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!

The Accountants Plus ‘Next-Year-End’ Prep Kit

Accountants Plus. As the name suggests, we offer more than your average accountancy firm. Saving our clients time, stress, and money is high on the priority list so we go out of our way to help people get their heads around what can sometimes be a complex, confusing part of business ownership. In this particular instance, our ‘plus’ is delivered to you in the form of some VERY handy tips. (We mean print-me-off-and-keep-me-on-your-office-wall type handy!) We have been busy with end of year accounts processing, so we thought it would be the perfect time to share some advice on the subject to help get you feeling organised and confident for the next financial year-end.

Rather than all the last-minute scrambling around like a cat in the bath for all the documentation we require to process your accounts, we have put this doc together so you have the option of gently gathering it over the year so the majority of the hard work is done by the time we send out our ‘accounts due’ email. FYI – We have already sent out that exact email for the 2017 end of financial year, which included a handy checklist (Click here if you missed it!), but if you are looking to be a step ahead of the game for the 2018 financial year, then this will be especially useful for you!

So here goes – The list of thinga-me-bobs and whats-its for you to keep track of throughout the year. When year-end finally rocks around, you can totally wow us with your file that is titled: ‘Here’s a little something I prepared earlier’.

FINANCIAL RECORDS

  • If you use Xero or another accounting package, your debtor and creditor information should be accurately captured (just make sure your software balances with your bank at year-end). If not, ensure to keep a comprehensive spreadsheet of all your incoming, outgoing and pending transactions, including dates, accurate descriptions, and amounts
  • At year-end, we will need your last bank statement for each business bank account (or bank statements for the entire year if you don’t use accounting software)
  • Your business credit card statements (including GEM VISA, Q-Card, Bartercard etc…)
  • Resident Withholding Tax Deduction certificates (sent out by your bank)
  • Documents showing any hire purchase, mortgage and loan agreements you have entered into in this financial year (including statements and loan summaries)
  • GST Returns/ FBT Returns for the year
  • Company dividends, interest received (in the form of letters, receipts, or certificates)
  • ACC invoice copies

CASH 

  • When it comes time to submit your financial documentation, we will ask you for your ‘cash on hand’ amount. This is where you let us know the amount of takings you have not yet banked by the balance date, as well as the date you did bank them and the amount you hold in tills and cash floats.

INVENTORY

  • Keep track of your inventory via stock takes because we will need an ‘as at year-end’ dollar amount at the end of the financial year (which is calculated at the lower of cost or net market value and minus GST).

BAD DEBTS

  • Someone hasn’t paid you and you’ve written it off? Make sure to keep a record of any bad debts during the financial year and let us know the total amount at year-end.

ASSETS

  • Have an asset register to record your assets bought and sold and be sure to record information such as: dates, whether the item was bought new or second-hand, how much it cost/was sold for, and whether you paid GST on the item).

PRIVATE USE

  • Make sure to record any goods you take from the business for personal use.

HOME OFFICE

  • If you use your home for business purposes, record information such as: the square meters of your home used for business purposes (out of the total area of your house – i.e. 45sqm out of 210sqm), your mortgage interest, rates, power bill, and any repair bills.

VEHICLE

  • Record your business mileage percentage (by recording km’s travelled in your vehicle for work, vs. personal use) – If you have paid FBT, this will not be applicable to you. Please check in with one of the team if you are unsure about mileage and vehicle use.

We have reached the end of our handy tips for today. If this was a face-to-face seminar, now is the time we would ask: “Does anyone have any questions?” so please feel free to get in touch to find out more about a specific area of your business that may not be covered here (maybe you have questions about staff payments, KiwiSaver, rental properties, boarder payments, trusts, or donations – to name just a few). We haven’t been faced with a question we didn’t know the answer to yet, but you might just be the first one to stump us!

The Statement of Financial Performance (AKA the ‘Profit & Loss’!)

The purpose of this report is to show all your taxable income and expenses so we can work out how much profit you have made, and what tax you have to pay on that.

This report feeds into your tax return for the year – your client manager will usually show you this in your end-of-year meeting.

There are also some calculations we can do from this report that will help you see things like your business model type, profit drivers, and efficiency.