ACC unfortunately is something a profitable small business owner is unlikely to be able to avoid.
Levies can go up and down depending on the type of year you’ve had. And just like provisional tax, if you have a profitable first year, you can end up being lumbered with two years of levies to pay after your first year of business. For salary and wage earners who pay their levies via PAYE, if they have an accident and get their claim accepted, ACC pay out based on 80% of their wage or salary after they are off work for more than a week.
But what happens to small business owners when they have an accident and are off work for more than a week?
The first problem is that although ACC may have accepted your claim, if you’re on a standard ACC policy, ACC will ask for last year’s financial reports along with your financials for the year up to the date of your injury. If you’ve run at a loss for the year to date, ACC will most likely say “well, 80% of nothing, is nothing”. So you won’t be receiving any weekly compensation from them.
Sounds a bit rough, huh? Well, that’s just the way it works. Unfortunately, this leaves many small business owners in a tight spot. Not only do you still have the mortgage to pay, household bills to cover and a family to support, you haven’t got any funds coming in and a business still to run while you’re possibly just needing time to heal and recover from your injury. So what are your options?
The first option is to keep your financials up to date and one of the best ways to do this is by using an online accounting package to keep your business records. By doing this, when ACC ask for your reports, your accountant is able to look into your accounts and assist you with providing ACC the reports they require much quicker than if you’re not keeping records throughout the year or are using a desktop accounting package. This could still leave you in a position of not being eligible for weekly compensation if your business hasn’t been profitable for the year due to a downturn in your market, or perhaps because you’ve been putting more funds in than you’ve been getting out due to expansion.
Is there a way around this then?
Well, yes there is. ACC have a policy called Cover Plus Extra. Cover Plus Extra works similar to an insurance policy. You elect the level of cover you’ll require if you were to have an accident and be off work for more than a week. If ACC approves your application for Cover Plus Extra and you pay their invoice, it will mean that if you are injured and your claim is accepted, then they will pay out based on that policy. No providing financial reports, delays in waiting for them to process your application and decide if (or how much) they will pay out. So not only do you have a rough idea of how much your levies will be from year to year, you will also have that peace of mind of knowing you will still be able to pay the mortgage, support your family or pay someone else to run your business while you recover.
If you would like to know more about how ACC levies work or help applying for Cover Plus Extra, don’t hesitate to give us a call.
With the end of the financial year just around the corner, it’s time to think about the things that you will need to do before the 31st March and the information that you will need to get ready to provide your accountant or bookkeeper.
What do I need to do to get ready for the end of the financial year?
Here’s a quick list of the things your accountant or bookkeeper is likely to ask for:
If you have used Xero throughout the year, a lot of this information could already be in Xero so check with your accountant if you are unsure.
Some of these things could have an impact on your tax for the year, so it’s a good idea to address them now so you’re prepared because nobody wants to pay more tax than they need to.
Stock - If you carry trading stock, you will need to do a stocktake of goods that you have on hand for sale at 31st March. These need to be valued at the cost you bought them for and if you’re GST registered, you will need to advise your accountant whether your stocktake figures includes or excludes GST.
Some of you may be considering rushing out and buying more stock before the 31st March thinking that this will reduce your tax. That’s not necessarily the case as an adjustment is required to account for stock that was purchased before 31st March that won’t be sold until the next financial year. So don’t run your funds short buying unnecessary stock that is going to sit on your shelf in an effort to reduce your tax.
Another item your accountant or bookkeeper will want to know when it comes to your stock, is whether you have taken anything for personal use throughout the year. Make a note of this so that an adjustment can be calculated for this.
Expenses - If there are any expenses that you are planning on incurring in the near future e.g. repairing equipment, advertising or stationery; you make want to look at sorting some of these expenses before 31st March. Be careful though as there are conditions on this, so you might like to touch base with your accountant or bookkeeper if you have any doubts.
Assets - Are there any assets on last year’s accounts that you no longer have? You might have sold them, or they could have reached the end of their useful life and have been thrown away. You will need to let your accountant know so that any old assets can be written off. If you’ve purchased any assets throughout the year that is over $500, make a note of these so they can be added onto your Asset Schedule.
Don’t rush off and buy new assets over $500 before 31st March either thinking that this will reduce your tax. These items will need to be depreciated over time and the costs apportioned over a number of years rather than being able to claim it all in the year you bought it.
Debtors (People who Owe You Money) - If you have some old bills that you are having trouble getting paid for, we suggest you make a list of these and discuss them with your accountant. If its unlikely that you are ever going to be paid for them, an adjustment could be made to account for them as “Bad Debts”.
For Companies - For Companies, it’s a good idea to review what you have taken out of the business before 31st March and repay this if necessary. If you have drawn out more than the Company owes you for the year, you could be liable for interest charges on any funds that you have overdrawn. If you are unsure how to figure this out, you might want to talk to your accountant before then.
You may also like to consider declaring a dividend and paying out dividends before the end of the financial year. There are a few things to consider before doing this (e.g. the fact it doesn’t reduce your company tax and/or whether the company has paid enough tax up until now) so we suggest you get advice on this first.
If you are in doubt or would like clarification on any of these issues, don’t hesitate to give us a call.
Did you watch “What Next” with Nigel Latta & John Campbell last month?
According to their researchers, there will only be 19 accountants in New Zealand by 2037.
So if they are to be believed, how is this going to happen?
One of the reasons it is likely to happen is because accounting software companies are making it easier for business owners to manage their own accounts with online software.
Xero is one of these accounting packages making it easier. Xero calculates your GST returns for you, then links through to your MyIR account with IRD to file it directly there. No more spreadsheets or adding things up manually on your calculator.
The phone app allows the business owner to invoice their customers as soon as the job has been finished via their smart phone, tablet or iPad. No need to wait until you get back to the office to do the invoice – or forgetting to do the invoice when you get back to the office. Xero also has automatic invoice reminders so your customers will be reminded they haven’t paid you.
The reporting functions in Xero allows you to see in a second who owes you, who you owe, how much is in your bank account and it makes it easy for you to check out how you are progressing throughout the year. Profit & Loss report, Bank Reconciliation report and Payroll reports along with numerous other reports are available in the “Reports” section tab.
With Xero, running your own business has never been so easy or saved you so much time.
If you haven’t given Xero a look, you might like to have a look at www.xero.com for more info or a free trial. Or maybe you’re already giving Xero go. Either way, if you would like to learn more about how Xero works or like help to make sure you are getting the most out of your Xero subscription, the team at Ezebiz can give you hand.
At Ezebiz, we think Xero is fantastic software! It empowers small businesses to have a more hands on approach to running their business. We are the most experienced Xero firm in the Eastern Bay of Plenty and because we specialise in Xero, all of our staff are Xero certified advisors.
We can ensure that you are on a Xero subscription that suits your needs, that you are not paying more than you need to for your subscription and can set you up on a training plan to develop your skills so you can use the functionality of Xero to save you time and money in your business. Whether you are a beginner or an advanced Xero user, we have a training plan for you.
In a perfect world, tax time and the end of the financial year would roll around, your accountant would ask for your paperwork and you would have it all there, in order, at your fingertips, ready to go!
The reality is that not many of us live in that “perfect world. More often than not paperwork is at the bottom of the list of priorities. A job you know you HAVE to do, but have the least desire, or motivation to do, so you procrastinate……until you can’t put it off any longer.
There’s got to be an easier or better way to manage that accounts paperwork. Even IRD have got on the bandwagon of trying to make it easier for you by updating their computer system and introducing the new system to help make it easier for you.
In an effort to keep up with the times, IRD now allow you to store your paperwork electronically if you have the right approval. Say goodbye to that ugly pile of seven years paperwork packed in your back room that you’re probably never going to look at again, but know you have to keep, to keep the tax man happy. Imagine the extra space you’d have.
So how do you go about storing your records electronically? If you use one of the organisations on IRD’s approved list (e.g. Xero, MYOB or Reckon), you can start straight away. All your invoices and receipts can be uploaded into your online accounting system…..and then you can throw the originals away. You can make the process even simpler by using an app on your phone or tablet that takes a photo of your receipt which then uploads it to your accounting system.
You can use the accounting system app or another specially designed app which will also help gather the data required off your receipt e.g. invoice number, amount, date due; then it sends it straight into your system. Receipt Bank is one app that can do this for you, and then sends it into your accounting package. Using a system like this will reduce the amount of paperwork you have cluttering your office, but it will also reduce the time you spend/waste manually entering data.
Imagine what tax time would be like if all your info had been sent by email or the camera on your phone throughout the year? All you would have to do, is tell your accountant that you’re all ready to go when they are.
People set New Year’s resolutions on the 1st January each year. How about setting a “financial new year’s” resolution on the 1st April this year. Get yourself on a system that will reduce time, paperwork and stress. It would mean you have more time to spending working your business….or fishing, surfing or hanging out with your family. Tax time would never be the same again!
Choosing an accountant is like choosing a new business partner. The right accountant will become a trusted colleague you can depend on, who offers advice and guidance as your small business grows. So what are the top things you need to look out for?
It’s important to take the time to do this carefully, and make a list of considerations. You'll need to think about issues such as the accountant's location, the division of workload and the type of accounting software you'll use. Consider how much you'll have to pay the accountant, and whether they can help to reduce your business taxes.
It's in your company’s best interests to have an experienced, capable person handling one of the most important areas of your business – your finances. The right person will save you time and money year after year.
It used to be important to have your company's accountant located nearby. But today, more companies are collaborating online, using cloud-based technology to manage their business. This means that location is less of an issue. With cloud accounting, you and your accountant can view identical real-time data at the same time – no matter where you are.
The decision about where to find your accountant really comes down to what suits your company best. Depending on how you want to handle the finances, your accountant could really be based anywhere. If you’re happy to collaborate via email, phone calls, video-conferences, or secure accounting software, then you could be in Dunedin and they could be in Whakatane. If your accountant can be anywhere in the world, you don’t need to make compromises based on their location. You can find someone who really understands the specifics of your business or industry.
On the other hand, you may prefer face-to-face contact and find it useful to have someone who's able to go to business meetings with you. If this is the case, then you’ll need to limit your search to accountants who work nearby or are willing to travel to your premises from time to time.
Wherever they happen to be based, make sure they’re an expert in the tax laws that apply to your business.
A big piece of new legislation that you need to be aware of is that as of April 1, 2016, new Health and Safety rules will take effect. These rules will expose all directors to a potential personal liability for a health and safety breach even if they are not aware of the rules.
The new rules include increased penalties and make directors liable for any failure to take responsibility for health and safety, even a director that is not actively involved in the business.
For example - take a company where a husband and wife are the directors, but the wife never goes near the place of business. Should she still be a director? The bottom line is this; if you are not in any way involved in the company, you are increasing your personal exposure and risk to the penalties of a Health and Safety breach.
Why join a business network?
If you’re not sure how this could apply to you or if you have any questions regarding this at all, please feel free to give Ezebiz Accountants a call on 07 308 5576
With competition from outside sources throughout a range of our local industries, it is important to include yourselves in networks of business professionals. These can be through the likes of your local Chamber of Commerce, retail groups or even starting your own!
If your business is in an industrial estate, main street or anywhere there is a cluster of offices, shops or workshops, the best way you can make yourself top of mind and help grow the local economy is to chat to your neighbours about their industries and share experiences. In other words, build relationships with them.
The idea behind networks like this is to expand everyone’s general knowledge of other fields and in turn grow business opportunities creating stronger cash flow within the community.
Do you find yourself being asked questions by clients relating to other industries that you know nothing about?
With two weeks to go until the end of the financial year, here are a few tips to take the stress out of a busy time of year for businesses.
My guess is that if you’re, let’s say, a painter completing a job on a building, more than likely, the owner has at least once come to you and asked about maybe how they should do their sign writing, or what you thought about the state of the roof etc. I’m sure in this situation you’d have some idea of how to proceed, but might not be confident enough to put your name to the advice just in case you get it wrong.
By being part of a business networking group, you can ask these questions and get the answers from the right person for the job.
So next time you get a curly question from a client, you not only have a helpful piece of information to pass on, but also a direct contact you can give the client.
E.g. “This is what I think you could do…………….., but maybe you should call Fred at ABC Industries to come and check it out. A good bloke who’ll look after you”
You've just completed a tidy circle of word of mouth referral
I am well aware that “word-of-mouth” is how most of you believe your business is coming in and I’m certainly not saying that isn't the case. All I am putting to you is the concept that (with the exception of your family and friends) your message has to have been seen somewhere to get people talking about your business.
Whether is has come from local newspaper, radio, websites, your own flyer drop or even the signage on your building or company vehicle, you need to have spent money to create the original message. No one has ever woken up in the morning and had an idea to go directly to your shop or call your service for their requirements – they will look to an advertising medium.
Once this has happened, that person may not be the one to use your service, but might tell a friend that is in the market for your particular service that they saw or heard about you. Now word-of-mouth has been created.
Business networks are a great way to create that word-of-mouth promotion through other business channels with absolutely NO COST. As we all know, almost every industry overlaps at some point, as all businesses need the help of others to complete the jobs they don’t have the expertise to do. By becoming involved in business networks, you will meet contacts from an array of different industries, that might switch to your service, or at least give out a few good referrals. This means you have “reps” helping promote your business for FREE and you will in turn act as a FREE “rep” for other businesses.
In no way am I saying you should drop your current advertising or even revise your budgets. In fact, quite the opposite. If at all possible, you should look at branching into several different mediums to cover as many buying markets as you can (if you increase your advertising budget, always set this before undertaking anything new and stick to it). This will give credibility to any word-of-mouth promotion that people hear. If they can relate it back to something they've seen or heard themselves it solidifies the message.
Remember, visibility and promotion delivered in the correct way will always give the impression of success and people want to be associated with or use something that is successful. Word-of-mouth lends itself to success – If people are talking about it, it must be good.
So, next time you get your morning coffee, drop in to your neighbour and see if they want one which will open the door for you to have a chat. All of a sudden, you've just started a business network.
Talk to your accountant before year end.
You need to start thinking and planning about tax early. Your accountant is there to give you advice on your specific business requirements so give them a call now. Keep in mind that any fees you pay to them are deductible too.
Make sure your records are up to date.
By using a cloud based accounting software system such as Xero, you will find it much easier to keep track of your financial position. “The Cloud” in an online platform to make accessing your data simple anytime, anywhere and from any device.
Ezebiz Accountants are Xero Gold Partners meaning we are highly qualified to help you set up and use Xero. This means that we can work with you at the same time to resolve any problems you have as soon as they happen so you don’t get any nasty tax surprises at the end of the financial year.
Keep in mind that all expenses you want to claim need to be supported by the correct documentation like invoices or receipts. A great way to do this is to take photos or scan your financial papers throughout the year. It will save a lot of time and make things easier for your accountant so you can get your financial statements back quicker. Remember, it is a legal requirement for you to keep business financial records for seven years, so going paperless makes for much easier storage. Backing these up on an external hard drive is also a good idea.
You need to know what expenses you can and can’t claim against your taxes. We spoke about this in one of our previous blogs, so if you’re unsure, contact your accountant to discuss claiming expenses. Things like office supplies such as printing and stationery costs are usually 100% claimable, whereas you can only claim a portion of your home office costs.
Then there are vehicle expenses. If you think more than 25% of your travel is for business you need to back this up with a log book, but, if you travel lees than 5,000km per year you can claim mileage based on your actual travel. You need to keep a record of the distances you travel and what the purpose of the trips were.
Once again, if you are unsure on what you can claim, speak to your accountant to get clarification.
Review fixed assets, stock and debtors.
You should review your list of fixed assets before the balance date. Physically sell any surplus or unused assets that can be sold. Other surplus assets which are obsolete should be written off, along with any assets that have been thrown out or lost.
Review your stock level before balance date for out-of-date or obsolete items. Dispose of any unusable inventory before balance date and record at cost. Also, review your overdue debtors before the end of your financial year and write-off any bad debts by recording them in your software.
Plan your expenditure.
To reduce your taxable income if necessary, purchase any upcoming expenses, like stationary, before 31 March in order to claim them as early as possible. Prepayments such as insurance can be claimed in full, as long as the total prepaid is less than $12,000.
Welcome back to the Ezebiz Accountants blog where we will be answering a few of our frequently asked questions over the next few weeks.
Last week we talked about claiming expenses for home, vehicles and office. This week, we will look at bank accounts, handling cash payments and cash shortfall for expenses
Do I need a business bank account or should I put my income and pay my expenses out of my personal account?
You should set up a separate bank account that is purely for business. Deposit all your business income into that account and if possible, pay all of your business expenses out of that account. If you have a Limited Company or Trust, you must have a bank account in that name.
What if I have expenses to pay and don’t have enough money in my business bank account?
You will need to keep a record of all costs that you have incurred and make a note of transactions that you have had to pay for out of your personal funds.
What if my customers pay me cash? Can I pocket it and not declare it?
We recommend that you deposit all cash payments that you have received from your customers. IRD have parameters that they run your tax returns through and if your sales versus expenses do not match the criteria that they have for your type of business, you could end up being audited by IRD which is a situation that nobody wants to be in.
How do I pay people who work for me?
If they are operating as their own business, you can claim their costs based on their invoices. If they are not registered as a business and are not able to provide you with an invoice for their services, you will need to register with IRD as an employer and pay them wages with PAYE deducted.
What does registering as an employer mean?
It means that you will need to organise employee agreements for your staff and pay them the minimum wage and be liable for ACC levies on wages you pay them.
What do I put in an employee agreement?
If you go to http://www.dol.govt.nz/er/starting/relationships,agreements/builder.asp it will take you through the process of helping you fill out an employment agreement covering all of the legal aspects of an employment agreement.
Keep checking out our blog where we will be keeping you informed of changes to the accounting world and how they affect you and your business.
Once again, keep in mind that we are only a quick email or phone call away so you can book your FREE consultation with us – 07 308 5576
Welcome back to the Ezebiz Accountants blog where we will be answering a few of our frequently asked questions over the next few weeks.
Last week we talked about tax rates, setting aside money for tax and ACC and the basics of claiming GST. This week we will be looking more in depth at what expenses you can claim and business assets
What can I claim?
You can claim most expenses that are directly related to your business if they are expenses you have that you would not normally have incurred if you weren’t in business.
Can I claim home expenses?
If you do not have a specified office that you pay rent on and you operate your business from home, you can claim up to 25% of all your home expenses. E.g. home power, rates, phone, mortgage interest/rent, insurance, repairs and maintenance. You need to work out the percentage use of your home office and Ezebiz Accountants can help you do that.
Can I claim my vehicle expenses?
If you only use your vehicle for business, you can claim 100% of all your vehicle running costs and expenses.
If you use your vehicle for less that 5,000 business kilometres per year, you can keep a record of your business travel throughout the year and your accountant will claim this on a per kilometre basis when they prepare your end of year accounts, or you can keep a log book of all your travel (personal and business) for 3 months to determine the percentage of business versus personal use of your vehicle. You will be able to claim that percentage of all fuel, insurance and repair & maintenance costs of your vehicle each year.
A log book will need to be done every three years for three months, or if you think your vehicle usage for business has changed.
If I have to borrow money for my business, can I claim the loan payments?
If the money you have borrowed is purely for the purpose of running your business, then you can claim the interest portion only as an expense. The principal that you pay on your loan is not a tax deductible expense. If you have bought something that is only a percentage business use, then you can only claim the percentage business portion.
What happens if I have to buy assets for my business? E.g. a new computer, new vehicle, new machine?
If the asset you have purchased is under $500 (including GST) then the whole amount is deductible as a business expense.
If the asset is more than $500 (including GST) then it will be added to your balance sheet/assets and only a portion of it will be deductible as depreciation each year. Your accountant will be able to give you more information on how much is deductible each year.
Next week, we will look at paying expenses and cash payments.
Once again, keep in mind that we are only a quick email or phone call away so you can book your FREE consultation with us – 07 308 5576