IR developing SPFR (Special Purpose Financial Reporting) rules

We have some exciting news for you…

In September 2011, a cabinet decision was made to simplify financial reporting for businesses. The impact of this decision is that the majority of New Zealand companies will no longer have to prepare financial statements that comply with International Financial Reporting Standards. Whew, what a relief?

When’s this happening? It kicks off on the 1 April 2014, impacting on your 31 March 2015 annual accounts.

Has your accountant informed you yet? Probably not. This was mentioned at a recent tax seminar, that the days of your accountant simply providing your annual accounts are over.

Why is this important? You have the opportunity to learn how to prepare your annual accounts yourself to a standard that satisfies the Inland Revenue.

What does that mean for you? Serious potential cost savings!

Is that of interest to you? If yes, please send us your contact details through this link – Click Here and in the subject line type: SPFR.

Financial Reporting for businesses – Accounting Standards are changing

Financial reporting has been a costly and messy business for many business owners in the past. Times are changing in NZ from #1April2014 . If your turnover is less than #30million dollars per year and the assets you own cost you less than #60million dollars (and don’t ask us how they came up with those figures!!) you are in to #Win Find out more from Accounts Online Limited Plus there might be other ways we can help you. www.accountsonline.co.nz.

Are You Claiming All The Tax Deductions You Are Entitled To?

Apart from a few exceptions any costs you incur to run the business will be tax deductible. For example if you decide a BMW is the type of car you need to run your business, the IR (Inland Revenue) cannot insist you buy a 2nd hand ute. Some costs like insurance can be a little tricky because depending on when you pay them, the cover may extend into the next year, so in that case part of the cost will have to be spread. A tip is to get your policies in line with your financial year. However, if the cost is of a personal nature or getting a business going this is where you could come unstuck. Here are some examples:

Personal Expenses

  • Travel from to work from home and back
  • Normal dress wear is not deductible unless it is for protective purposes, like safety boots or overalls.
  • Going out to the pub with your mates after work
  • Optician glasses, unless they are for protection purposes
  • The cost of taking your partner on an overseas business trip unless they are actively involved in the business.
  • These types of expenses should be charged to ‘Drawings’.

Capital Payments

  • The cost related to setting up a business including forming a company, these are all classified as formation costs.
  • Money you pay to repay a hire purchase, finance lease or other loans should be charged to the liability accounts.
  • The costs relating to buying new equipment or machines including the travel to inspect and install it. These should go to fixed asset codes

There is a slight twist with the last one above because you can claim that cost as an expense, but it happens on the drip feed and that drip feed process is called in accounting terms “Depreciation”. In other words it is simply spreading the cost over a number of years. Realise this is not for your benefit, it’s just the way you have to play the game.

When Using Your Home for Business

If you run your business from home the tax law allows you to claim a certain percentage of your home expenses as a business expense. These will include:

  • Rates (Rent if you don’t own)
  • Electricity
  • Insurance
  • Interest on Mortgage
  • Repairs and Maintenance
  • Depreciation on carpets, furnishings in the rooms used for business
  • Business uses the garage can also be included as part of the area used for business.

It is a good idea to keep a permanent record of the calculation you perform to work out the use you are making of your own home. Do this by measuring the total house and then measure the area occupied and used regularly by the business. This might include hallways, toilet, meeting areas and part of the kitchen.

Telephone

Unless you keep records to show the contrary, IRD allows you to claim 50% of the phone rental for business if used part for private and business, so long as the business element is reasonably significant.

Farmers who live and work on the farm can claim 100% of telephone as business.

Entertainment

This is quite a difficult one and you might want to go to the IR web site and download the IR268 guide. http://www.ird.govt.nz/forms-guides/number/forms-200-299/ir268-guide-entertainment-expenses.html As a simple rule of thumb if you provide food and drink in the town where you live then only 50% of the cost is deductible. Which simply means your share is considered a personal expense.

Interest

Interest paid in running a business is generally tax deductible. However, be careful. However, if it relates to money borrowed for real estate transactions get expert tax advice.

Business Expenses

Don’t try paying yourself an expense allowance to cover incidental business expenses. That sort of expense does not wash well with the IR, they much prefer actual expenses. And because we live in a self-assessed tax environment at the end of the day you are personally liable for your deductions, not your accountant. So it is prudent to err on the side of conservatism.

If you need cash for parking meters, try and keep some change in your car or use your credit card or telephone.

As must as possible pay your expenses out of the business bank account, not from personal savings as that will only create extra work.

Simple Business Plan

Successful marathon runners will tell you it is far easier to conquer the 42.2k’s if you break the race down into smaller segments. Running a business is much the same. This is particularly the case if you’re thinking of preparing a business plan for your business.

A good suggestion is to break the plan down into a simple wish list that you want to achieve over the next three years. Simply write down your list of achievements or milestones you want to achieve over that three year period and place a date mark against each wish. That way you are creating your own road map to follow. Of course, as you travel this route, you can easily add new items to you wish list, but doing so in a way that you do not get easily lead off the main route.

Of course, you can also add additional items to your wish list that take you past your initial three year destination helping you to drive your business to even greater achievements.

Milestones you might want to include could include market share, number of customers, turnover targets or profit. Of course for organisations that are not for profit type businesses, then these milestones can be around securing funds, improvement to the services and number of beneficiaries.

This simplistic approach may prove a lot easier to prepare and monitor than a 20 page traditional business plan report that stands the chance of being out of date by the time it has been prepared and stands the risk of being left in the bottom draw. Happy wishing.

Thinking Outside the box

A senior citizen lived all alone.

He wanted to plant his annual tomato garden, but it was very difficult for him, as the ground was hard from a very dry season. His only son, Jack, who used to help him, was in prison.

The elderly gentleman wrote a letter to his son and described his predicament:

Dear Jack, I am feeling pretty sad because it looks like I won’t be able to plant my tomato garden this year. I’m just getting too old to be digging up a garden plot. I know if you were here my troubles would be over. I know you would be happy to dig the plot for me, like in the old days. Love, Dad.’ A few days later he received a letter from his son.

‘Dear Dad, don’t dig up that garden. That’s where the bodies are buried! Love, Jack.’

At 4am the next morning, the police arrived and dug up the entire area…without finding any bodies.

They apologised to the old man and left. That same day the old man received another letter from his son.

Dear Dad, go ahead and plant the tomatoes now. That’s the best I could do under the circumstances. Love you, Jack.’

Lesson – Sometimes, and particularly in a market like this, we need to think outside of the box

3 time saving Strategies that many Accountants do not want you to know

All business owners know time is money. Saving time means not giving away hard earned profits. The following three strategies have been successfully deployed by a number of business owners to save time (money) and it is a privilege to share them with you.

  1. Make sure your Accountant is more than a Bookkeeper:

    Your accountant needs to know your business well to be able to provide you with sound financial advice. Their advice should provide you with a meaningful contribution to your bottom line.

    Before calling on the services of your accountant you need to be well prepared. Because one of the biggest and most time consuming parts of preparing accounts is ensuring the accuracy of them. This means checking and validating balances and ensuring there are no unaccounted for transactions. Without this assurance your accountant is unable to provide the service you expect of them.

    So whatever system you are using the minimum requirement is to be able to quickly and accurately confirm your accounting records to your external bank accounts.

    Ideally, you need to be able to run over your accounting records with what accountants call a “reasonable test”. This simply means taking a helicopter view of your reporting and trying to spot anything that, based on your knowledge of your business, looks out of the ordinary or “unreasonable”. This is particularly helpful in spotting things that may either require further investigation or having an explanation ready before your accountant asks the question.

    Your strategy, along with your accountants should be to minimise the time, effort and cost needed to prepare appropriate and accurate accounts. This means adopting the “less is more principle” rather than the “analysis to paralysis” approach. Often we are presented with copies of accounts that go way beyond standard compliance requirements and the additional information has not been requested or even being used by the client.

    Also, if your accountant identifies issues with your accounting records do not just let them fix them without your knowledge. You need to know what errors are being made so that you can avoid making them again in the future. If you do not, guess what will happen? You will likely keep making the same mistakes time and again and your accountant will have to keep finding and correcting them. Costing them valuable time and you money.

    It is a very smart strategy to meet with your accountant as soon as possible after year end and before they start your books, rather than after they are finished. This does put pressure on you to perform but sometimes that is a good thing, because:

    • It removes a major distraction from managing your core business
    • You will beat the rush and likely get better service from your accountant
    • You will be able to find out what your accountant plans to do to help you in the coming year instead of just telling you what
      you did which can no longer be changed (if not convinced at that meeting that your accountant is there to help you, then maybe it is time to consider a change – times are tough, no passengers allowed).
    • You want to find out at that meeting who will be preparing your accounts this year. You need to confirm you are not ending up with the new junior every year.
    • Once you have had that meeting, what a relief. It lifts a big weight off your shoulders and you are then free to take on the world once again.

    Always remember if your accountant is a member of the Institute of Chartered Accountants of New Zealand this gives you extra protection and forms of recourse not available to you if you use someone who is not bound by their strict code of conduct.

    For example if you want to you can request a fully detailed account and this can be quite enlightening as you can then see where the time is going to in the preparation of your accounts. Access to this information can often highlight areas where, together with your accountant’s assistance, changes can be made to reduce that time in the future.

    If the cost of your fees becomes an issue for you, or more importantly where your fee is or is likely to be significantly greater than you might expect, your accountant is required to discuss it with you before the bill is prepared. Failure to comply with these requirements allows you to file a complaint to the Institute.

    Appendix 1 provides additional details for what you need to provide your accountant at year end to help them assist you.

  2. Grooming your Business for Sale:

    Be well prepared in advance to sell your business, as you never know exactly when the time will come that you will have to sell. When that time does arrive and sometimes this is unexpected, many owners will rely on their annual accounts to try and help them sell their business. Many of these owners will also naïvely think that that is the only honest and genuine way to present the results of their business.

    Although your annual accounts are perfect for complying with the Inland Revenue they are often not that helpful when talking to a prospective buyer. Why is that? Well when you accountant prepares your standard financial accounts they should be determined to claim every single cost that can be legitimately claimed for tax purposes which results in the poorest possible result in order to minimise the tax you have to pay. For the Revenue that is the perfect result but it has the effect of dressing your business up like it is going out to a funeral. That is not the appearance you want to present when you have a hot prospect interested in you. You want to appear as if you are going out to an important occasion or a party. Now you don’t want to put on any false appearances but you do want to do everything possible to present an honest and genuine look that will help them make a quick and informed decision about your business.
    That actually means you need to remove stuff that will get in the way of the buyer making an informed decision.

    For example, no two owners given the same business to operate will ever produce the same taxable result. Why? Because they will never make the same decisions over certain discretionary costs and their circumstances will be different. Therefore, when selling your business don’t spend all the time sharing with them the great job you did in the past but rather assist them to see how business can be great for them in the future. That means legitimately removing certain costs from your current financials and allowing the prospective owner to easily insert their own.

    By having this method of reporting set up well before you want to sell will give you a totally different perspective on your business on an on-going basis.

    With proper guidance and training you can be prepared to help a buyer at a moment’s notice when you need to sell. The problem is if you do not plan for this early enough, you will not be able to quickly perform this process easily and efficiently. In fact we have found there is a certain mind set the seller has to adopt in order to be successful at this process.

    here is also the risk that unless you can easily get your hands on reliable information you might feel forced into agreeing to guarantee the performance of the business just to sell it. Then through no fault of your own, you end up carrying future risks and costs.

    You will also avoid the situation we have seen on a number of occasions where the client asks the accountant to prepare an adjusted set of accounts during the year at the request of an interested party. The client bears that cost which may involve them in fees from $500-$2,000 and the deal goes cold. Six months later someone new comes along and similar costs are incurred again. This strategy is designed to try and minimise those costs. In making these suggestions we are not suggesting you exclude your accountant, we are simply saying use their skills and expertise to verify your information, not prepare it.

  3. Time Saving Software

    The final strategy involves examining the type of tools you are using to easily achieve the above two strategies. Experience has taught us that success in these areas depends on having the right tools for the right job. What you might not be aware of is that thousands of accountants throughout NZ and Australia use a special piece of software that you cannot purchase online or from a retailer like Harvey Norman or Dick Smiths. They use this software to efficiently process their clients’ accounts and most clients have no knowledge of this best kept secret. Here are the comments of a couple of accounting firms who use it:

    ” BankLink delivers data to us so quickly and seamlessly, which gives us a real head start in processing GST returns for the month.” McGreevy & Associates Ltd

    ” Big savings despite low transaction volumes. LAQC clients are usually looking for rapid refunds, and BankLink Practice helps us turn their accounts around very quickly. We receive the data automatically so there’s no waiting around for statements.” Tony Thorne, Partner Thorne Accounting

    There is simply nothing faster out there to process accounting records! If we said to you there is an opportunity for you personally to enjoy those same savings would that be of interest to you? What that would mean is that you would then be in a position to make better use of your accountant’s service but at a much higher level for the same or in some cases less money than you were paying before.
    In other words you employ your accountant for their technical skills and get them to help you with more of the strategic stuff that adds real value to your business? Besides, accountants prefer that interesting work……and also never forget that your accountant works for you, not the other way around.

    By accepting more control there is an added benefit. If you allow your accountant’s office to do all your bookwork, who is keeping an eye on their workmanship? The reason we ask that question is because, full accountability with Inland Revenue falls on you as the tax payer, not on your accountant.

    We have in our files many instances where accounting firms, who have relied on their junior staff to do a good job, have failed. By
    giving you direct access to this professional software…. means you can be trained to be in the driver’s seat of your accounts, not in the passengers. It then means your accountants are given the opportunity to perform more of a review function of your core accounting records rather than a preparing one.

    After being trained to use this software if you get stuck on how to handle a certain transaction, then you consult your accountant or us. Because, it is most important to deal with any sticking points while they are fresh in your mind and when the information is readily available. Plus, you learn from the experience.

    After being trained to use this software if you get stuck on how to handle a certain transaction, then you consult your accountant or us. Because, it is most important to deal with any sticking points while they are fresh in your mind and when the information is readily available. Plus, you learn from the experience. http://www.kmworld.com/articles/news/news-analysis/the-high-cost-of-interruptions-14543.aspx

If any of the above strategies appears a little challenging remember the words of Julie Woods, a great lady from Dunedin who cannot see. She wrote:

“Asking for help is not an act of dependence; it’s the key to independence”.

She wrote that in her inspirational little book entitled “How to make a Silver Lining”. If you would like a copy please request one from info@accountsonline.co.nz – it’s brilliant.

One of our associates said it made her cry, laugh and made her think I don’t have much to complain about.

In conclusion these three strategies set you up for:

  1. Now – a better way to save time and be more in control of your business on a
    daily basis
  2. Year End – a more efficient way to get your end of year accounts processed and to
    make real good use of your accountant’s skills, expertise and knowledge
  3. Future – a streamlined approach to selling your business when the time arrives
    (and no owner knows that precise moment)

Offer to YOU:

If you want help to implement any of the above strategies please book a FREE 1 hour session valued at $150.00 plus GST. There could be hidden gold in your business. To book either email: info@accountsonline.co.nz or call 04 4999035 If you introduce a friend(s) and they join our service you will receive a surprise valued at $120! Please pass on this valuable information and help someone you know in business or starting out.

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Appendix A – Help Yourself and your accountant at year end

If you use the BankLink software you will save yourself and your accountant lots of valuable time when completing the following year end tasks:

  • Provide your accountant with early access to your accounting records
  • Photocopy your closing bank statement, credit card, or financial institution pages as at your year-end e.g. 31/3
  • Photocopy any loan statements as at year end and ensure that it shows the interest paid for the year
  • Photocopy any hire purchase statements as at year end showing the interest paid
  • If you still write cheques out, it is important at year end within the software (prior to doing your final GST return) to do your unpresented cheques (UPCs). This will take you less than a minute to do in the software. No ticking or reconciling!
  • Print the Bank reconciliation report off and verify and attach your closing bank statement(s) page of the year
  • Ensure that if you have more than one bank account tracking or credit card tracking that your “transfer between bank accounts account
    balances to Zero”
  • Ensure that in the software you have typed a narration against any Assets (greater than $500 plus GST) you have purchased e.g. Ford Mondeo Regn#: BTD385. This assists your accountant because they can take ledger reports out of the software to excel and import these additions into their asset registers – saving more time
  • Any donations made should have a narration e.g. Canteen, or World vision
  • Any large repairs and maintenance should have a narration typed as to what work was carried out e.g. replaced guttering
  • If you have multiple entities i.e. trusts, partnerships and companies that you transfer money to and from, then the intercompany accounts must balance
  • Provide an outstanding debtors (people that owe you money) aged trial balance listing as at year end
  • Provide an outstanding creditors (people that you owe money to) list by supplier, code and amount. If you have a lot of creditors to manage we recommend a web based creditors product called CRED-it that will save you time and dollars and your accountant can access it so they do not have to interrupt you at year end
  • Ensure that your GST payments/refunds ledger report agrees to your GST returns.

Tips:

  • Do not send all your bank statements, cheque butts and invoices to your accountant to reprocess.
  • If you are rekeying your bank statement data into a spreadsheet or other accounting systems then you are wasting valuable time, and no doubt your accountant or their staff will re-enter the information into their accounting system – and guess who pays?

A Quick Reminder on Expense Deductibility

Here is a quick summary of what you can claim when running a business, not a hobby. If your intention is to make a profit then the activity is a business and will get caught for tax purposes, but take expert tax advice if in doubt.

Accountancy and Other Business Advisory Services – these are 100% claimable, unless the advice is pre-incorporation when those costs would have to be capitalised as incorporation costs. These are called ‘Preliminary Costs” and are recorded as a Fixed Asset and GST can be claimed.

Bank Fees – all fees to operate a bank or credit card account are deductible, but no GST can be claimed on these expenses. Please note MSF (Merchant Service Fee) rebates do not attract GST and can be classified as a refund of Bank Fees or Credit Card Charges.

Books, e-Books, dvds – so long as they were purchased for the purpose of helping you to run your business more successfully they are deductible. Even movie theatre tickets could be claimable if you are an actor or writer, or if given as a form of promotion then they can be classified as Advertising.

Depreciation – This expense that sometimes washes over the heads of some tax payers because of its treatment for tax purposes. Most can understand the logic that when an expense is paid for then it is claimed against income earned. But when depreciation is involved that rule does not apply because rules have been prescribed that state ‘an expense greater than $575’ (GST Included, $500 excluded) for a new single asset is incurred, that cost must be spread over a number of income tax years. This spreading of the cost is called “Depreciation”. In the case where the asset is used only partially for the business then only that proportion can be claimed. A simple test for this type of expenses is to ask when an asset is over $575 “Will the item still be in use at the end of this financial year?” If so then it must be depreciated, but if purchased during the year, only the number of months in use can be claimed. To find out more about the allowable rates of depreciation you can go to https://interact1.ird.govt.nz/forms/depnrates/ .

Important– If you have a large number of assets and you would like to control them better and calculate your own depreciation we can provide an online asset program.

Entertainment – Only 50 percent is deductible if the expense is incurred within your local area of residency. If away on business the same cost could be 100% deductible. If the food is consumed on your premises then 100% is claimable.

Equipment Hire – If you need to hire equipment for your business then these costs are deductible and coded to Leasing charges.

Insurance – All insurances related to running your business including partially used private assets where used by the business (proportionately) are deductible including contents, dwelling, vehicle, professional indemnity, and public liability types of insurance. With the cost of insurance escalating some clients are reducing their premiums by either increasing their excesses or self-insuring part of the risk.

Interest Paid – If you need to borrow money to finance your business the interest portion of the repayments is deductible for tax purposes.

Legal Fees – If the cost relates to business advice or re-arranging finance, debt collection then these costs are deductible. However legal costs for the purchase of a new property or asset or personal advice are not deductible.

If you do incur legal costs for new Asset purchases then seek proper advice.

Motor Vehicles – You can claim GST back when buying a new or second hand vehicle in the proportion to which it is being used by your business. Keep a log book for three months every three years to establish your business use %. Once this calculation has been done, then the Percentage can be applied to all types of vehicle running expenses, including depreciation. As an alternative a claim can be made on an actual kilometres used for business basis, in which case no expenses for vehicles would be claimed.

Repairs and Maintenance – Any costs incurred in keeping plant, equipment and at your workspace in good repair can be claimed on a proportional basis. Care needs to be exercised when it involves general improvement to your home if you work there, so make sure you consult your accountant to stay on the right side of tax legislation.

Printing and Stationery – This covers such item as printing inks, print paper, photocopy costs and other incidentals necessary to keep your office running.

Seminars and Training – All professional development costs are deductible, however obtaining an initial degree is a personal cost and not deductible.

Subscriptions – Payment for business association and professional membership costs are deductible, including newspapers and magazine costs.

Travel and Associated Costs – These costs are deductible so long as they are incurred for business purposes. If you combine going to a conference or visiting clients with a holiday you will need to apportion costs accordingly. Also take care that if the travel is overseas that no GST is claimed.

In Summary, if you require assistance to setup any of the allocation splits once you have ascertained your position please contact us so we can get these setup properly.

OTHER

Finally FINES – These are not deductible for tax purposes.

Mixed Income Sources – In today’s environment we are finding some clients working for wages as well as running a business. This could be when someone is starting a business or they have experienced a downturn and need to supplement their business income. In these instances the taxpayer must apportion the expenses between waged income and self-employed. For example, if your self-employment only takes up say 2 days per week then you cannot claim 100% of your vehicle expenses.