EMAIL NEWSLETTER APRIL
2005
Welcome
again to the McLean
and Co. Newsletter
in which we discuss current taxation and business matters. We trust
you find it informative. Any feedback would be welcomed.
McLean
and Co. is a
home based chartered accountancy practice based in Clive, Hawkes
Bay.
Readers are invited to peruse the practice website
www.mcleanandco.co.nz,
which lists
services
provided, gives contact details and indicates how to become a client, contains
an extensive base of articles on business and taxation matters, and has
links to other websites that may assist your business. Being a
small firm itself, McLean and Co. strives to provide a personal and
professional service largely to a self employed person and small business client
base. Enquiries are welcomed.
We
are happy to accept new clients. Please contact ourselves at the contact
points highlighted above if we can assist you in your accounting and taxation
requirements. Our website lists information required for this in the following
link:
INDEX
-
Relevant
Business and Taxation Articles.
-
Stocktakes-
Change of Requirement
-
Tax
Discounts for Small Businesses
-
Why
Business Systems are Important and Need your Attention
-
When
Not to Register for GST
RELEVANT
BUSINESS AND TAXATION ARTICLES
The
McLean and Co. website contains an extensive number of articles prepared by
McLean and Co. relating to taxation and business matters. Here
are a selection that will be of interest:
STOCKTAKES-
CHANGE OF REQUIREMENT
The
law change effective 31 March 2003 means that
some small businesses won't have to do a stocktake from 31 March 2003.
Up until
that date\ every year on balance date,
all businesses with trading stock had to value it for tax purposes which meant
doing a stocktake. But with the law change you no longer need to if:
 | your turnover (total gross income) for the year is
$1.3 million or less, and
| you can reasonably estimate that your trading stock
on hand at balance date is less than $5,000. |
|
When you enter your closing stock figure
in your financial statements, you simply use the same figure as your opening
stock.
The new law affects the 2003 and future
income years.
Please note that even if you qualify for
this simplified method for valuing trading stock, you don't have to use it -
it is optional. You are still entitled to do stocktakes and get a true value
for your trading stock if you want to.
TAX
DISCOUNT FOR SMALL BUSINESSES
Starting a small business will become less taxing from
April this year when a 6.7 percent tax discount becomes available, Associate
Revenue Minister David Cunliffe says.
The tax discount, available from April 1, will be open to many self-employed
people and members of partnerships in their first year of business.
"The discount is designed to reduce some of the financial strain that
small businesses face in those vital first three years of business. Mr
Cunliffe says.
"When they begin paying provisional tax, often in their second year of
business, people can be hit hard by having to make payments of two years'
income tax very close together - one for the previous year and one for the
current year. That can be a real strain for some small businesses."
Mr Cunliffe says the government has introduced the discount to relieve this
problem by encouraging people who are starting up in self-employment and
partnerships to make early payments of tax in the year before they begin to
pay provisional tax.
"Those who choose to do so will receive a 6.7 per cent discount for each
dollar of tax paid during the first year, to be calculated when their
end-of-year tax bill is prepared. In this way they will have less tax to pay
in year two and will save money as well."
The discount is one of several measures designed to make tax easier for small
businesses.
"Similar measures in the pipeline are aligning provisional tax and GST
payments, allowing small businesses to base provisional tax payments on GST
turnover and helping small businesses with PAYE," Mr Cunliffe said.
Who Qualifies For The Tax Discount?
To qualify, individuals must:
| be either self-employed or a partner in a partnership;
| derive gross income predominantly from a business (and not interest,
dividends, royalties, rents or beneficiary income);
| not be required to pay provisional tax in the income year in question;
| make a voluntary payment of income tax before the end of the income year
(31 March for a March balance date taxpayer);
| elect to receive the discount within the timeframe for filing a return
of income for that income year;
| not have been liable to pay provisional tax in the previous four years;
and
| not have received an early payment discount within the last four years -
if they have a four-year break during which they do not receive income
from self-employment or a partnership they become eligible again.
Once they have made a voluntary payment they must keep the lesser of the
following in their income tax account until terminal tax date for the
income year:
| the amount of voluntary payments made before the end of their income
year; or
| the amount of terminal tax for the income year.
Those who are provisional taxpayers before they begin receiving
self-employed or partnership income will not be entitled to the discount.
The discount is not available to taxpayers who merely stop paying
provisional tax, rather than stop deriving business income. For example, a
business that has a tax loss would not qualify for the discount.
|
| | | | | | | |
WHY BUSINESS
SYSTEMS ARE IMPORTANT AND NEED YOUR ATTENTION
Having effective business systems in place lowers the risks
your business faces (or to put a positive spin on it, good
business systems increase the chance of your survival!). Good
business systems also increase the value of your business, lower
your stress levels and increase your customers' satisfaction
levels. So, if you don't have clearly documented systems, you're
making your business much harder to run than it needs to be -
and much less effective.
In any business, consistency is paramount. Often the real
value of a business is in the systems they have. McDonalds would
have to be the easiest example to use – as you can imagine,
they have a ‘system’ for everything. But as you know, every
time you go to a McDonalds, you (should) get the same thing, the
same service and the same experience.
In the same way that a big part of the reason you go to
McDonalds is that you know exactly what you'll get, your
customers want to know that some aspects of your business are
systemised. It lowers their own risk, and increases their
perception of how organised and professional you are.
There are four main types of systems, each of which will give
you more control and your customers more confidence.
1. Financial
systems, where you have:
| computerised accounting records
| cash flow forecasting and management
| a rational, clear price structure
| creditor and debtor control. |
| | |
2. Marketing
systems, where you have:
| documented how to deliver a consistent experience
| professionally designed brochures, leaflets, or website
| targeted your marketing to identified key groups
| a system for gathering customer feedback
| a customer loyalty programme in place. |
| | | |
3. Employment
systems, where you have:
| a plan if staff or you get sick or injured
| a process to protect from staff fraud
| competitive pay and benefits
| more than compliance based training
| a Health and Safety Plan |
| | | |
4. Business
systems, where you have:
| an endorsement or rating by an accreditation body
| a strategic plan in place
| a Business Plan in place
| a plan in place in case of a disaster
| a technology plan that will help achieve your business
goals. |
| | | |
How does your business rate?
Do you have effective systems and processes in any or all of
these areas? If not, start by getting all your staff to write
down what they do and how they do it. That way, you'll have at
least documented what happens in your business so it's not just
in the head of you or your staff. You'll also have a basis for
analysing and improving your systems. And you may find you
already have a range of good business systems in place (that you
haven’t identified previously).
To Conclude:
Systems set you free.
One of the main reasons for developing business systems is that
efficient systems liberate you to spend time working on your
business rather than in it. Good systems take some effort to
establish, but they free up your time once they’re
established.
Systems give you greater independence.
Good business systems will make your business stronger, more
efficient and easier to run. This is a real strength if
something should happen to you (such as an accident) that
prevents you from working in the business for a time.
Systems make your business more marketable.
Good systems will also make your business far more attractive to
a possible buyer because they enable the business to be
transferred
WHEN NOT TO REGISTER
FOR GST
One of the decisions that all businesses
have to make not long after starting up is when and if to register for GST.
The first consideration is do you have to register? In New Zealand, the
threshold is turnover or sales of $40 000, while it is $50 000 in Australia.
However, that does not have to be the end of the story.
If the business is profitable, and it registers for GST, it will be likely to
pay GST to the taxation authority. Being profitable is not a bad thing. Quite
to the contrary. However, it does change the scenario from a loss-making
business, where you might choose to register for GST in order to claim the GST
refunds. This provides another source of capital for a growing, loss-making
business.
Your business competes with other businesses. If your turnover or sales are
close to the threshold, or not far past it, you might consider not registering
for GST. In the case of being over the threshold of $40 000 for New Zealand,
or $50 000 for Australia, you might consider breaking up your business into
two discrete business units.
If your business is competing with larger businesses that have to pay GST,
imagine the benefit to your business if you can offer a price that does not
include GST? Or imagine if you charge the same price as other businesses but
do not pay GST. The unpaid GST component represents increased profit.
So how do you achieve this? Although taxation laws do allow business operators
to manage and organise their business affairs to suit themselves, this usually
means the particular business structure or entity chosen and the management
style implemented. It is not carte blanche to do anything you feel that is in
your interests.
The issue being referred to here is commercial reality. If it can be shown
that the only or dominant reason that a particular change in operations is
made is to obtain a taxation benefit, then the change can be challenged under
Anti-Tax Avoidance Measures.
So, it would be wise to think of ways that a business may be reasonably
separated into discrete business units. For example, are there local and
overseas customers? Can the overseas customers be serviced from another
company, and therefore not have to be charged GST? They cannot claim the GST
charged by another country, and the higher price to them may make them think
about using your service.
If there are adult and children's classes for martial arts classes, can they
be split up into different companies, with neither company having to register
for GST? If the customers are private individuals, and not businesses that can
claim GST, why keep the business large and have to pay GST, whether or not you
can recover the GST from the customers in your pricing?
If you have an arts and crafts school, can you separate the arts from the
crafts? Are there different teachers? What is the commercial reality for the
change?
If you are exporting products, they will be exempt from GST. No tax planning
is required in the case of export of products. So we are talking about
services that are provided in one country for the benefit of overseas
customers or clients.
The information
provided in this email newsletter is for informational purposes only.
McLean and Co. accept no responsibility for the opinions and information
expressed in the information provided and it is provided "as
is" without warranty of any kind. The user
assumes the entire risk as to the accuracy and use of this document.
Readers are asked to seek professional advice pertaining to their
own circumstances. The McLean and Co. email newsletter
may be copied and distributed subject to the following conditions:
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