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A tradies' guide to making end of year less taxing

MARCH 30, 2020

 

 

 

 

 

 

 

 

End of tax year can feel like just another mountain to climb at the end of a long week. We’ve chatted to experts from accountancy firm Grant Thornton New Zealand and Xero to get some simple tips and tricks to help you streamline the end of tax year. 

Tip #1: keep up with the latest tax rules and regulations

Thankfully there isn’t too much in the way of new rules in SME land to digest this tax time, says Dan Lowe, a partner at Grant Thornton New Zealand. 

One small change in the 2019/2020 year was the very recent introduction of GST charges on low-value goods worth under $400, says Lowe. Don’t forget to claim back the GST on purchases from the likes of eBay, AliExpress, Amazon or other overseas suppliers, providing you have a valid tax invoice. 

The one that could catch some tradies this tax year is news that the government is increasing write-offs from $500 to $10,000. Just hold that thought. It’s only an announcement at the moment, says Lowe, and doesn’t apply to your 2019/2020 tax year. Sorry!

Tip #2: follow these simple rules to save time and money at tax time

With March 31 just around the corner it’s time for a “health and hygiene” financial wrap up for your business, says Lowe. Make sure your paperwork is in order. This makes it easier to do business as well as complying with your tax obligations. 

Some key reminders to help you save: 

Write off “old smelly” debts. If you write these troublesome debts off before March 31 you won’t pay tax on the income that you’ve not yet received, says Lowe. It doesn’t mean you have to stop chasing the debt. It just won’t be taxed for now.

Dig down into retentions. If customers are holding back 5 to 10% pending sign off you need to separate that out. “We see a lot of building clients who don’t have systems in place for that,” says Lowe. So you are paying tax ahead of schedule.

Get your home office claim sorted. Make sure you’re claiming home office costs such as interest, rates, electricity and so on. It’s worth looking into. 

Check with the IRD if it’s appropriate to pay a family member for hours work on the business. Sole traders need written approval from the IRD for this, says Lowe. If you are operating through a company and your spouse has a shareholding in the company you can pay a shareholder salary for the services they have provided. 

Tip #3: tax pooling eases the stress

With terminal tax due in April and provisional tax and GST due in May, cash flow can be tight. This is a great time to consider tax pooling to ease the stress on your working capital requirements, says Lowe. Tax pooling involves financing your provisional tax through an Inland Revenue approved third party. It allows you to smooth out your tax responsibilities, mitigate late payment penalty exposure and you’ll generally pay less than 5%, which makes it a cheap form of funding. 

Tip #4: what not to do

Beware of bar room talk about what you can and can’t claim. It’s the tradies’ version of mine is bigger than yours. Always double check with your accountant or the IRD. 

We know some tradies love cashies, but the Inland Revenue Department (IRD) is cracking down and its data management tools are getting increasingly good at identifying those jobs. “People believe that cash is hard to trace,” says Lowe. “But Inland Revenue can easily identify inconsistencies between supplies bought and goods sold. Cash leaves a clear trail to follow.”

A simple way to save yourself from IRD audits is to keep your nose clean. Tradies who file their tax returns and make payments on time tend to figure fairly lowly on the list of companies to audit, says Lowe. 

Tip #5: make sure you plan ahead

If you want to avoid those ‘OMG I have a bill to pay moments’ start now, says Byron McLean, Strategic Verticals Manager at Xero. It’s never too early or too late to streamline your paperwork. 

One of the best ways to be compliant at tax year end is to optimise your administration process with Xero, McLean says. Find more information at Xero.com/construction.

Mitre 10’s Xero Trade Hub integration and many others such as Hubdoc that assist with everything from documentation to payroll filing will simplify your admin. If you want to know more about the Trade Hub integration check out our blog, the Trade Hub How to Guides.

Tradies who automate their business do undeniably better at success measures including general revenue, profit and peace of mind, says McLean. They can use time with their accountants to get business advice. 

 

 

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