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31 Mar 2016
For most businesses today is their financial year end day. So how has the year been to date? Do you know? Just because there is no cash, there may still be a profit, particularly if lots of people owe you money, or you have been repaying borrowings during the year.
Remember that the IRD penalises companies and trusts for not estimating its profits correctly and charges interest for underpaying provisional tax. If profits have improved, you will have to pay more on your last instalment of provisional tax, which is due on 7 May for March year ends.
Being an optimist, let's consider the things a profit making business can do legally to help minimise its tax bill. There are things that can be done even at this late stage: -
Review debtors: - Providing debts are written out of your books before you close your financial year these can be claimed as an expense. So if you think there are people who are unlikely to pay you, these can be written off. There is nothing stopping you from keeping a separate list of these debtors to ensure you do not trade with them again.
Staff Holiday Pay and bonuses: - any amounts paid within 63 days of the year end can be claimed against this years tax.
Stocktake: - Remember you should prepare a stocktake at the end of the financial year. When performing the stock take, ensure you only value usable stock. If something is damaged or obsolete, make sure it is clearly identified and valued accordingly.
Fixed assets: - Review your fixed asset register. If there are items that have been scrapped, broken or stolen, ensure they are noted on the fixed asset register.
You should ensure that you are claiming everything against the business which you are entitled to. For example, do you store the business records at home, meet clients, or do your paperwork in the evenings? If so, you are able to claim an appropriate proportion of your household bills.
Does your spouse or child help with the business, perhaps take phone messages, clean the business vehicle? What is the value of the work they do for the business?
Have you paid any expenses personally such as trade subscriptions, travel expenses or memberships?
This is what I would term a tax minimisation review, which aims to ensure you are completing your tax returns correctly and claiming for all valid businesses expenses.
Farmers, Fishermen and some Foresters, are able to take advantage of the income equalisation scheme. This enables them to smooth income over the current and future years. So if a beef farmer has had a good financial year, they may choose to pay into the equalisation scheme, which in effect is a tax savings account.
As is always the case with tax advice, each individual, company, business, family trust, partnership is different. Please speak to your tax advisor or accountant to discuss what works for you, given your specific circumstances
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