31 March is almost here and for clients with a standard balance date this means the end of the 2016 tax year. There are numerous tax and accounting issues to be aware of at the end of the tax year. Please contact us if you have any end of tax year questions about:
Payments to employees such as salaries, bonuses, annual leave or redundancy are only deductible in the 2016 tax year if they are actually paid within 63 days from balance date (i.e. before 2 June 2016).
Trading stock is required to be valued at year-end. Most businesses use the cost of the goods, however if the market value of the stock on hand is lower than the cost of the goods, market value may be used instead. The value of closing stock does not include GST for registered businesses.
Small businesses with a turnover of less than $1.3m, and stock on hand of less than $10,000, do not have to value closing stock but can make an estimate.
You can claim a deduction for a bad debt where the debt is “bad” and it is written off in your accounting system before 31 March 2016.
A debt is “bad” when there is no reasonable likelihood that the debt will be paid. To support a claim that a debt is bad you need a record of all attempts made to recover the debt and any reasons you believe future recovery efforts are likely to be unsuccessful.
Once a debt is declared ‘bad’ it must be actually written off in your accounting system. An authorised person such as your accountant must prepare journal entries writing off the debt.
Charitable donations are fully deductible up to the company’s net income for the year, provided that they are paid in the financial year. If a donation is planned before the end of the current year, it may be worth writing the cheque sooner rather than later. On the other hand, if you have made a loss for the year, but are expecting a profit next year, it could be beneficial to wait until the new financial year.
Read about BVO’s support for The Decision Reachout (Toro Mai) Trust, a charitable trust doing great work developing young leaders.
Fixed asset schedules must be reviewed and brought up to date. Assets may be written off from the asset register, and a deduction allowed, provided they meet the following criteria:
- The asset is no longer in use by the business; and
- There is no intention to use the asset in the future; and
- The cost of disposing of the asset is greater than its disposal value.
A review of the repairs and maintenance account should also be done to ensure that all purchases have been recorded correctly.
Businesses need to ensure that entertainment expenditure is analysed to determine if the expenditure is 50 percent or 100 percent deductible. A GST adjustment will need to be made for entertainment that is only 50 percent deductible.
Certain expenses may have been paid for in the current year, but relate in part to the next financial year. In certain circumstances you are able to claim a deduction in this year’s return. Bear in mind though there are some limitations, and under the current tax rules the extent to which these expenses can be claimed is limited.
Special Tax Codes
Special tax codes can be a good idea for salary and wage earners who receive a large tax bill or refund every year. One example could be a person who received a large PAYE refund every year due to having tax losses to carry forward.
A special tax code essentially allows you to claim the benefit of this refund during the year, or conversely pay more tax during the year rather than receiving a bill at the end.
A special tax code gives you a tailored tax rate depending on your personal circumstances. You then provide this to your employer and they will adjust your tax deductions accordingly.
Special tax codes need to be re-applied for every year. Please contact us if you think a special tax code may be suitable for you and we can help you with the application to Inland Revenue.