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05 Mar 2015
For most businesses the end of the tax year is only 4 weeks away. 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:
Prepay some bills:
Some expenses can be claimed when they are paid rather than used. If you're planning that overseas conference to Oz, if you pay it now, you will get tax relief now rather than next year.
This may be stockpiling stationery, fertiliser, feed, business cards, other consumables, etc.
Staff holiday pay and bonuses:
providing they are paid within 63 days of the year end.
All of these methods have a cash cost to the business and there are dollar value restrictions and time limits which apply. So although they reduce the tax, they also reduce the cash the business has available.
Only spend on items you want or need. There is no point spending a dollar on something you don't really need just to save yourself 28 or 33 cents in tax. Remember that if you buy a fixed asset, just as a new ute or tractor near year end, only a tiny portion of this will be tax deductible.
There are of course the things you should do every year, such as reviewing the list of people who owe you money. If you believe that any of the debts are bad, you need to write them off in your books before your year end date to get tax relief.
When performing the year end stock take, ensure you only value usable stock. If something is damaged or obsolete, make sure it is clearly identified and valued accordingly.
Review the 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 consider whether 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?
In our business this is what we term a Tax Minimisation Review. This is a formal process which we use to ensure you are completing your tax returns correctly, claiming all valid businesses expenses and have business structured tax effectively.
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 or dairy 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.
For more information on how we can help your business, get in touch