Advice for the end of the financial year – Contact magazine March 2016

Atul Mehta from Moore Stephens Markhams Chartered Accountants talks about preparing for the end of the financial year.

Click here for printable version from Contact Magazine – March 2016.

Provisional tax

Since 2009, the IRD have made a third method of payment available for paying your provisional tax called the ratio method. Under the ratio method you will be making your provisional tax payment at the same time as your GST payments. This is a popular option for taxpayers who have fluctuations in their income during the year and wish to manage their cash flow better.

If you meet all of the criteria and wish to adopt the ratio method you must apply by 31 March to be eligible to start on the ratio method from 1 April. On the ratio method, you will not be charged ‘Use of Money Interest’ on short-payments of your tax, provided you have paid the correct amount by each due date. As the ratio is calculated based on a percentage of your GST taxable supplies, the provisional tax payments align with your business cash flow and is a favourable option for taxpayers with fluctuating income and turnover.

 

Changing your accounting system

A multitude of new software offerings recently has given pharmacy owners more choices than ever before. A number of full purpose or selective general ledger electronic systems are available in the market, for example, MYOB, Xero, and Banklink.

We recommend changing your accounting system at least one or two months prior to the new financial year, allowing you sufficient time to ensure the system is running smoothly and is suitable for your special needs.

 

Pre-paid expenses

Some expenses can be prepaid in March and claimed back as a deduction for tax purposes in the year to 31 March regardless of the amount. These include stationery, postage and courier charges, vehicle registrations and road user charges, and rates and subscriptions for papers or journals.

 

Advice for the end of the financial year

Other expenses may have limits on the extent to which they can be claimed. These include rent, consumables, insurance premiums, professional trade subscriptions, travel and accommodation, and advertising.

 

Shareholder current accounts

It is recommended that shareholder current accounts be reviewed and consideration be given to credits of salaries or dividends being made, or interest being charged, on overdrawn accounts to avoid any potential FBT liability on a deemed dividend arising.

If you are considering declaring a dividend, March would be a good month to do it as Dividend Withholding Tax on any non-corporate dividends will be required to be paid by 20 April and this can be incorporated into your financial statements to 31 March.

 

Stocktake

A large portion of a pharmacy’s working capital is comprised of stock on hand. The most important thing you should do is perform a physical stocktake on the day of your balance date and remove any expired or unsellable stock. Any stock items that are expired or not sellable but are not removed from the year end stock count, will overinflate your profits.

Employee bonuses and holiday pay

Deductions are allowed for employers who incentivise with monetary benefits, subject to PAYE such as year end bonuses, provided that the payment is actually made during the year or within 63 days of the balance date. Similarly a deduction may be claimed for an employee who has taken holidays earned during the year and being paid holiday pay within 63 days subsequent to balance date.

 

Fixed assets

Many businesses, particularly those that have been operating for a number of years, have a large number of items included in their fixed asset register. We recommend you perform a review of your fixed asset register and remove any items the business has sold or scrapped. Any allowable deductions for losses on the disposal of fixed assets would reduce the business’s taxable income for the current income year.

Serious about your success?