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Finance
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IRD changes to provisional tax | get your insurance needs 'Sorted'
Financial Planning
Businesses cannot be successful without planning and decision making. Deciding the direction the business will head in, setting goals and devising
a plan to achieve these goals is vital. Paramount in these processes is measuring the business’s financial performance and analysing this information.
There are three key reports used in financial planning and analysis:
- Statement of Financial Performance (or Profit and Loss)
- Statement of Financial Position (or Balance Sheet)
- Cashflow Statement or Forecast
These three documents collectively and separately depict the impacts of profitability, liquidity and growth on your business over a fixed period.
Financial Reports
Financial Reports are usually prepared annually, to satisfy a business’s record keeping requirements and assist with completion of
income tax returns. Businesses sometimes use Chartered Accountants to prepare these reports on their behalf or they prepare them themselves in-house. The reports are essentially historic records of financial transactions as they occurred.
The reporting requirements for New Zealand companies are outlined in the Financial Reporting Act 1993 and the Financial Reporting Order 1994
(for exempt companies).
Effective financial planning requires us not only to look at the historical records, but to look at the current performance of the company
and predict it’s future performance.
Management Reports should be prepared on a regular basis through out the financial year (e.g. monthly). This will track the businesses growth
and progress and can provide comparability from month to month. There are several computer software packages that can assist businesses to complete these reports and keep track of financial transactions through the year.
Budgets are tools to forecast the future. The Profit and Loss, Balance Sheet and Cashflow Statements can also be presented as a forecast or budget.
Comparison of actual performance against budgets can reveal strengths, weaknesses, unplanned expenditure and cost over-runs.
Regular and sound forecasts will help to keep your business on track
financially and remember - all financial records of a business need to be retained for seven years.
Profit and loss
The Statement of Financial Performance (commonly known as the Profit and Loss Statement) records the income and revenue earned, and
the costs and expenditure incurred. The expenditure is deducted from income to determine the Net Profit for the period.
Balance sheet
The Statement of Financial Position (commonly known as the Balance Sheet) records the assets and liabilities on a given date (usually the end of
each month). The equity section of the Balance Sheet also records the retained earnings of the business over time
(i.e. value that the business has generated over time).
Cashflow
In simple terms, the Cashflow Statement is a record of the receipts and payments of cash over a period of time – daily, weekly,
monthly etc. This statement records how cash has actually been utilised.
Like the Profit and Loss Statement and Balance Sheet, a properly prepared and well-understood Cashflow Statement will go a long way towards
business success.
A Cashflow Forecast predicts when and what level of cash will be received or paid in a future period. This is particularly useful for planning purposes. For example, a business can predict when excess cash will be available for a capital purchase or predict when cashflow is likely to be tight and ensure that overdraft or other financing facilities are in place in time.
Budgets
The Profit and Loss, Balance and Cashflow statements are essentially
historic records of financial transactions as they occurred.
To gain full advantage in promoting and running the business operations,
these statements can be converted into budgets. Budgets are tools
to forecast the future. Comparison of actual performance against
budgets reveals strengths, weaknesses, unplanned expenditure and
cost over-runs. Regular and sound forecasts will help to keep your
business on track financially.
Working capital
This element of many businesses is poorly understood and largely neglected. Without over-simplifying it, Working Capital quantifies
the cash or funds needed to bridge the lag from the time the funds are invested in the production and sale of goods and services, to the
time when payment is received from purchasers and debtors.
The length of the cycle – the lag – will vary from business to business and will impact how much Working Capital is required.
Payroll
Payroll is the financial record of employees' salaries, wages,
bonuses, net pay, and deductions. It is also used as an expression
for the total amount earned by all employees for a pay period.
Break-even analysis
Breakeven analysis is a tool used to determine what level of activity is required for a business to be able to cover all its expenses and begin to make a profit.
Income Tax
PAYE / GST
/ ACC / FBT
/ Non Tax
filing requirements /
Annual Enterprise Survey
/ Statistics New Zealand
/ IRD changes to
provisional tax - Press release
All New Zealand businesses are required to file an Income Tax return with the Inland Revenue Department annually. The standard financial year that these returns cover is from 1 April to 31 March. The IRD will approve variations to this period in limited circumstances.
The Income Tax return declares the total taxable income for the year and calculates he amount of tax payable. Income tax returns are usually due by 7 July each year. Taxpayers who use a tax agent to complete their returns are given an extension of time and the due date is extended to 31 March the following year.
We recommend that you contact you tax advisor to confirm the due date for your businesses income taxes and whether you are required to pay provisional tax for the following financial year.
Tax - Acronym definitions
PAYE - Pay as you earn
Employers must file 12 or 24 PAYE returns each financial year. Larger employers are required to file their PAYE information electronically. If you're a small employer with gross annual PAYE deductions of less than $100,000, the schedule and payment are made on the 20th of the month following the deductions.
If you are a large employer with gross annual PAYE deductions of $100,000 or more, the deductions made from payments made to workers between the:
- 1st and the 15th of the month are paid by the 20th of the same month
- 16th and the end of the month are paid by the 5th of the following month (except for December payment is to be made by 15 January).
The employer monthly schedule is filed along with this payment.
GST - Goods and services tax
You must file 12 or 6 or 2 GST returns per year depending on your GST registration (the frequency of filing is related to your
level of turnover). Each GST return is due by the 28th of the following month. An extension is given for filing GST returns for any GST
period ending on 30th November. This GST return is due on 15th January to allow for office closure over Christmas.
There are two accounting basis’s for accounting for GST – invoice and payments (again determined by turnover volume).
Under the payments basis, GST is returned when payments are received or payments are made. Under the invoice basis GST is returned at the earlier
of when payments is received/made or when an invoice is issued.
From 1st April 2008 GST returns can also be used to calculate and file provisional taxes for some taxpayers.
ACC – Accident Compensation Corp
The Accident Compensation Corporation (ACC) administers New Zealand’s accident compensation scheme, which provides personal injury cover for all New Zealand citizens, residents and temporary visitors to New Zealand.
ACC will assess the levy payable each year and automatically send you an invoice.
The amount of your levy is based on how much you pay in wages (your liable earnings), and what type of work you do (your classification unit).
FBT – Fringe Benefit Tax
If you provide fringe benefits to your employees you must file four (quarterly) FBT returns, or one annual FBT return each financial year.
Fringe benefits are non-salary type benefits provided by employers to employees. FBT is the tax levied on these benefits and is paid by the employer not the employee.
The most common type of fringe benefit is a company owned car made available to an employee for personal use.
All limited liability companies registered in New Zealand must file an annual return each year to maintain their registration.
If an annual return is not filed by the due date, the company risks being removed from the Register of Companies.
Annual returns that are filed manually attract a fee of $30, annual returns that are filed on-line via the Companies Office website are free (Companies Office website).
From 1 July 2008 it will become mandatory to file annual returns online.
The due date is the last day of the month required for filing. The month for filing a company's Annual Return is based on the last numeral of its six-digit registration number.
- 2 February
- 3 March
- 4 April
- 5 May
- 6 June
- 7 July
- 8 August
- 9 September
- 10 October
- 1 November
Annual Enterprise Survey (AES)
You must file one Annual Enterprise Survey each financial year. The
Annual Enterprise Survey (AES) is carried out to provide annual data
for financial performance and financial position by broad industry
groups.
Statistics New Zealand
Each year Statistics New Zealand conducts a range of surveys on New Zealand Businesses. For example, the Annual Enterprise Survey which provides a yearly overview of the economy through statistics about the financial position and performance of New Zealand businesses.
Businesses are randomly selected and not all businesses will receive these surveys.
If your business receives a survey it is a compulsory requirement of the Statistics Act 1975 to complete, sign and return the survey within 30 days.
The information supplied is confidential and only people authorised by the Statistics Act 1975 are allowed to see your individual information and only for statistical purposes.
Thursday, 6 March 2008,
Press Release: Inland Revenue Department
IRD To Introduce New Option For Businesses
Inland Revenue will soon make it easier for businesses to cover their provisional tax payments.
From the start of the 2008/2009 tax year, Inland Revenue will introduce a new and optional way for businesses to calculate their
provisional called the ratio option.
The ratio option will allow eligible businesses to base their provisional tax payments on their actual sales. This means that their
payments will more accurately reflect their income.
Policy Manager Keith Taylor said that the new ratio option will make it easier for businesses to pay their provisional tax, especially if they have seasonal
or fluctuating income. "They can now make six variable payments every two months, rather than three equal payments throughout the year."
Businesses that have a standard 31 March balance date must apply for the ratio option by phone or in writing by the end of this
month if they want to use it during the 2008/2009 tax year. Businesses that have a non-standard balance date must apply to Inland
Revenue before the start of their 2008/2009 tax year.
Mr Taylor said that the ratio option provides a third choice for businesses. "The estimation or standard options currently used
by businesses to calculate their provisional tax can still be used'', he said.
He said that the ratio option may not suit all businesses, and recommended that businesses speak with their tax agents or seek other
professional advice before applying.
This new option is one of several changes being made to simplify tax for small to medium-sized businesses.
Other changes include combining the provisional tax and GST due dates, which will provide standardised due dates for businesses and enabling
them to pay these taxes at the same time.
More information about the changes, including the criteria businesses need to
meet to use the ratio option can be found by
clicking this link.
Business people should think about getting insurance needs ‘Sorted’
Article: 19 October 2009 - Retirement Commissioner Diana Crossan believes that getting the right insurance is an important part of managing money.
But how do you know what is right for you and how much you should expect to pay?
The Commission’s personal finance website, www.sorted.org.nz now has an insurance calculator to help you with the decision making. There is also a new booklet “Insurance – Protecting what’s important to you”.
Getting the right amount of cover is a very personal thing so the new Sorted resources allow you to factor in your own circumstances. The outcome will depend on things like how much risk you are prepared to carry, what assets you want to insure, whether or not you have dependants and how much you can afford in premiums.
People with no insurance can work out what they might need and what it will cost. Those with insurance can check if their current cover, and what they’re paying, is appropriate.
The new booklet is available from sorted.org.nz/ordering or by calling 0800 SORT MONEY (767 866).
http://www.sorted.org.nz/calculators/insurance/
Insurance tips
- It’s a good idea to have an emergency fund to take some of the insurance risk yourself and keep your insurance costs down.
- Consider the excess. The higher the excess the lower the premium but you will have to pay more for each claim.
- Buying as much of your insurance as possible from one company can save you money.
- Seriously consider any insurance offered through your employer or attached to another saving or insurance product.
- Always tell your insurer everything. If you leave out information you risk a claim being turned down.
- Read the policy carefully so you understand what is and isn’t covered.
- Review your insurances regularly.
- Pay your premiums on time.
- Know what insurance you have.
- Don’t leave it too late. Premiums for life insurance and income replacement insurance increase as you get older.
- As with all good financial decisions, shop around.
- Get advice from a skilled insurer, broker or adviser.
Source: sorted.org.nz
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