Is Business Tax Really That Scary

Is Business Tax Really That Scary?

T… A… X. Three little letters that can strike fear into the heart of any small or medium business. And what about all those other acronyms… FBT, GST, IRD, ACC, and PAYE.

But is tax really all that scary?

Your business tax does not have to be an unsolvable mystery. Let’s have a look at how it works and what you can do to make the whole process easier for your business.

Is Business Tax Really That Scary?

When it comes to tax, you need to be well informed of what is going on in your business and what obligations you need to meet. Unless you are a financial whiz, it is 100% recommended to have an accountant on board to help you meet those obligations.

Here are the benefits of having an accountant when it comes to your tax:

  1. Accountants deal with tax on a day to day basis so have all the up to date information on changes to regulations
  2. There are many ways that you can streamline your tax process, an accountant can help you set up systems that will save you time and keep you compliant
  3. Dates are a fundamental part of your tax obligations, these dates are ingrained in an accountant’s brain so they will always be able to remind you of when milestones are coming up
  4. An accountant can help you claim on all the expenses that you are entitled to which can save you money
  5. Accountants can provide advice on the tax advantages for large purchases, leasing equipment, using a private vehicle, or other business queries

Here at Accountants Plus tax does not scare us at all. In fact, we are actually tax experts. So don’t hesitate to get in touch with us if you need help figuring out what you have to pay and when you have to pay it.

What Is Tax?

Let’s cover off the basic question first. What is tax?

Tax is a compulsory financial payment that every New Zealand business must pay to the government to fund various public services and expenses. The amount of tax you have to pay will depend on your earnings and the setup of your business.

The different tax types are:

Income Tax: The main compulsory form of tax. It is calculated on your net profits (your total revenue, less your expenses) and the rate will differ depending on whether you are a sole trader, partnership or a company. To prevent the shock of a large tax bill, you are encouraged to pay in instalments throughout the year called provisional tax payments.

ACC: An annual levy that you must pay to cover the cost of workplace injuries. Even if you work in a low-risk profession or from home, you will still need to pay this levy. It is like an insurance policy in case injury does occur.

GST: Your business must be registered for GST if you have an annual turnover of more than $60,000. GST stands for Goods and Service Tax and applies to any product or service that is sold within New Zealand. The current GST rate is 15%.

PAYE: If you employ staff and pay them a wage or pay yourself a salary, then you will need to pay PAYE (Pay As You Earn) to the IRD on a monthly basis.

ESCT: A tax paid on any contributions to employee superannuation schemes including Kiwisaver.

FBT: This is payable if you provide perks or benefits to your employees as part of their employment.

This does look like a long and scary list of taxes. But, if you manage your business well and get the required help, then none of them should come as a shock when the bill arrives.

Ways To Make Tax Less Scary

There are a few things that you can do in the day to day running of your business to make tax less scary.

Have A Good System

The key thing with tax is having a clear picture of your earnings and expenses. The best way to do this is to have an effective accounting system in place that allows you to see your numbers at a glance. Something like Xero is easy to use and has great reporting that will help at tax time.

Regardless of the system you choose, it is important to stay on top of your financials regularly. So take the time to reconcile your incoming and outgoing funds on a daily or weekly basis.

Put Money Aside Regularly

It can be really difficult to come up with a large sum of money at tax time. If you set aside a portion of your earnings each month then you will never have to worry about being caught short. Have a chat with your accountant to find out how much you should be setting aside to cover all of your tax obligations.

Don’t Try And Muddle Through Or Stick Your Head In The Sand

Paying tax is a part of business. In fact, it is a positive part. If you have a tax bill then you must be turning a profit. So don’t ignore your tax and hope that it will go away because it won’t.

Likewise, don’t be naive about the process. There are some strict and specific regulations when it comes to tax. If you don’t really know what you are doing, seek help. You can end up paying more tax, or have penalties applied if you don’t follow the process correctly. There is information available online for free, but it is generic information. It is far better to get individual advice specific to your business from your accountant.

If you don’t have an accountant in place or you aren’t happy with your current one, then get in touch with us at Accountants Plus. We will be happy to take your scary tax monster and turn it into a very manageable process with no monster spray required!

XMAS EXPENSES – TAX DEDUCTION GUIDE

Xmas Expenses – Tax Deduction Guide

Santa is coming and so are those Xmas time business expenses. Begs the question – What about the tax? Can you deduct all of it? Some of it? Ooooh – maybe none of it? Well, you have come to the right place to find out!

Keep the HO HO HO from becoming an OH NO with our handy tax deduction guide filled with tips to make your money work for you this festive season.

STAFF XMAS PARTY/ ENTERTAINMENT

Yes! You can claim your end of year celebrations as business expenses. However, you may not be able to claim all of the costs, and they may also be subject to fringe benefit tax (FBT). FBT is a tax paid on benefits that workers receive as a result of their employment. Party expenses you can claim 50% of can include: Venue hire, food and drink, entertainment, or accommodation.

A general guide of 50% deductible expenses:

  • Corporate boxes
  • Tickets to events
  • Hiring marquees and tents
  • Holiday homes and timeshare apartments (although you can claim a deduction of 100% if using the accommodation is secondary to the business activities or employment duties. Contact us if you need help working this out)
  • Hiring yachts, launches, or other recreational boats
  • Food and drink consumed by staff (both onsite and offsite)

For a more comprehensive list, check out Inland Revenue’s business entertainment rules by following this link.

GIFTS

Yes! You can generally claim between 50-100% of the cost of staff presents, but you may need to pay FBT on such gifts. Keep in mind that there are thresholds, so you may avoid FBT if you only provide ‘minimal’ fringe benefits. For example, food and drinks and a local venue might be exempt because your team can’t choose when and where to enjoy that particular benefit.

Some 100% deductible gifts include:

  • Calendars
  • Books and gift vouchers (iTunes, store vouchers etc.)
  • Tickets to an event or movie
  • General presents (flowers, knick-knacks, clothing etc.)

Some 50% deductible gifts include:

  • Alcohol (beer, wine, champagne etc.)
  • Ham, biscuits, gourmet food hampers
  • Meal vouchers
  • Chocolate

Remember, the current tax exemption figures are $300 per employee per quarter and $22,500 maximum employer exemption per annum. If you exceed the exemptions you will need to pay Fringe Benefit Tax on the total value of the benefits. To double check your tax obligations for gifts, you can consult the IRD’s detailed information about FBT and the Fringe Benefits Guide here.

CHARITY

‘Tis the season of giving, so if your business is looking to get amongst the community with charitable deeds this Xmas; donating gifts, food, or some form of entertainment – you can deduct 100% of the cost!

OTHER

  • Freebies/ giveaways promoting your business are 100% deductible
  • Entertainment you provide to a publication for review of your business is 100% deductible
  • Overseas entertainment is 100% deductible – Whoop! Take us to Mexico!
  • Vehicle use – Is your employee planning to use a business vehicle for a private trip over the silly season? This will most likely be perceived as a fringe benefit, so will be subject to FBT charges.

The IRD guides are very clear and provide great examples of what is and is not tax deductible, and when you need to be paying FBT, so we recommend making use of them this season.

We are always happy to field your festive tax questions. In fact, we dare you to come up with one we can’t answer!

Common Tax Due Dates 2015/2016

Income Tax

7 July 2015 // 2015 tax return due to be filed for those without extension of time
28 August 2015 // 1st provisional tax instalment payment due for 2016
15 January 2016 // 2nd provisional tax instalment payment due for 2016
7 February 2016 // terminal tax due for payment for 2015 for those without extension of time
31 March 2016 // 2015 tax return due to be filed for those with extension of time
7 April 2016 // terminal tax due for payment for 2015
7 May 2016 // 3rd provisional tax instalment payment due for 2016

GST

28 June 2015 // Apr-May 2015 GST return and payment due
28 August 2015 // Jun-Jul 2015 GST return and payment due
28 October 2015 // Aug-Sep 2015/Apr-Sep 2015 GST return and payment due
15 January 2016 // Oct-Nov 2015 GST return and payment due
28 February 2016 // Dec-Jan 2016 GST return and payment due
7 May 2016 // Feb-Mar 2016/Oct-Mar 2016 GST return and payment due

PAYE

Returns and payment due on the 20th of the following month, each month.
For any other tax due dates (such as those businesses without a 31 March balance date) please call Accountants Plus on 04 974 5056.

IRD Reminder

You may have received a text message from the IRD recently about tax being due on the 7th of April. This reminder is a new IRD initiative!

We just wanted to let you all know that this reminder is in relation to 2014 income tax. It is the final payment to wash-up any tax still due for the 2014 tax year.

We sent out the bulk of our payment reminder letters this week so you should receive them shortly with the amount you need to pay. Any questions please contact your client manager or reception on 04 974 5056.