With the end of the financial year almost upon us, there are some important things to prepare for and consider.

 1. Bad debts:

Are there any invoices that you have chased for payment, taken all reasonable steps to collect, but have concluded that it is now a bad debt? 

These must be written off as bad debts in your accounting system before balance date, in real-time, if you are wanting to remove them from your Accounts in this financial year.  This has the effect of removing them from Accounts Receivable and into Bad Debts. 

If you have any debts that are bad, then writing them off as bad debts will reduce your profit and therefore reduce any tax you have to pay.

There are also GST implications for those registered for GST on an invoice basis, in that you get to claim any GST that you originally returned to IRD when the invoice was raised.  Your accounting system should do this for you automatically.

2. Stock:

If you have trading-stock then you will need to perform a stocktake at 31 March. 

You may have software to track your stock levels, but it is still necessary and beneficial to do a physical stocktake.  Even if you have less than $10,000 of trading stock, it is still a good idea to perform a stocktake. Recording the quantities of each item, along with the cost (excl GST) is the usual method employed. 

Review your stock as well, especially obsolete stock. There may be an opportunity to write some of this off – check with us on what could be done in this area.

3. Work in Progress: 

At 31 March do you have any jobs you are working on that aren’t at a stage to be invoiced? 

You may have software that you can produce a work-in-progress report from, or alternatively you will need to calculate the value of the work-in-progress.  Do this by adding up the cost of the materials used (excl. GST), plus the cost of any labour.

4. Vehicle kilometres: 

Please take a note of your odometer readings at 31 March. 

There are various methods for claiming your vehicle expenses, and one of these methods claims a per kilometre rate for business related kilometres travelled.  The per kilometre rate that can be claimed depends on the total kilometres travelled in a financial year.  To be able to perform the calculation we need to know the total kilometres travelled in a year, along with number of business related kilometres.

5. Annual leave and holiday pay:

Taxpayers can choose to use the existing 63-day rule to claim a deduction for amounts of expenditure on employment income that are paid within 63 days of balance date.  This includes annual leave and holiday pay paid out within 63 days of balance date.  Your payroll reports will usually identify any annual leave or holiday pay paid out to staff.  You are entitled to claim as a deduction any annual leave and holiday pay owing, if it is paid out within 63 days of balance date.  It can be worth printing a staff leave report as a reference, immediately after wages have been run for the last period of the financial year.

6. Cloud accounting: 

If you are using a manual system, or looking to change, consider moving to a system like Xero at the start of the new financial year.  It can be the perfect time to move onto a new system.  We are Xero certified advisors that can offer your business a full Xero implementation and consultancy service.  Our experience with Xero means we can easily set up your Xero account and provide you with the training and ongoing support you need.

If you have any questions, please don’t hesitate to get in touch with us.

DISCLAIMER: Our blog posts are of general nature and are intended to provide basic guidance. They are not intended to constitute accounting, tax, or other professional advice.

Do you use a vehicle for your business?

There are different treatments to obtain income tax deductions for motor vehicle expenses, depending on the type of business entity.

A motor vehicle may be used by a sole-trader or partners in a partnership for both business and private purposes. In this situation, two methods can be used to calculate the deductible portion of motor vehicle expenses: the cost method or the kilometre rate method.

Traditionally, motor vehicle expenses incurred by a company will be fully deductible in most cases but subject to fringe benefit tax (FBT) if the motor vehicle is available for private use by employees.

Recent amendments to the income tax legislation however, now allow certain close companies to elect to use motor vehicle expenditure rules (where the only fringe benefit provided is the provision of one or two motor vehicles to shareholder-employees for their private use) to calculate deductions for motor vehicles instead of paying FBT.

If a close company elects to use the motor vehicle expenditure rules (e.g. kilometre rate method, or cost method) instead of paying FBT on the value of the benefit, then the election will apply only to new arrangements between a company and shareholder-employees. Once a company has chosen to use this method, it will need to continue to use it until the vehicle is disposed of or the company stops using the vehicle for business use.

Where a person intends to claim an expense deduction for a motor vehicle that is used partly for business purposes and partly for other purposes, they must calculate the proportion of business use by using either a logbook or actual records. Where no logbook or other records are maintained, 25% is the maximum percentage allowed for business deductions.

Kilometre rates can be used when reimbursing staff, including shareholder-employees using their own vehicle for work.

Here’s a summary:

You can now claim a deduction/reimbursement based on a kilometre rate method. This method uses set rates, which are divided into two tiers:

• First tier – recovery of both the vehicle’s fixed costs and its per kilometre running costs, for the first 14,000 kms.
• Second tier – recovery of the vehicle’s per kilometre running costs only, after 14,000 kms. 

The following rates per kilometre will apply for the 2017/2018 income year:

 
Note that for the 2018/19 income year, employers may reimburse employees using the new Tier One rate of 76 cents per kilometre from 4 July 2018 (being the date of an Operational Statement released by Inland Revenue). However, the two-tiered rates as set out above must be used for the 2019/20 and subsequent income years.

For the 2016–2017 and earlier income years, you can only use the kilometre rate for business travel up to 5,000km per year.

The legislation can be tricky, but with a little advice from an expert (like us!) you can rest assured you’re paying the correct amount of tax and staying onside with the IRD. 

UPDATE:
The following rates per kilometre apply for the 2018/2019 income year:

DISCLAIMER: Our blog posts are of general nature and are intended to provide basic guidance. They are not intended to constitute accounting, tax, or other professional advice.

We have put together some Xero tips and tricks that will save you time and help you run your business more profitably.

1. Email PDF bills into your Xero Organisation

By forwarding PDF invoices straight into your Xero organisation using the unique Xero bills email address, this will automatically create a draft bill. The PDF needs to be an email attachment, not embedded in the body of the email.

Xero will automatically create and attach the PDF to a draft bill. There is an additional feature that is being gradually rolled out to organisations that will automatically populate some fields in the bill, you will just need to check and confirm the details.

You can find the Xero bills email address on any status tab in the Purchases screen.

2. Invoice Reminders

Invoice reminders allow you to automatically follow up on your outstanding invoices and get paid on time, in a way that best suits your business. Do you hate chasing your debtors?

This can be set up to automatically remind customers that are due or overdue by a certain number of days.

The template email reminder includes all the important details, but you can edit the wording and add any other details about the invoice that you would like to include. You can also add your preferred payment details to make it as easy as possible for your customer to pay.

NB: It is important to keep your Xero up to date. If customers have paid you and you haven’t yet applied payment to the invoice, they may get sent an email reminder.

3. Copy & Edit an Invoice

Rather than starting from scratch, Xero allows you to copy invoices you’ve raised previously to a new invoice or quote.

You can copy a single invoice, or multiple invoices with the same status, into a new invoice or quote. If you’re copying multiple invoices, Xero creates one draft invoice or quote with all of the line items from the original Xero invoices.

4. Create a Bank Rule

Bank rules are a time-saving way to reconcile regular bank statement lines relating to cash payments, that you haven’t already created transactions for in Xero.

You define the conditions for each rule to match with your imported bank statement lines.

When you go to reconcile your bank account, Xero will suggest a transaction for each bank statement line that matches a rule (using the conditions you’ve set). If the suggested transaction (based on the rule) isn’t quite right, you can edit it, create a new one, or find a transaction you’ve already entered into Xero to match with the bank statement line.

5. Custom Management Reports

These are a wonderful tool for giving you information about your business. Management reports can provide business owners with an overview of the business’ operations, show areas that need improvement and highlight areas where the business is performing well. In addition to looking at the usual things, such as profit for the period, you can focus on your direct costs and the return you are getting on these.

We can customise management reports for your business, so you can see just how well your business is performing each period – this can be monthly, quarterly or six-monthly, whatever suits your business. Our customised management reports can contain several reports, including Cash Summary, Profit and Loss report, Balance Sheet, Aged Receivables and Aged Payables.

If a budget has been completed for the period, there is also the option to compare actual performance against your budgeted figures.

6. Tracking Categories

Use Xero’s tracking categories to see how different areas of your business are performing (such as departments, cost centres, or locations).

You can create two active tracking categories and you are able to add up to 100 tracking options for each tracking category. For example, you could set up a Location tracking category. For this tracking category you could then add tracking options for each location of your business, say Christchurch, Auckland and Wellington.

This allows you to report income and expenses across each location, rather than setting up different accounts for each location. Once you have assigned a tracking option to your transactions, you will be able to review and filter reports by tracking category and category options to see the performance of different areas of your business.

Tracking categories are not designed to be used for job costing. We would suggest looking at Xero Projects or WorkflowMax as a job costing solution for your business.

7. Xero Expenses

Xero has launched an Expenses feature for all Xero Standard or Premium Business edition subscriptions. With the new Expenses feature, employees can capture receipts and submit claims for their work expenses with their mobile device. Save time and admin costs.

How it works:

• Employees can capture receipts and submit claims for their work expenses with iOS and Android devices.
• By enabling the new Xero Expenses feature, you’re allowing a trusted third-party to convert your scanned receipt into text and create a draft expense claim.
• Simply capture the receipt in the app, select use image, enter what the receipt was for and click submit. To enter the details yourself, you then need to go into the expense claim that you just created and click ‘Fill it out myself’.
• Authorised approvers can review and approve expense claims, manage, pay and report on them.
• Administrators can split claims into itemised lines to allocate to multiple accounts within one receipt.

Subscriptions to Xero Expenses are based on a fixed monthly fee and a per-user basis. 1 user of Xero Expenses is included in the Standard and Premium plans, then $5 per month for each additional active user is charged.

8. Use the Inbuilt calculator

Use Xero’s inbuilt calculator to work out your transaction and manual journal amounts.

In transactions such as invoices, you can enter a basic arithmetic operation into the fields Quantity, Unit Price and Discount. Xero calculates the result when you press Enter or Tab. You can use brackets and *, /, + or -, and your formula can be as complex as you like.

9. Search Function

One of the best features in Xero is the search function. This allows you to find what you’re looking for quickly, without having to know exactly where to look. For example, you could type in “300.50” and it will bring up all transactions for that amount.

Click on the magnifying glass in the top right-hand corner of your screen, visible in most areas of Xero.  You can search for an amount, contact, date etc.

10. The + icon

If you use Xero a lot, then you may as well reduce the number of times you have to click with your mouse. In the top right-hand corner there is a + icon. You may find you want to use it to enter invoice and bills, rather than go through the drop-down menus like you used to.

Summary

Many of these tips and tricks can be found in Xero Central, a helpful resource for all things Xero – https://central.xero.com/s/

Xero are also due to release a new-look layout in the Demo company in November, which simplifies the current drop-down menu headers. This new-look layout will likely become the format that everyone sees when they use Xero.

If you need more Xero guidance or have any questions, please do not hesitate to contact us.

DISCLAIMER: Our blog posts are of general nature and are intended to provide basic guidance. They are not intended to constitute accounting, tax, or other professional advice.

As we approach the half-way point of the financial year, it’s a good time to review how your business has been performing for the year to date, make adjustments to increase revenue or decrease expenses and take advantage of new opportunities.

Key Takeaways:

• Be organised
• Review and set financial goals
• Analyse your budget and make adjustments where necessary
• Evaluate your monthly payments
• Make a debt reduction strategy

Here are our suggestions for your mid-year review:

1. Evaluate your Monthly Payments

Do you need all the services and products you are currently paying for?

For those you need, consider how you could get more value from them. Trim back where possible so you can run a lean business.

2. Get Organised

Your books show a snapshot of how your business is performing. If your books are incomplete, then this snapshot will be inaccurate and misleading.

Getting everything in order half-way through the year will not only make tax preparation at year end twice as easy but will also help you prepare financially for the next six months.

Having complete and accurate records at year-end will save time and keep your annual accounting fee to a minimum. From experience, messy and incomplete records usually mean that more billable time is spent on a job. Avoid the dreaded process of gathering 12 months of information in one go after year end and make a start now.

3. Review Six-Monthly Financial Reports

Look at how your business has performed and compare against your goals and KPI’s.

By reviewing your profit and loss statement and balance sheet in your accounting system, you will be able to identify whether your bookkeeping records are in good order or identify issues and make adjustments.

If you want more frequent reporting, we can prepare management accounts for your business on a quarterly, six-monthly or ad hoc basis – whichever suits your business. Regular reporting can highlight areas you need to focus on, help track spending, and lead to improved profits.

4. Budget Analysis

How does your budget compare to your actual results to date? Take the time to go back through your budget line by line. Does it all still make sense? Determine which budget categories need to be increased and which should be decreased.

If you don’t have a budget, get in touch with us and we can either steer you in the right direction or complete a budget for you.

5. Evaluate Revenue & Sales Goals

Are you on target to meet your revenue and sales goals for the year?

If you are on target, how can you do more of this? What’s working and what can be repeated? What potential problems do you see?

If you aren’t on target, now’s the time to create smarter sales goals for the second half of the year. What hasn’t been working? What improvements can you make? Do you need to change your strategy?

6. Debt Analysis

Are you making progress eliminating your debt?

Create and follow a debt reduction strategy. Plan out how you will tackle and pay off your debt.

7. Tax Preparation

It’s not too early to start talking taxes! Assess your tax liabilities to ensure you are paying what you need to and are meeting provisional tax obligations.

If your business is performing better than expected, are you tax planning and putting some money aside for your end of year tax bill?

8. Consider Moving to the Cloud

If you are using a manual system, consider moving to a system like Xero. This could save you time, automate some of your bookkeeping procedures and show you a real-time snapshot of how your business is performing.

We are Xero certified advisors that can offer your business a full Xero implementation and consultancy service. Our experience with Xero means we can easily set up your Xero account and provide you with the training and ongoing support you need.

DISCLAIMER: Our blog posts are of general nature and are intended to provide basic guidance. They are not intended to constitute accounting, tax, or other professional advice.