Is your paperwork in order?

For builders who own businesses or are sole traders, the day doesn’t end when you down tools – there’s plenty of paperwork to attend to. Here’s some advice on tackling the larger than usual amount at the year’s end.

For many of us, 31 March is the end of the financial year. It can sneak up on you very quickly, leaving a lot of work to do before you can even consider sending your books to your accountant.

As with any time of year, there are many areas to cover off and consider, but by paying attention to the following areas, you can save yourself a good amount of time and, sometimes, money (not to mention impressing your accountant a great deal).

Taxes, taxes, taxes

Tax is one of the great constants in life and needs to be on a business owners’ mind year round. The end of the financial year is no exception. With the multitude of tax payments due in the two months following 31 March  – terminal tax for the previous year on 7 April and the third provisional tax payment and GST for the period ending March 2014 both due on 7 May – it is crucial you have a good handle on how business has gone.

The end of the financial year provides the perfect opportunity to speak to your accountant about the issue of tax – in particular, whether you’ve paid enough.

As the IRD charges 8.40% interest on any terminal tax amounts higher than $2,500 for companies, it’s critical to ensure you’ve paid enough tax before it is too late. For those operating as a sole trader or partnership in your first year of trading, a voluntary tax payment before 31 March can provide you with a much-needed discount on any terminal tax payment that may be due.

Avoid penalties

As the IRD charges penalties and interest for any non payment on provisional tax dates, where they deem payments should have been made, you may also find yourself facing a difficult issue.

Even if you pay the full amount of provisional tax on 7 May that you should have paid during the year, the IRD will still charge non payment penalties and use of money interest.

“The end of the financial year provides the perfect opportunity to speak to your accountant about the issue of tax – in particular, whether you’ve paid enough

Tax pooling

A way to avoid this is to use a Tax Pooling system and ‘purchase’ your tax at a lower rate of interest. This is definitely something you should discuss with your accountant, particularly if you operate in a seasonal industry, or if you’ve won contracts that have significantly increased your bottom
line during the financial year.

Taxes aside, there are also several internal business issues that require your attention.

Unpaid invoices

Have you been having problems collecting payments from some of your debtors during the year? If so, a quick review of your debtor ledger with a view to assessing the collectability of the debts is an important part of the year-end process.

The IRD allows for tax deductions of uncollectible amounts – or ‘bad debts’ – if they are removed from your debtor ledger before the end of the financial year. You cannot deduct a ‘provision’ for the removal in case they will be collected; these removals need to be absolutely final. These removals may be reversed if the debt is, in fact, collected unexpectedly at a later date; however, these need to be included as fully assessable income for tax purposes.

Tools and fixed assets

Does your fixed asset schedule include any tools that are broken, obsolete or have been replaced or stolen during the period? If so, these should be removed from your fixed asset schedule – for which, a tax deduction amounting to the written down value (cost less accumulated depreciation) can be claimed.

Too often, fixed asset schedules can be full of assets that are no longer used, meaning the business is denying itself the full tax deduction available – a quick review of the schedule can provide valuable tax savings for the business.

Bonuses and holiday pay

Have you or do you plan to pay any bonuses for the 2014 financial year? Employee benefits such as holiday pay and bonuses owing at 31 March can be claimed for tax purposes if paid by 2 June (within 63 days of balance date). Bonuses must be finalised before 31 March in order to be claimed. Bonuses dependent on conditions satisfied after 31 March cannot be claimed.

While we’ve provided a number of areas to consider, bear in mind that not all of these will apply to you specifically and there may be other matters that you will need to attend to. Balance date can approach very quickly, but by taking a step back from the tools and looking at the numbers, you can save yourself a lot of time and money.

About Crowe Harwath

If you do have questions about the end of the financial year, please contact Peter van der Heijden at peter.vdh@crowehorwath.co.nz; or contact your local Crowe Horwath advisor. For the contact details of your local office, please visit www.crowehorwath.co.nz