The end of the accounting year - 31 March for most businesses - is not far away! For many people though, it creeps up and before you know it, it’s April and too late to plan ahead.
Planning for year-end now can actually reduce your tax bill so February is a great month to address those niggly matters that can distract you from focusing on your real work.
Here are my top seven tips to prepare for year-end. Many of these will also make your accountant very happy.
1. Fixed Asset Review
Ask your accountant for a list of your fixed assets. Write off any obsolete or discarded assets. Software or old computers are a good example.
Give your accountant all the details of any new assets purchased and associated loan documents.
2. Review your vehicle fleet
Are there any vehicles with historically high purchase prices that you should dispose of? If you are using cost price for Fringe Benefit Tax (“FBT”) purposes, disposing of these vehicles and replacing them with lower cost vehicles will reduce your FBT cost.
Dispose of any vehicles with high repair costs.
3. Purchase Consumables
Stock up on consumable aids (e.g. fuel or manufacturing materials) that you may purchase in April. An entity can hold $58,000 of consumables at balance date without having to make a tax adjustment. Printing & stationery is not limited.
Buying these pre-balance date, will reduce your tax bill.
4. Review your Stock Holdings
For every business that owns stock or has obsolete or slow moving stock, have a campaign to sell or dispose of this. Sell it at discount to your best customers. It is better taking up storage space in their warehouses rather than in yours.
5. Review Debtors
Thoroughly review your debtors for bad debts. If a customer has not been paying your account or been delinquent, decide what action you will take.
a. Firstly call them directly and demand payment or request a repayment plan. Give them an absolute specific time to pay the debt - say 4pm Friday 19 February.
b. Secondly, instigate legal action to recover the debt. Once again state a specific time to pay.
c. You can always send the debt to a debt collection agency.
d. Failing that, write the debt off. This will result in a GST adjustment (refund) if you are on an invoice basis.
e. If your client is not going to pay, or can’t pay, it is better to write the debt off and move on.
f. You must write the debt off before balance date and keep documented evidence that someone in authority has approved this (such as a directors’ resolution).
6. Suspense Accounts and Staff Loans
Reconcile any suspense account items and clear the balances. If these accounts are unlikely to be cleared write them off.
7. Foreign Currency Accounts
Consider foreign currency implications if you are not required to account for currency on an accruals basis (i.e. you can be a cash basis holder). The NZ dollar has weakened against most currencies from 1 April 2015 so if you have foreign currency accounts you will have taxable foreign exchange gains this year.