten but can be deducted
• Entertainment, if you take your staff out for a meal only 50% of the cost is deductible but if you serve a meal at your business premise 100% can be claimed.

Some examples of expenses we are asked about regularly but normally don’t make the cut;

• Glasses, unfortunately the rules are pretty clear on this they are a personal expense and can’t be claimed regardless of needing them for work or not.
• TV streaming services, these are considered personal
• Medical appointments, these are personal and not deductible but if you are purchasing items for your work first aid kit, those are deductible.
• Fines or penalties, speeding fines are not allowed to be claimed as a tax deduction nor are penalties from IRD for paying tax late.

The list is extensive and we are more than happy to answer specific questions and will remind you of any expenses we think you are missing that we don’t see in your accounts. Something as simple as a conversation with your accountant, will usually turn up some forgotten expenses that we can include.

 Please note the above are all examples and advice should be requested from your accountant on specific situations.

One of our biggest jobs as accountants is advising on what tax to pay and when. It is very important that we get this as accurate as we can if you pay too little the Inland Revenue charges penalties and interest, pay too much and this money is left at Inland Revenue earning very little interest when it could have been used for other useful purchases in your business. Of course, there is also the timing of Income Tax dates, which vary based on the client’s balance date and frequency with which they pay GST (if they are GST registered), so lots for us to think about to ensure we are advising you correctly.

Income tax rates

Income tax is charged at different rates depending on your structure for business, the first two are

          Company                                    28%

          Trust                                         33%

If you are trading as a sole trader, partnership or a Look Through Company these rates all come back to the individual tax rates based on level of income

          Up to $14,000                             10.5%

          Over $14,000 and up to $48,000      17.5%

          Over $48,000 and up to $70,000      30%

          Over $70,000 and up to $180,000    33%

          Remaining income over $180,000    39%

What is considered income for income tax purposes?

If you are employed as an employee the wage or salary you earn is your income, your employer will deduct PAYE which is income tax just known by another name. This is the easiest way to be taxed as it is taken care of for you.

Being in business it gets a bit more complicated and the amount of profit you make each year (Income earned less allowable expenses) is the amount that is taxed.

Different calculation methods

When you are in business you pay two types of income tax;

          Provisional Tax         Income tax paid in advance

          Terminal Tax           End of year square up based on actual tax return figures filed

Traditionally and still the most common method used is called the Standard method, this is where Inland Revenue takes your previous years profit, adds a 5% increase, and bases your provisional tax on this figure. As you can imagine guessing like this for a seasonal business, new business with no previous figures or a high growth business you can see that this would have some accuracy issues. If you are using this method for paying tax it is highly recommended that you file your end of year accounts as early as possible, so accurate amounts are being used for your provisional tax calculations.

Other options include estimation, this is where you are able to provide an estimate to Inland Revenue on what you think your tax will be and pay based on this. Accountants try not to use this method as the penalties for under estimating are much higher than other methods.

An alternative method to the Standard and Estimate option is AIM or the Accounting Income Method, this is where tax is paid at the same time GST is paid, based on actual business results. This is a fantastic option for a growing or seasonal business as it means tax paid is relative to income earned.

When is tax due

Unfortunately there are a few factors that affect the dates you pay tax, so best to discuss this with your advisor, standard dates are below;

          Terminal Tax                     7^th April the following financial year

If you are a standard March balance date and file GST monthly or two monthly;

          First Provisional Instalment            28^th August

          Second Provisional Instalment        15^th January

          Third Provisional Instalment           7^th May

If you are a standard March balance date and file GST six monthly;

          First Provisional Instalment            28^th August

          Second Provisional Instalment        7^th May

This information is a brief overview and we always recommend talking to your advisor for specifics.

As accountants our job is to work with our clients to help them ensure they are compliant with tax law and answer questions they may have along the way. At EBS we enjoy talking to our clients and we are here to help so we get lots of questions and often they are the same.

We jokingly refer to these as ‘Accounting Myths’ having been passed through people and are often based in fact but have been slightly become misunderstood along the way.

This article is going to clarify accounting myth ‘no tax in your first year of trading’ which is very common and not entirely incorrect, but I like to be very clear as if misunderstood will cause a major cash flow crunch in year two of your business if you are just starting out.

Income Tax is calculated in New Zealand mostly, using what is called the Standard option, this is where the previous years figures are used to add a small increase which is the amount of tax you pay in advance for the current year. If you have underpaid or over your tax when your tax return is filed at the end of the year you will have tax to pay or a refund if an overpayment.

So, you can see how there would be no tax owing in your first year of trading, as there is nothing from the previous year to base the estimate on.

The biggest problem we see with this comes in year two, after we have filed your tax return for that first year, if you have made a profit then you will have tax to pay for year one in the same period you will have tax to pay in advance for year two.

This unfortunately can be quite a struggle on cash flow being a startup business.

What can you do to avoid this struggle.

• Understand that there will be tax from your first year of trading, it may just be due later.
• Have a separate bank account which is your tax account and put 20% - 30% of all income into this account to cover tax when it is due with the IRD.
• Engage with an accountant to help with tax estimates throughout your first year and you can either save the money for tax in a separate account until it is due or pay it to Inland Revenue voluntarily based on estimated amounts.
• Register for Income Tax using the AIM (Accounting Income Method) which would mean you are paying tax based on profit as you file GST.

Hopefully this clarifies this comment just a little more so next time someone says to you that you don’t pay tax in your first year, you will know this isn’t entirely correct.