Get ready for the tax year, by Stewart Russell
For most businesses the end of the tax year is only a month 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. The Covid wage subsidies and resurgence payments will also affect profits.
There are some actions a business can take to legally help minimise its tax bill: -
Consumables: - This may be stockpiling stationery, consumables, fertiliser, feed, and fencing material.
Prepay some bills: -Some expenses can be claimed when they are paid rather than used, like that conference that has been delayed due to COVID. If you pay it now, you will get tax relief now rather than next year. Also consider prepaying insurance, rates etc.
Staff holiday pay and bonuses, providing they are paid within 63 days of the year end.
They all have a cash cost to the business and there are dollar value restrictions and time limits which apply and 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, 33 or 39 cents in tax. Remember that if you buy a fixed asset, such as a new ute or tractor near year end, only a tiny portion of this will be tax deductible. Note however that the IRD have increased the minor asset deductibility level to $1000.
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 or stock at home, meet clients, or do your paperwork in the evenings? If so, you can claim an appropriate proportion of your household bills.
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 business expenses and have the business structured tax effectively.
Farmers, Fishermen, and some Foresters, can take advantage of the income equalisation scheme to smooth income between years. Note that the special loss carry back Covid provisions that were in place for the 2020 and 2021 years for all affected businesses have now ceased.
Tax advice for individuals, companies, businesses, family trusts or partnerships is different. Please speak to your tax advisor or accountant to discuss what works for you, given your specific circumstances.