In the run-up to the new financial year, we’ve covered some of the nitty-gritty of tax time – including calculating and claiming vehicle expenses, and working out what you can claim for home office expenses.

Now, we’ve spoken with Auckland-based Garreth Collard, Managing Director of Limited, about how small business owners can minimise the tax they’ll be liable for and set themselves up for a successful year ahead. 

Here’s 6 items to consider adding to the top of your end of financial year (EOFY) to-do list.

1. Plan

Now is the time to get a clear understanding of where your business is financially and make a contingency plan if necessary – before the last residual income tax deadline on 7 April.

“You’ve got to pay anything left over from the previous tax year, and then not long after that you need to pay your last instalment of provisional tax for the current tax year, and it could be a double blow,” says Collard.

“If you don’t have the money to pay, you should talk to your accountant about tax pooling. Tax pooling is essentially an IRD-approved arrangement where businesses can access other businesses’ excess funds that have been put into the tax pool, which is then sold at a slight profit.

“By paying from the tax pool – and then repaying the tax pool – the business is viewed as an on-time payer, and not as a delinquent taxpayer.” 

2. Work out your drawings versus your funds contributed

If you have a limited liability company, it’s wise to work out your drawings versus your funds contributed, says Collard. 

“Generally, you draw out more than the company owes you, and the difference is a shareholder salary,” he says. “However, sometimes people draw out larger amounts from the company without realising it limits their ability to reduce tax overall. 

“If you can leave more income in the company and pay a little bit of shareholder salary, you can get a good tax outcome – if you’ve taken too much out, you may effectively have a loan from the company, and you’ll need to pay interest.” 

3. Buy new assets strategically

EOFY shopping is tempting, to take advantage of specials and reduce tax. However, it’s well worth adopting a mantra – if the business doesn’t need it, it’s not a bargain. 

And if you are shopping for new assets, such as a vehicle for your business, timing is everything.

“Depreciation on vehicles can only be claimed if you’ve owned the vehicle for the full year,” explains Collard. “Therefore, wait until April to sell your existing vehicle, as if you sell it before that, you’ll miss out on a year’s worth of depreciation. 

That doesn’t necessarily mean you should wait until the new financial year to buy, however. Collard explains that businesses issued sales invoices for new vehicles before 1 April (even if they don’t take possession of the vehicle or pay for it until later) may be able to claim the GST back in the GST return ending 31 March – as long as your business’s GST registration specifies that you prepare your GST returns on an invoice basis rather than a payments basis.

4. To prepay or defer?

While Collard says prepaying too far down the line to reduce taxable revenue can raise eyebrows at the tax department, it is worthwhile looking at items such as domain name renewals that you can pay now to claim in this financial year. 

In addition, if your cash flow allows, are there any sales invoices you can defer into the next tax year to minimise tax payable this time round? Depending on your forecasts, it could be worthwhile.  

5. Review your pricing

To ensure pricing reviews are regular, EOFY is a good time to look at any changes in cost of sales – including materials, shipping, wages and more – and their impact on profit margins, as well as looking at inflation.

“Inflation has been five to six per cent this past year, and that’s expected to continue,” Collard says. “You’re not always going to be able to put prices up by inflation, but it’s better to review them yearly rather than leave it a few years and have to increase them significantly all at once.”  

6. Budget and forecast for FY23  

When it comes to forecasting, Collard suggests that it’s wise to paint a somewhat pessimistic picture – lowballing income and overestimating costs slightly – and review the forecast quarterly. This allows you to track incomings and outgoings and, if you do it well, reduce the risk of getting a tax bill you can’t pay. 

While you’re budgeting and forecasting for the coming 12 months, consider whether you’re managing your day-to-day tax admin in the way that best suits your business.  

 Collard suggests asking the professionals for advice on what processes and systems would suit your needs, but also suggests that businesses that don’t require an accounting platform could simply use cloud storage to track expenses, such as a free Google Drive account, so they are all in one place come tax time.