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Accounting is Just the Beginning

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Cash Jobs Crackdown by IRD

You probably saw the above headline recently, but if you missed it here’s a link to the story:

http://www.stuff.co.nz/business/industries/6696290/Cash-jobs-crackdown-by-IRD

Nowadays the ID don’t do many audits but if they do and catch you out it generally turns out to be a very expensive lesson, as you will be used as a warning to others. By the time they’ve added interest and penalties it’s a bit like a mortgage, you will owe them several times the actual tax you thought you’d saved in the first place!

It’s dead easy for the IRD to spot one of their “customers” (as we’re called these days!) who is doing a load of cash jobs, as the huge majority make the same old mistakes:

  • Benchmarking. Your trading results and your gross margin are compared to others in your line of business. Be prepared then to try and explain why you are doing so badly!

  • Low or No Drawings. Man can’t live on bread alone…….or in this case on nothing! A very common mistake!

  • No Cash Withdrawals. In the days before Eftpos I once took over the affairs of a trader from another accountant who was being investigated by the IRD who had drawn no cash from any of his bank accounts for 4 years, yet he hadn’t paid for any petrol or shopping by credit card or cheque over this period. Needless to say the IRD thought it was Christmas!

  • Unidentified Deposits. Any deposits paid into your bank accounts or those of your family are treated as diverted takings. They’ve heard all the excuses under the sun many times before – TAB winnings, gifts from mum, found it under a bush etc!

  • Involving Others. One of the best sources of information for the IRD are disaffected ex-employees, ex-spouses or suppliers or customers where cash deals have been involved! So silly yet still widely practised!

  • Paying using Credit for Materials or Parts for Cash Jobs. A mistake as old as the hills, the IRD just traces the things you’ve bought through to customer invoices, or not!

  • Buying Assets. If you buy a boat, car or toys like jet-skis where did you get the cash from?

  • Slip-Ups. It’s very easy to slip up and drop yourself in the mire, as a client of mine did whilst on holiday overseas. He had paid for the entire trip in diverted cash but just at the last minute decided to buy his old mum a gift at the duty free. Having spent all his foreign currency he used his credit card, just the once. The result? The IRD spotted this and assessed him for $30K worth of tax plus interest and penalties, assuming he had travelled overseas every year which he had apparently! Ouch!

For more advice on how to stay on the right side of IRD, just just join the ABAC community on Facebook. We answer all your business questions free and post regular business success tips.