End of Year is sneaking up
For many of us, March 31 is the end of our financial year. Given the time of year, it can sneak up on us very quickly, leaving you with a lot of work to do before you can even consider sending your books off to your accountant.
BE PREPARED - With the multitude of tax payments due in the two months following March 31, it is crucial that you have a good handle on how your business has gone in the financial year.
The end of the financial year provides the perfect opportunity to speak to your accountant about the issue of tax, in particular whether you have paid enough. As the IRD charges 9.21% interest on any terminal tax, amounts higher than $2,500 for companies, it is critical to ensure that you have paid enough tax before it is too late. For those who are operating as a sole trader or partnership in your first year of trading, a voluntary tax payment before March 31 can provide you with a much needed discount on any terminal tax payment that may be due.
AVOID PENALTIES - The IRD charge penalties and interest for any nonpayment on provisional tax dates where they deem payments should have been made. Therefore if you pay the full amount of provisional tax on May 7 that you should have paid during the year, the IRD will still charge non-payment penalties and use of money interest. A way to avoid this is to utilise a Tax Pooling system and ‘purchase’ your tax at a lower rate of interest in order to avoid these penalties. This is something you should discuss with your accountant, particularly if you operate in a seasonal industry, or if you have won contracts that have significantly increased your bottom line during the financial year.
UNPAID INVOICES - Have you been having problems with collecting payments from some of your debtors during the year? If so, a quick review of your debtor ledger with a view to assessing the collectability of the debts is an important part of the year-end process.
The IRD allows for tax deductions of uncollectible amounts – or “bad debts” – only if they are removed from your debtor ledger before the end of the financial year. These removals may be reversed if the debt is in fact collected unexpectedly at a later date. However, these recoveries need to be included as fully assessable income for tax purposes.
TOOLS AND FIXED ASSETS - Does your fixed asset schedule include any tools that are broken, obsolete, have been replaced or stolen during the period? If so, these should be removed from your fixed asset schedules for which a tax deduction amounting to the written down value (cost less accumulated depreciation) can be claimed.
BONUSES AND HOLIDAY PAY - Have you or do you plan to pay any bonuses for the 2016 financial year? Employee benefits such as holiday pay and bonuses owing at March 31 can be claimed for tax purposes if paid by June 2 (within 63 days of balance date). Bonuses must be finalised before March 31 in order to be claimed. Bonuses dependent on conditions satisfied after March 31 cannot be claimed.
There are many other areas that business owners need to focus on in the run-in to year-end. Balance date can approach very quickly, but by taking a step back from the tools and looking at the numbers, you can save yourself a lot of time and money.
If you do have questions about the end of the financial year, please feel free to contact Peter van der Heijden, Building Industry Expert at Crowe Horwarth Consultants- email: email@example.com
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