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 IRD-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. Rates at Tax Management NZ (TMNZ) start from below eight percent, 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 IRD account administered by the Guardian Trust. Guardian Trust instructs the IRD to transfer the tax into your IRD account when you repay the $5,000 principal in six months’ time.
The IRD 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: https://www.tmnz.co.nz/calculating-provisional-tax/
Manage IRD 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 (eg: 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 overcome the pain of tax procrastination
With Inland Revenue (IRD) currently charging a penalty of seven percent interest, you would think that every single business owner in New Zealand would be highly motivated to get their tax issues sorted.
Why then, is tax procrastination a problem?
Tax is an obligation. We have no choice but to get on top of it. Whether that's paying on time if we can or, if we can't, making alternative arrangements. Solutions may include tax pooling through Tax Management NZ or reaching an agreement with IRD. However, there is a segment of Kiwi taxpayers who continue to bury their heads in the sand despite the potential pain it may cause.
However, tax procrastination, it turns out, is a 'thing' and it's not laziness either.
Dr Piers Steel, author of the book The Procrastination Equation: How to Stop Putting Things Off and Start Getting Stuff Done calls procrastination 'self-harm'. It's hard to argue with him when you consider the breath-taking tax penalty regime we face in New Zealand.
Dr Fuschia Sirois, a professor of psychology at the University of Sheffield, recently told the New York Times: “Procrastination isn’t a unique character flaw or a mysterious curse on your ability to manage time, but a way of coping with challenging emotions and negative moods induced by certain tasks — boredom, anxiety, insecurity, frustration, resentment, self-doubt and beyond”.
In short, we use procrastination to manage an immediate negative mood rather than with getting on with the task.
Beating tax procrastination
Carleton University’s Tim Pychyl suggests that the next time you feel inclined to put off something – like getting your tax sorted – you should simplify your focus down to taking the first step. The very next action helps shift your primary emotion.
“Once we get started, we’re typically able to keep going. Getting started is everything,” he says.
First tasks
Having a handful of obvious first steps you can take will help start you on that critical first step.
1. First step, get expert advice
If you are concerned about cashflow, particularly in this year marred by COVID-19, find a tax adviser (your accountant or tax consultant). Should you already have one, pick up the phone and speak to him or her about your options – even if it's to book an appointment.
Take that first step.
2. List your next steps
In partnership with your tax adviser, get an understanding of what all your options are. These may include tax pooling or coming to an arrangement with IRD for an extension, or a repayment schedule. Do you qualify for Working for Families or the temporary tax loss carry-back regime?
Knowing your options helps you put in place tangible next steps.
3. Reduce the workload
Sometimes the thought of having to gather all the bits and pieces of information we need can seem like a chore well worth postponing. To combat this, put in place a system that keeps your source of financial information at your fingertips.
One Auckland accounting firm reports that they have to chase at least 30 percent off their clients for 'bits of information' and it can take months. Most businesses are GST registered, which means that at least 90 percent of your needed business data is already available by the time you file your GST return. Almost every accounting software package on the market will likely have an app that lets you track receipts and other financial information in real-time.
According to research, procrastination (in all its guises) can be associated with high stress and related acute health problems. That's because the things we procrastinate never go away.
Avoid the costs of tax procrastination. Know what steps you're going to take and start taking them today.
Coffee with Maria from The Tax Lady
"Why would IRD allow you to do this?"
This is the reaction of some of Maria Anderson's clients when they hear about how tax pooling can help with provisional tax payments for the first time.
Maria is one of the Directors at The Tax Lady in Upper Hutt, north of Wellington.
Their clients range from small businesses to sole traders through to construction workers. Fluctuating cashflow comes with the territory, and Flexitax® gives them more time to their provisional tax and when it suits their cashflow.
'Pub meetings' with friends and using accounting software without a chartered accountant examining it for gaps can leave a business in a vulnerable place. These stories are what drives Maria to help her clients understand how the tax regime works so they can comprehend the risk of missing or underpaying their tax to IRD.
She believes that if they know what legislation says in plain English and understand the options available through tax pooling well enough, they can make an informed decision.
"Once you explain it, it all falls into place."
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 IRD 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, despite Inland Revenue’s 2018 introduction of payments via the accounting income method – which does not allow for tax pooling.
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 IRD.
Need to know how to find an
accountant? Do your research. Treat
your search for an accountant as seriously as you would the recruitment of a
new employee. 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:
- 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.
- 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.
- How much experience do they have with your business type or industry?
- What are their costs? Will they bill you hourly or monthly? Do they have a fixed fee?
- Do they have an entrepreneurial mindset, think outside the box and embrace innovation?
- 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. If you aren’t sure where to start, Tax Management NZ has a list of trusted accountants on our website.
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 great 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.
The IRD has resources available to remind you of these important dates. You can also check the TMNZ Tax Dates 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.
Be diligent and stay on top of invoicing
A common challenge when accounting for small businesses is keeping track of invoices. Courteous clients will provide quick payment for your services rendered. Unfortunately, fair and steady returns are not always reality, which affects the cash flow of your business.
Be polite but assertive when invoicing. Send invoices as soon as possible after a job is complete. Be clear in your expectations regarding how clients can provide payment, and by which date. Arrange standard follow-up procedures if you do not hear back or do not receive payment after a certain period.
Always remember that you and your employees work hard to provide quality goods and impeccable services to your clients. You have every right to expect clients to respect that effort by meeting their payment obligations as quickly as possible.
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.
Tax Management NZ is integrated with accounting software such as Tax Lab and APS 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 be over-looked.
Know your limits and hire a professional when necessary
Just because you have a great idea for a business, doesn’t necessarily mean you have the skills and knowledge to do small business accounting. 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. 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.
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Tax Management NZ 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 IRD to ensure our services are secure and reliable. Get in touch with our team today for tax pooling and provisional tax payment advice.
Coffee with Ann from Q2 Accountants
Have you ever wanted to sit down with an accountant and discuss topics related to business and provisional tax in depth? We were given the opportunity to do just that with Ann Cooper Smith, the Founder & Chief Executive of Q2 Accountants.
If you don't know who Ann is, she is a chartered accountant with 30 years experience in the public sector. The combination of her personal experience and passion for seeing businesses thrive are what give her a personalised approach to the questions we asked. A handful of those questions are below:
- What are Q2 trying to achieve for its customers?
- What should a business look for in an accountant?
- How does tax pooling provide solutions for your clients?
You will hear how Ann has learned how to use tax pooling creatively for her clients so they can further invest in their businesses while paying their provisional tax.
Take some time today to watch this video as it will give you some framework on how success can be achieved through smart planning.
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 utilises the service of TMNZ. They cut away the stress this causes her so she can focus on running and improving her salon.
But more on that in the coming paragraphs. First, some background information.
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. (Yours Truly loved the décor.)
Things are humming nicely at Prodigy Hair Industry too. Seven staff on the books and a good customer base are a testament to that.
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. Without being disrespectful, you get the sense the intricacies of tax probably do her head in. 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 IRD 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 provisional tax payment plan 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 the 8.22 percent IRD currently 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.
“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 IRD, 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.”
Watch the video below to hear from Krystal about how tax pooling has provided her freedom to focus on her business, not provisional tax.
TMNZ is New Zealand’s first and largest tax pooling provider. It offers provisional tax payment plans for business of all sizes.