Year’s end, not end of world!

The end of the financial year can be a stressful time for business owners everywhere, but by following this simple guide, you can ensure all your affairs are in order

For many, 31 March marks the end of the financial year and it can sneak up very quickly, leaving you with a lot of work to do before sending your books to the accountant. There are many things to cover off and consider, but you can save yourself a good amount of time and pain by paying attention to the following.

Be prepared

As one of life’s great constants, tax is ever-present and needs to be on a business owner’s mind year round; the end of the financial year is no exception. The following tax payments are due in the two months after 31 March:

• Terminal tax for the previous year (for taxpayers who have extension of time through their accountants) – due 7 April.
• The third provisional tax payment and GST for the period ending March 2015 – both due 7 May.

It’s crucial you have a good handle on how your business has performed throughout the financial year.

This provides you with the perfect opportunity to speak to your accountant about tax – in particular, whether you have paid enough.

As the IRD charges companies 8.40% interest on any terminal tax amounts higher than $2,500, it’s critical to ensure that you have paid enough tax before it’s too late.

“As one of life’s great constants, tax is ever-present and needs to be on a business owner’s mind year round; the end of the financial year is no exception

If you’re 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 payments that may be due.

Avoid penalties

The IRD charges penalties and interest for any non-payment on provisional tax dates, where it deems payments should have been made. Therefore, 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 nonpayment penalties and use of money interest.

You can avoid this by utilising a Tax Pooling system and ‘purchase’ your tax at a lower rate of interest. This is 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.

Unpaid invoices

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

The IRD allows for tax deductions of uncollectible amounts – “bad debts” – only if they are removed from your debtor ledger before the end of the financial year. These removals may be reversed if the debt is collected unexpectedly at a later date; however, these recoveries 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, have been replaced or stolen during the period? If so, these should be removed from your fixed asset schedule. A tax deduction amounting to the written down value (cost less accumulated depreciation) can then be claimed.

Bonuses and holiday pay

Have you, or do you plan on, paying bonuses for the 2015 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 the 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, there are many other areas that business owners need to focus on in the run-in to year-end. 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.

 

More Information

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/locations or phone 0800 494 569.