CENT$IBLE NEWS CONNECTING CLIENTS TO MAKE THE MOST OF THEIR CENTS
Makes Cents Newsletter June 2021 Where has the first half of the year gone. Everyone seems so busy that time is flying by. It is great that everyone is busy since Covid but we are noticing a few interesting things in the 2021 tax returns that we have done to date. For some businesses Covid had no effect at all and their turnover and profit is up compared to the 2020 financial year, and add to that the Covid wage subsidy that was received, most are finding their tax bills are higher than expected as are their provisional tax payments. Even some of those who were impacted with a lower profit, we are finding that this is more than compensated by the wage subsidy and once again higher tax payments.
We wish to welcome Andrew Gou to the team. Andrew has a Graduate Diploma in Commerce from Victoria University and 10 years experience working in Wellington suburban accounting firms. Nalynee has moved on and as is normal we have reallocated some clients to Maurice and Susan while Andrew gets to grips with all our systems and technology.
Technology! Speaking of technology we have had a nightmare few months. Last year we updated our computers and laptops which all went fine. Then earlier this year we upgraded our email and document storage systems into our professional accounting suite of software and what a nightmare. Emails all over the place, we couldn’t see each other’s emails so they backed up to our individual computers pending the issue being sorted. So another upgrade to our email software and it is now working how it should and we are slowly getting on top of all the client emails that we need to keep so that we all have access to them.
Then along comes Inland Revenue with it’s annual ongoing upgrade to myIR and each year it creates a pile of unread correspondence some of which is 3-4 years old that we have to sort through and this will take time. Add to that we have filed tax returns electronically with Inland Revenue for 20 years using “E-File”. This year IRD did away with E-File and introduced a new system called “Gateway Services” and what happens we got hundreds of historical or duplicate assessment notifications lodged to our system and a heap of rejected returns that we have filed. We also lost all access to prior returns that we had filed and copies of all the payment reminders that we send out to you, but thankfully that is all back now. So we are in the process of going through all these assessments and rejected returns so that we can get everything up to date so bear with us as we have to open each one individually and check it out and file it again with IRD. We hope to have all this sorted by the end of next week so that we can get on with your 2021 financial statements and tax returns, as well as more interesting types of work we do like business planning and cashflow forecasting.
Terminal Tax & Provisional Tax We have had lots of queries with clients not understanding why they are getting interest and penalties from Inland Revenue so here the following is a simple explanation of how it works and hopefully it makes sense!
There are two reasons why Inland Revenue adds interest and penalties to income tax:
The first reason is self explanatory but the second is a little more complicated. If you didn’t pay any provisional tax it could be because your residual income tax was under the threshold of $2,500 (now $5,000 since 2020) and were not required to pay. But suddenly your taxable profit was up and you should have been paying provisional tax on the due dates so IRD calculates interest and penalties from the dates the payments should have been paid. The same applies if you haven’t paid enough even though you may have paid all the provisional tax payments as required based on your prior years return. If for example, your company has a 31 March balance date and makes an extra profit of $30,000 and the tax on that at 28% is $8,400 which equates to 3 instalments of $2,800, IRD will calculate interest and penalties on each instalment on the 28th August, 15th January and 7th May until the tax is paid.
Sometimes it looks like you are doing the same as last year as far as turnover or profit goes compared to the prior year, but increased stock on hand, higher accounts receivable (debtors) or lower accounts payable (creditors) at balance date compared to the prior year can increase your profit and mean you end up incurring interest and penalties because of the tax law. Basically what IRD are saying you need to be looking into a crystal ball to know what might happen as far as your business profitability goes.
That is why having software such as MYOB, Xero, Cash Manager is so good because you can see a lot of these things in real time. Also with some cloud software we can also have access as your adviser. If you think things are going well and your turnover or profit is up compared to prior years then you need to get in touch with us for a tax review. The cost for a tax review is $150.00 + GST but it is included as part of our Buddy and Builder packages.
Courtney & Baby Update Courtney and baby son Carter have called in for a couple of morning tea sessions with us and are doing fine. Susan is on a high on these days after hogging all the cuddles!
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