Empower Your Business

Accounting is Just the Beginning

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Tax Pooling – Improve Your Cash Flow by Paying Your Tax Bill

Now you’re probably thinking that the title of this article is a typing error but yes, you most certainly can improve your cash flow by paying your tax, even before it falls due, by using Tax Pooling.  Read More

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Avoid penalties by paying your tax with the IRD

Watch this short video on why it is important to pay your IRD bill on time, and ways to avoid nasty penalties.

Accountants Hastings tax penalties video

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How to win with GST in New Zealand

Like all taxes, GST can be complicated, but for most business owners it can be pretty straightforward once you get to grips with the basics. To do so, it’s necessary to understand how GST works.

Many business owners think GST costs them money, but in fact, as a GST registered entity, the typical business owner is merely acting as a paid (yes, paid!) tax collector of behalf of the IRD. This is because GST is only a cost to the final consumer, not to the GST registered business owner who can reclaim the GST he or she pays on purchases of goods and services.

For example, if I buy a jar of coffee for use at home, I cannot reclaim the GST, but if I buy coffee for my office, I can. In return for being able to reclaim the GST on purchases of goods and services, a GST registered business owner must add GST to the invoices he or she issues to his or her customers, collect it, temporarily hold the GST and then pay it to the IRD — after deducting the GST reclaimable on purchases and overheads. It’s much easier to understand if you’re in trades, services or you’re a professional because you can see the GST being added to the value of your services, unlike a retailer where prices are GST-inclusive.

Read the full How to win with GST article here.

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How to avoid a painful tax audit

Tax Audit Hastings Accountant Nick RobertsEven the NZX can be caught out by a tax audit. The sharemarket business paid $1.2 million extra after the Inland Revenue Department checked its books.

For the average small business owner, the thought of a visit from tax inspectors is enough to make them shiver. We asked two experts how to minimise your chances of a painful dispute:

Recognise the risk

You may think there’s no chance of being audited if you are a little one- or two-person band. But added together, small-to-medium enterprises (SMEs) are a big source of tax revenue. Many will never see an investigator, but you cannot assume this, Grant Thornton partner Paul Kane says.

There are dozens of ways to inadvertently attract interest. “You may have an overseas bank account,” Kane says. “If you’re buying and selling a lot of properties, they will see the land transfers.” One of his clients’ financial statements revealed they owned five vehicles despite paying only a pittance in fringe benefit tax (FBT). Others are snapped when disgruntled former employees reveal they were being paid cash.

Nick Roberts, managing partner at the Accountancy and Business Advice Centre, says tax officers sometimes randomly visit people working from home to check they are declaring their income. “They are looking at Trade Me sellers and roadside fruit vendors. They tracked down one American bloke renting his house on bookabach.”

Be prepared for an audit

Roberts says taking tax seriously is part of good business. “A lot of people find it hard to reconcile themselves to paying tax, but if you want a successful business, you have to face it head on.” If nothing else, think of the future, when you may want to sell your business, he says. Do you want to try to convince a purchaser that you’ve been raking in triple what the records show?

Read more here

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Data straight to the IRD – What do you think?

Tax Accountants hastings

“Wow is this for real? Data sent to the IRD every time a sale or purchase is made?  What on earth would the IRD want all that information for?”

Last month the Australian Tax Office delivered a blunt message at a Sydney conference – the world for tax practitioners is about to be turned upside down. The pill was sugar-coated by a lively agenda focused on managing and adapting to change but the message was nonetheless blunt and delivered to a slightly bewildered audience on the second day of the conference.

Within two years, there is an expectation that the way businesses interact with the ATO – and by extension, the way they communicate with their agents, and the role those agents play on behalf of their clients – will be totally re-engineered.

Read more here

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How to handle issues with the IRD

Accountancy + Business Advice Centre Hastings

The IRD can be a scary bunch even if you don’t get offside with them, so it’s best to be wary of how you talk to them and handle any issues that arise. As many have found, the consequences of getting your tax obligations wrong can deplete your wallet considerably, perhaps even leading to bankruptcy and financial ruin.

Ideally of course, it’s best to avoid getting into a situation where it’s necessary to even have contact with the IRD. If you file all your returns and pay on time, and take a reasonable approach with taxes, you can keep a low profile and thus avoid getting yourself into an audit or enquiry situation. After all, it’s mostly common sense, and there’s always someone out there doing something really stupid to take the heat off you (such as filing tax returns showing $10,000 worth of income with no other means of support).

You should also avoid asking the IRD for advice. If you ask what they consider to be easy questions, it’s a bit of a giveaway that you don’t know what you’re doing. That means they might come a-calling to see what else you don’t know or have done wrong on your returns. In any case, it’s a bit like the poacher asking the gamekeeper for advice! Are they really going to go out of their way to help you reduce their taxes? The most ridiculous thing I’ve heard of are people who used to deliver their books to the IRD and ask them to work out their taxes — how crazy is that?

Read the full article on how to handle issues with the IRD here.

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7 Reasons to Trade as a Limited Company

7 reasons to trade as a limited companyIt costs a few hundred dollars to form a limited company but despite that, many thousands of Kiwi’s continue to start businesses as sole traders or even worse, partnerships. In more than 30 years of looking after small businesses I’ve seen so many unfortunate and unnecessary situations and countless examples continue to crop up, so here are a few I’ve seen in the last year or so.

 1.    Outstanding GST. It’s a fact that the IRD in NZ are rubbish at collecting tax, so much so that many business owners use the IRD as a source of finance. Take a new client of mine in Hawkes Bay, a husband and wife partnership who now owe $85,000 in GST. Their business is failing but guess what – as a partnership they are fully liable personally for ALL the GST. If they were a limited company they could have walked away. Bankruptcy and ruin beckon……………

 2.    Accounts Receivable. Another husband and wife partnership client has received a demand for $175,000 from the liquidator of one of their former customers, who says they have to repay the money they legitimately received for sales made. Ridiculous maybe, but as a partnership they are fully liable and needless to say, they haven’t got $175,000 sitting around!

 3.    Legal Claim. Another client, a sole trader, was on the receiving end of a totally unexpected claim of $260,000, and guess what, his insurance company refused to pay up! Bye-bye house!

 4.   Partner’s Debt’s. Another client was in a two-man partnership. His business partner ran up debts willy-nilly and then cleared off. Guess who had to pick up the tab for the partner’s debts?

And it’s not just debt or financial ruin that makes a limited company so valuable:

 5.    SelfEmployed Status. We are very lucky in NZ. You can trade as a limited company yet still retain your self-employed status so it’s crazy not to take advantage of this.

 6.    Tax. Both sole traders and partnerships are pretty useless for income-splitting to minimise tax. A company, on the other hand, is far more flexible.

 7.    Ease of Ownership Transfer. It’s so much easier to transfer wealth or assets when you have a limited company. No legal fees or tax issues to worry about!

Business is risky, so why take any more risk than you need to? If you need help with your business contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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What extra work and fees are involved when operating as a Limited Company?

Ask_an_Accountant_1

Welcome to the first episode of Ask an Accountant. This is your chance to get direct answers to your accountancy, business & tax questions from business and tax expert Nick Roberts who founded the Accountancy + Business Advice Centre

This week’s question asks about if becoming a limited company was a good idea…

Press play to see the response

Would be great to get your feedback. Please comment below.

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Working Overseas and Tax

clouds_beach_blackwhiteTax may be the last thing you’re thinking about when you make the big move over the Tasman or maybe further afield to the UK but that could be a costly mistake.

Just about everyone you meet or speak to thinks they can kiss the New Zealand IRD goodbye when they climb the stairs to their airplane but alas, the IRD are not that easy to get rid of and may stow away in your suitcase! If you don’t take the right advice and take appropriate action you might be in for a very nasty surprise when you get back to NZ. Have a read about an unfortunate individual who had a rental property in New Zealand whilst overseas he had never lived in. How does that place the many Kiwi’s that rent out their family home in this situation? The review of the case is from tax experts Tax and More Limited from Wellington. Their newsletters are always excellent.

http://www.newzealandtaxadvice.co.nz/files/TaxAssessment-February-14.pdf

If you’re going overseas to work save yourself some stress (and maybe money) by taking advice from an expert!

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Don’t Be Blasé About Tax Debt

T&C's are perceived as some of the most boring part of businessWhen it comes to paying bills, we often tend to be blasé and put our financial responsibilities into the too hard basket.  Ignoring debt is the easy option at the time but eventually things catch up with you.  When it comes to paying tax, it is even more important to stay on top of your obligations to avoid potential tax debt.

So what happens if I do get behind?  You should try to avoid getting to this point, but it is likely the IRD will contact you if you miss your payments.

In most scenarios, tax debt will result in the following charges:

  • late filing penalties and interest
  • late payment penalties
  • non-payment penalties

If you do receive a letter from the IRD, it pays to act quickly.  There may be a variety of payback options available to you. If you want to know more, let Nick know and he can work with you to get back in the black.

Tax due in April and again in May…  A bridge too far?

Many taxpayers get a terminal tax bill due 7 April 2015.  Then IRD insist you pay again on 7 May 2015 for provisional tax.  This could well be a bridge too far’ and your Cashflow just can’t take it.

We at the A + BAC have found a very easy and risk free funding option which is only for provisional tax and the IRD have approved it.  It is called Tax Finance.

By using Tax Finance (see Table below), you decide when you want to pay your tax (maximum delay of 10 months for 7 May).  The tax intermediary arranges your payment into their tax pool which is a special account with the IRD.  All you have to do is pay the interest cost upfront. Then there’s nothing to pay until your selected maturity date.  You can even use this as a form of instalment such as arranging tax finance for 6 months and then paying 1/6th to Guardian Trust tax pool each month.  You won’t get any late payment penalties or IRD interest.

Tax finance for 7 May 2015
The finance rates are subject to change
3 Months 6 Months 10 Months
Provisional Tax Amount $5,000 $5,000 $5,000
Provisional Tax Due Date 7 May 2014 7 May 2014 7 May 2014
Maturity Payment Date 22 Aug 2014 22 Nov 2014 24 Mar 2014
You pay only $120 $198 $315
Payment of interest due by 3 May 20145
Provisional Tax Amount $10,000 $10,000 $10,000
Provisional Tax Due Date 7 May 2014 7 May 2014 7 May 2014
Maturity Payment Date 22 Aug 2014 22 Nov 2014 24 Mar 2014
You pay only $240 $396 $630
Payment of interest due by 3 May 2015

nick@abac.co.nz or on 0800 ASK NICK are the best ways to contact Nick to see how Tax Pooling can help you.