How to manage cashflow over Christmas

Everyone loves the middle of summer and spending time with family and friends over Christmas, but it can be a challenging time of year for many small and medium-sized Kiwi businesses.

According to a poll conducted by the Employers and Manufacturers’ Association, more than half of businesses experience cashflow constraints between January and March.

It’s hardly surprising. The period after Christmas is traditionally slow for many companies, with people away enjoying their holidays. Consumers also tend to reduce spending after the expensive Christmas and New Year period.

Businesses can come under pressure for a number of reasons. Earnings will be down if companies shut over the break, while others will feel the pinch if they have paid bonuses before the end of the year.

Considering these facts, it’s understandable that many businesses struggle to manage cashflow and make provisional tax payments on 15 January every year.

Unfortunately, the Inland Revenue doesn’t factor in these seasonal challenges. It expects payments to be made on time and charges taxpayers late payment penalties of up to 20 percent per annum and use of money interest (UOMI) if tax is not received on the due date.

Your options for managing cashflow

What are the best options for businesses that want to manage cashflow and free-up money over the summer?

Tax pooling is IR-approved and can be used to defer provisional tax payments to a time that suits the taxpayer without incurring late payment penalties and UOMI.

This method is cheaper than using many traditional forms of finance. And tax pooling doesn’t affect existing lines of credit. Also, no credit checks or security are required.

The full amount of finance doesn’t need to be paid back if less tax is owed than first thought. The finance arrangement can be easily extended as well.

How tax pooling can help

Say you want to defer a $5,000 provisional tax payment for six months. You would pay TMNZ a one-off, tax-deductible interest amount and TMNZ would arrange the $5,000 provisional tax payment on your behalf.

The interest amount is based on the amount of tax financed and the period of maturity, so in this instance, ​it would be roughly $205.

The provisional tax payment is held in an IR account administered by the Guardian Trust. Guardian Trust instructs the IR to transfer the tax into your IR account when you repay the $5,000 principal in six months’ time.

The IR treats the $5,000 provisional tax as being paid on time once the transfer is processed. It’s that simple.

Ready to ease your seasonal cashflow worries? Get in touch with our team to discuss tax pooling options today.

Find our latest resources on tax pooling and calculating tax using the Standard Uplift method here.


Manage IR exposure with corporate tax pooling

With the 28 November and 15 January provisional tax dates fast approaching, now’s the perfect time to talk to larger clients about the benefits of TMNZ corporate tax pooling.

Tax pooling is an Inland Revenue-approved system to help New Zealand businesses manage their provisional tax. Instead of paying the IRD directly, taxpayers can purchase overpaid tax from other tax pool members and pay into the tax pool when it suits them.

As some businesses overpay tax when they have funds to spare, they help to cover other taxpayers that need a bit more time to meet their obligations. We like to think of it as businesses helping businesses.

TMNZ is proud to be New Zealand’s original tax pool, pioneering the concept in 2003. We haven’t looked back since, helping large businesses, SMEs, and sole traders with tax management.

With tax pooling, businesses that can’t meet their provisional tax liabilities can purchase tax from those that have overpaid. This is charged at a lower interest rate than the IRD’s use of money interest charges, and companies also avoid late payment penalties.

There are advantages on both sides of a tax pool. Companies that have overpaid into our pool can also earn more interest on their surplus tax than if they had paid the IRD directly.

Clients that experience volatility or pay substantial amounts of provisional tax (e.g., more than $100,000 at each date) can reduce their exposure to use of money interest by paying provisional tax into the Guardian Trust/TMNZ tax pool account at Inland Revenue (IRD) rather than directly into their IRD account.

In summary, here are all of the ways corporate tax pooling is great for large companies:

  • Companies earn more interest on surplus tax than they would if they overpaid the IRD.
  • Tax can be purchased if businesses have underpaid income tax.
  • Tax can be swapped across provisional tax dates to reduce exposure to use of money interest.
  • Overpaid tax can be refunded within three to five days — without filing a return.
  • Businesses can access TMNZ’s in-house expertise for corporate tax pooling advice on how to optimise their provisional tax payments.
  • Money is deposited in the TMNZ tax pooling account at IRD.

What’s more, by using the TMNZ tax pool, you and your clients are also helping to give back to New Zealand. All our profit is invested in the Whakatupu Aotearoa Foundation, supporting social and environmental causes.

Contact us today to find out how TMNZ tax pooling can help your clients.


How to find a great accountant: six qualities to look for

Thousands of independent business owners have an awful habit.

While steadily pedaling up the mountain of expansion, new hires, building a great brand, and newfound social media fame, these business owners attempt to juggle their tax payments and financial accounts with their little remaining time.

“We know our business best, so we’d may as well sort out the taxes ourselves…”

Maybe you are one of these owners.

Perhaps you’re putting off hiring an accountant due to the perceived expense.

Don’t delay! Your business can run more smoothly and efficiently than ever with an accountant’s help. An accountant with the right expertise will help you meet tax obligations and provide peace of mind at every stage of your business growth.

It’s time to leave the financial headaches to the professionals. We’ve compiled a list of reasons to convince you – as well as six qualities to identify in a great accountant – so you can keep the focus on nurturing and growing your business.

Should I hire an accountant?

The short answer is – YES.

A great accountant will help with:

  • Forecasting
  • Tax reporting
  • Managing cashflow
  • Paying provisional tax and assisting with Inland Revenue (IR) compliance

Unless you’re familiar with tax structures, hiring a chartered accountant is crucial to the success and longevity of your business, and is money well spent.

How do I choose the right accountant?

From start-ups to industry giants, all businesses benefit from hiring an accountant who can assist with managing risk and planning for growth. Provisional tax can be a contentious issue for small business owners.

Your accountant can ease the impact of provisional and terminal tax dates on your business by using tax pooling. Tax pooling gives you control over your provisional payments so that you aren’t stung with use of money interest and penalties if you miss or underpay IR.

Need to know how to find an accountant? Check out Premium TMNZ Accounting Partners.

We recommend you treat your search for an accountant as seriously as you would the recruitment of a new employee. You might seek word-of-mouth referral from peers, friends and family members. Ask them for feedback on your short-listed accountants, you may learn something your research wouldn’t have included.

Look for accounting firms with a similar size to your own company. As a rule, small to medium firms provide a more personalised service specialising in small business work and often have more competitive rates compared to larger accounting firms.

What questions should I ask an accountant?

In your search to find an accountant, look for these qualities:

  1. Are they registered as a chartered accountant in NZ? These professionals are experts in their field and adhere to the strictest NZICA Code of Ethics.
  2. How are their communication skills? Jargon is useless to you. Your accountant should be able to explain budgets and financial reporting in layman's terms for you and your team to easily understand.
  3. How much experience do they have with your business type or industry?
  4. What are their costs? Will they bill you hourly or monthly? Do they have a fixed fee?
  5. Do they have an entrepreneurial mindset, think outside the box and embrace innovation?
  6. Are they flexible and open to change? Your business will continue to grow and evolve. Your accountant needs to help you adapt to this change and manage it financially.

Once you find an accountant in New Zealand who you believe can help your business develop and grow, take the time to establish and nurture a solid, long-lasting business relationship.

Finding the best accountant for your business

Taxes, end-of-year-reports and ever-changing laws and legislation can get complicated. Don’t leave yourself open to penalties and interest. Find an accountant who understands your business and is willing to work with you to meet your goals.

The six qualities listed are a guide to help you find the best fit for your business. A good accountant may be an investment at first, but it is one you will be very grateful for in the long term. Take your time looking for someone who is qualified but also someone you get along well with as the relationship is just as important along the way to success.


Five essential accounting tips for small and medium businesses

Getting the right small business accounting advice is vital for the success and growth of your small business. Here are five essential tips to help organise accounting for your small business.

Keep a record of tax deadlines

Knowing when business taxes are due throughout the financial year is crucial for the health of your small business. If you miss an important deadline, you could receive a costly penalty.

In New Zealand, staying on top of GST returns and paying provisional tax on time is especially important. 

Inland Revenue (IR) has resources available to remind you of these important dates. You can also check out our provisional tax calendar to see your terminal tax and provisional tax dates. It is important to be proactive about tracking these yearly deadlines to meet your ongoing tax obligations.

Make the most of automated accounting software

Automated accounting software can be a lifesaver for small businesses. Accounting software covers many of the fundamentals of running a small business. This software helps keep track of expenses and automatically generates forms and reports about your business. This lightens the load of your day-to-day accounting practices.

TMNZ is integrated with accounting software such as Tax Lab to make it that much easier and convenient to use tax pooling if a payment has been missed. To get the most out of accounting software, we would recommend a chartered accountant look over the specifics of your business for any gaps that may have inadvertently been overlooked.

Know your limits and hire a professional when necessary

Many small to medium business owners try to tackle bookkeeping on their own to save costs. But in the end, making errors or filing expenses incorrectly could prove costlier than hiring a professional. 

Maintain a relationship with a chartered accountant who can help keep your books tidy. A reliable accountant can help you arrange tax pooling for your business. Tax pooling provides you with more control and flexibility to manage tax payments and can save your business money from late payment penalties and use of money interest.

You may only need your accountant’s services several times a year. However, having a professional on hand for accounting advice gives you precious peace of mind that your accounting is in order. 

Don’t get caught out by unexpected costs

The longer your business is in operation, the more likely you are to face a large, unexpected cost. For example, you may find yourself needing to repair or upgrade your business’ equipment. This is costly, but unavoidable for your business to operate.

An unexpected cost could even come in the form of an opportunity to grow your business, such as a market gap that you could fill perfectly. Taking advantage of such opportunities requires up-front investment. 

In either case, expect the unexpected and put money aside to cover unforeseen operational costs. Or consider using your tax payments as a line of credit with Tax Drawdown.

This is sound advice for any small business. Doing so will save you the headache of scrambling to cover a significant bill or missing out on the chance to grow your business.

 

TMNZ is trusted by thousands of Kiwi small and medium-sized businesses. We are the leading tax pooling provider in New Zealand and work closely with IR to ensure our services are secure and reliable.

Get in touch with our team today for tax pooling and provisional tax payment advice.


Photo: Prodigy Hair Industry's Krystle Walker

Prodigy Hair Industry cuts tax stress

Krystle Walker from Prodigy Hair Industry loves cutting and styling hair. She does not love provisional tax.

That’s why she uses TMNZ. They cut away the stress this causes her so she can focus on running and improving her salon.

But we'll get to that. First, some background.

The Prodigy Hair Industry story

Krystle is the owner and manager of Prodigy Hair Industry. It's in Upper Hutt, a city about 30 minutes outside of Wellington.

She has been plying her trade as a hairdresser for 12 years. Four of those have been at Prodigy Hair Industry.

It’s a stylish set-up she’s got on Fergusson Drive.

Things are humming nicely at Prodigy Hair Industry too. Seven staff on the books and a good customer base are a testament to that.

Photo: Prodigy Hair Industry

The challenges of being a business owner

Krystle is still wearing her training wheels in term of running her own business.

As she is discovering, transitioning from employee to employer is not without its challenges. There are wages to pay and hair products to purchase, among other things. Cashflow is a biggie.

Provisional tax is another challenge.

Krystle admits she is not a tax geek. In fact, in an ideal world it would probably be something she would not have to concern herself with.

But alas, this is not an ideal world. She knows there is no escaping the clutches of the taxman. Falling out with Inland Revenue (IR) has serious repercussions too.

Taking care of provisional tax so she can take care of business

Krystle avoids any such precarious situations with TMNZ.

Her tax pooling arrangement means her tax is taken care of. She makes payments when her business cashflow permits and TMNZ applies these to the correct tax dates.

No need to worry about late payment penalties. There is interest to pay. However, this is much lower than what IR charges when someone doesn't pay tax on time.

“It does reduce the stress month to month. Knowing that you have got my back, I don’t have to worry about that,” she says.

It allows Krystle to get on with doing what she does best – cutting and styling hair and making sure Prodigy Hair Industry is satisfying its customers’ needs.

Photo: Prodigy Hair Industry and provisional tax
Photos: Colin McDiarmid.

“I can put 100 percent into the business and my staff.”

The concept of paying provisional tax through TMNZ was about as familiar as the Klingon dialect when her accountant first broached the idea.

But after hearing how it operates with the blessing of IR, Krystle says it was too good to pass up.

Now she has no qualms about recommending TMNZ to others occupying a similar waka to Prodigy Hair Industry.

“It’s great, especially for small business owners.

“It just gives me the confidence with my day-to-day cashflow.”

TMNZ is New Zealand’s first and largest tax pooling provider. Get in touch to learn more.