EOFY can be a frantic and stressful time, especially if you’re in your first year of business, but you don’t have to feel like you’re lost in the wilderness. This article contains everything you need to set off in the right direction.
End of Financial Year. EOFY. It’s a topic that tends to get spoken about quite a bit over the course of one or two months each year, but why is it so important?
EOFY can mean different things to different people, but understanding what it means for you in terms of your obligations to Inland Revenue (IR) is critical for staying on the right side of the law.
For the new business owner, EOFY means the first time all your financial activities are due to be submitted for IR scrutiny.
This means collecting invoices, receipts, bills, payslips and whatever else exists on the paper trail of your fledgling organisation.
The process will likely include a tax agent. Owing to the many quirks and vagaries of New Zealand’s tax system, there are few first-time business owners who could be expected to understand the relevant legislation well enough to get things right on their first time through.
Given your first EOFY is not something you’d want to muck up, we recommend you consult a qualified advisor.
Beyond that, here are some important tips and resources for you to consider as we moved towards this busy time of year:
The NZ income tax year starts on 1 April 2019 and will run through to 31 March 2020
It’s essential to keep records up to date throughout the financial year. Not only does this give you a real-time view of the business incomings and outgoings throughout the year, it means you by the time the tax year rolls round, you’ll easily be able to work out your business and personal income tax owed as well as the provisional tax due for next year.
Working out how much tax you owe can seem like a daunting prospect but there are partners and accountants out there to help you. If you’d prefer to DIY, there are some intuitive tools also and Inland Revenue have created a range of calculators to simplify this process.
You can claim back any purchases you’ve made throughout there year. This can include bigger costs like rent, power and internet for any home office space you’ve used to work from, travel for business purposes, office equipment to smaller items like office consumables, fuel and or anything you’ve personally paid for that went towards running your business.
Just remember: it’s against the law to claim back any personal expenses against your business.
Also, capital expenses are calculated by depreciation. For more information on this and how much you can claim check out Inland Revenue’s depreciation guide.
There could be write offs, deductions and rebates that apply to your business. To find out, talk to your accountant before 31 March.
It’s important to check your stock for anything that is damaged or that you can’t sell because you can write it off. This could make all the difference when it comes to end of financial year because $10,000 (excluding GST) of stock, doesn’t need to be included.
Having all your business data in one place can be risky.
There are many stories of businesses who have lost all of their information due to fire or hard drive corruption. Inland Revenue and the Labour Inspectorate aren’t sympathetic to poor filing system excuses. They want to see seven years of customer data and if you aren’t able to present this, you can be fined mega dollars on the spot.
Always have a backup regardless if you’re working on the cloud or from your local computer drive. That way, if the worst should happen, you’ll be able to reinstate a recent copy of your information, which’ll save more than a few headaches.
For starters, it provides a file depository to save all your invoices, receipts, time and wage records, asset registers and depreciation schedules. It helps you manage bills due and outstanding debtors. It also tracks your goods and service, income and provisional tax exposure and Kiwisaver and PAYE liability. Best of all, this software gives you a clear picture of cash flow, profit and loss and balance sheet in real time.
Setting yourself set up with accounting and payroll software (if you are an employer) can take a lot of the stress of EOFY away. And of course, help you keep your finger on the performance of your business for the rest of the year too.
What do you want to achieve with your business? How do you plan to get there? Are you tracking results? If so, what are your results telling you and are you acting on them?
End of Financial Year is also a great time to take stock and look at your business plan. Do you need to change anything up to make sure you get off to a flying start in the new year?
Once you’re done, take a beat, reflect, then get ready and excited about the financial year ahead. Bring it on.