Pictured above: Lisa Martin
March 31st is a day of reckoning for business owners. GoFi8ure’s Lisa Martin has advice on how to plan and manage the End of Financial Year process.
It’s a little sad, but also true, that many business owners only focus on their business accounts the night before a tax deadline.
That’s an observation from Lisa Martin, who heads up bookkeeping and accounting business GoFi8ure. She would much prefer business owners focused on their accounts regularly – ideally for 15 minutes every day – not just when the End of Financial Year (EOFY) deadline rolls around at the end of March.
“Just log into your accounting software daily and see where the money is at. Where is it coming in from? How are you spending it?”
Unfortunately, that doesn’t happen. So, when March rolls around just three months into the year, people can be caught off-guard, with a lot of catch-up work to get their accounts in order, says Lisa.
“It’s worth remembering that if you have a tax agent or Accountant you’re working with then you can get an extension of time to file your financial statement for the whole year.
“So, for example, the [tax] results of what you earnt and spent from April 2022 to March 2023 really only needs to be filed in March 2024 and paid in April 2024,” says Lisa. “There’s potentially a gap of up to 24 months.”
When it comes to tax and accounts, things can definitely catch up with you, she warns.
“For example, if there was a significant financial issue within your business between April 2022 and March 2023, perhaps you were trading insolvent and breaching your duties as a director, and it’s only highlighted to you a year later through a set of accounts and a tax return, there’s not much you can do about it now.”
You particularly need to know where your numbers are at if a dividend is to be distributed, declared or paid out, she advises, and certainly don’t make any rash decisions on purchases.
“Don’t be one of those directors who rushes out in March to buy a new company vehicle, that new Ford Ranger for example, and only benefits from, say, half a month’s depreciation. Better to wait until April 1st and benefit from a full year’s depreciation.”
Tax on trusts
Increasing the tax rate on trusts to 39 cents in the dollar is a potential tripping point for businesses in 2024. Lisa says business owners need to be “on top of their numbers” to work out whether they are going to distribute a dividend to transfer wealth out of their retained earnings and into the hands of their shareholders – which usually happens as a journal entry, not as actual cash.
“It’s calculating the amount, declaring it in March, filing it with Inland Revenue, and paying the dividend withholding tax on April 20th.
“And if you have been paying taxes, and your provisional tax, you might want to bring those payments forward to get those imputation credits before March 31st, not after,” suggests Lisa.
These are incredibly tough times for all size businesses, but particularly so for smaller businesses.
Making financial and planning decisions about your 2024 year this month (March 2024) is really too late, she says. The time for that was from April 2023.
“You need to be serious about being in business. You must have budget and revenue goals, a strategy, and someone to hold you accountable – most likely an Accountant, an advisor, a lawyer or a business coach.”
Tax never sleeps
Maintaining proper financial records is paramount, says Lisa, as is planning for your business’s tax liabilities. “Tax is like rust. It’s inevitable and never sleeps.”
Inland Revenue has an incredibly long and thorough reach when it comes to the tax responsibilities of businesses and individuals, she warns, and it has the technology to detect income suppression.
For example, contractors can no longer wait until the end of the year to file their tax returns. Their employers must now apply monthly withholding tax.
In 2024 no stone is unturned. Even paying casual entertainers out of cash takings is a thing of the past. Those entertainers must be registered as employees and withholding tax applied.
Just saying ‘this is how we’ve always done things’ is not good enough either, says Lisa. “Try to beat the system and Inland Revenue may, literally, be knocking on your door.”
She reminds business owners that EOFY is a chance for them to square everything off with the tax department. “It’s your chance to get all your tax obligations right if you haven’t been diligent over the past year.
“If you’ve not been doing things right over the year, perhaps in connection with GST returns, or your tax obligations with contractors, then Inland Revenue will pick up those misdemeanours.
“EOFY is the time to tidy things up – to recognise and calculate all kinds of revenue you earn correctly, your deductible expenses, valuing your assets and liabilities, and getting it right.”
EOFY is also a time for appreciating the relationship you have with your Accountant or Bookkeeper. “We’re a value-add to your business because we do this for a living,” says Lisa.
She says she can log into a business’s ledger and see everything she needs to know about the financial performance of that company.
“I’m a data analyst, a software magician, bringing my 36-plus years of experience as a leader in my own small-to-medium size business. With that data I can see the qualitative and quantitative information and translate it not only for the business owner, but also their bank, Inland Revenue, or employees – and in words they can understand and within an analogy that suits their business model.”
A team effort
EOFY looks like a solo effort and might seem scary at first to new business owners, but Lisa knows that you’ll get to the finish line easier if you make it a team effort.
“You can make March 31st an arbitrary finish line for your business’s annual goals, but we get there together,” she says.
“And proactively providing information to your Accountant or Bookkeeper, is always an enormous help.”
At a glance – what you need to know when approaching EOFY
- There’s heightened attention to tax deductions and credits, as individuals and businesses seek to maximize their savings before the fiscal year concludes. Additionally, compliance with regulatory changes, such as updated tax codes or reporting requirements, remains a focal point for businesses. For 2024, potential new regulations or alterations to existing tax laws could present challenges for business owners. Staying informed and seeking professional advice to navigate these changes effectively is crucial to avoid potential pitfalls.
- EOFY traps can ensnare even the most diligent business owner. Common pitfalls include improper record-keeping, overlooking eligible deductions, and failing to plan for tax liabilities adequately. To avoid these traps, meticulous record-keeping throughout the year is paramount. Regularly reviewing financial statements and consulting with tax professionals can help identify potential issues before they escalate. Establishing a proactive approach to tax planning and compliance ensures a smoother EOFY process and mitigates the risk of encountering unforeseen challenges.
- Simplifying the EOFY process and overall tax or finance management requires proactive strategies and careful planning. Implementing efficient accounting systems and software can streamline record-keeping and facilitate accurate reporting. Maintain up-to-date financial records and track expenses diligently.
Leveraging technology and automation tools can also help streamline admin and reduce manual errors.
Other Articles
Crypto taxes: ignorance is never bliss
NZBusiness + Management Digital Issue – March 2024
