Business tax deductions you might not know about

There are few among us who don’t enjoy seeking out every possible legal tax claim. Two expert tax accountants share their insights into commonly overlooked small business tax deductions.

Claim your home office space

Roger Shackelford, Tax Partner with Baker Tilly Staples Rodway, based in Wellington, says there are the obvious tax deductions, like advertising and bank charges, but people often forget that, if they work from home, they may be able to claim a portion of their mortgage interest, rates and insurance.

Georgie Webber, a Chartered Accountant with Peat Johnson Murray in Auckland, agrees. To work out how much of your home office space you may be able to claim for, Webber says it’s important to establish how many square metres your home covers, and what percentage of the space constitutes your workspace.

“You may also be able to claim part of your utilities bills using this method,” she says. “And if you’re a tradie, and you use your garage to store tools and equipment you could claim that too.”

Deducting entertainment expenses

Meetings (including dinners outside of work hours) at which the main topic of conversation is business, may also be partially deductible, along with thank you gifts that you send to a client, Shackelford says. But it is worth checking with your tax advisor when in doubt on these sorts of expenses.

Subscriptions and memberships

Shackelford adds that expenses like subscriptions and memberships may also be business tax deductions. “For example, if you’re a member of the local golf club and you take your clients out with you every now and again, a proportion of the golf membership could be a legitimate business tax deduction,” he says.

Motor vehicle expenses

“In New Zealand, you can claim motor vehicle expenses if you’re using a motor vehicle for business. You need to complete a log book with the kilometres driven and the reason for the trip so you can claim the mileage. A bit more record keeping could give you additional tax deductions,” Shackelford says.

Depreciation of assets

“Some small businesses miss out on the depreciation expense if they don’t account for their asset purchases, like computers,” Webber says. “In New Zealand, it’s a 50% depreciation rate.”

Networking events

“Lots of people go to networking groups and if there was a cost, like food or wine purchases, a percentage of that could be deductible,” Webber says.

Keep records

“People who are GST-registered might be more likely to have an accountant,” says Webber. “But when they’re not registered and doing it all themselves, some expense claims might fall through the cracks, mainly because they’re not filing returns and claiming more regularly.”

She adds, “Another thing to watch out for is if you have, say, three bank accounts and a credit card you might miss a few deductions because you’re paying for stuff all over the show. It makes it a bit harder to collate your information.”

If any of these deductions sound like they might apply to your small business, speak to your tax advisor for personalised advice on what your business might be eligible to claim.

The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.

Bookkeeper vs accountant: What’s the best choice for your small business?

If you’re looking to enlist a professional to help your small business sort out its financials for the first time, then congratulations, you’ve likely done more than a few things right to get this far.

But how do you determine what level of financial assistance your small business truly needs? Should you turn to a bookkeeper, an accountant or both?

Well, before making a decision on the bookkeeper v accountant debate, the first step is to understand the differences between the two roles and how each professional can assist your small business.

“A lot of people tend to think that bookkeeping and accounting are one and the same,” says Samantha Priday, Director of bookkeeping service Solving Accounts Matters, “and although we tend to work towards some of the same goals, our daily tasks can be very different.”

What does a bookkeeper do?

Bookkeeping is the process of recording a business’s daily transactions in a consistent way, explains Priday.

That can include completing payroll, recording financial transactions, producing invoices, maintaining and balancing subsidiaries, general ledgers and historical accounts, as well as posting debits and credits.

“A bookkeeper can play an essential role in the upkeep of a business to make sure everything is being run smoothly, bills are getting paid on time, staff are being paid correctly and IRD filings are completed in a timely manner,” Priday says.

She says one situation where a business owner may opt for a bookkeeper over an accountant is when they’re just starting out – the bookkeeper can help if the business owner has limited business finance knowledge or is too busy growing the business.

“A bookkeeper can help them keep records of their daily transactions in order to stay compliant, and then at the end of the financial year they may assign an accountant to help with tax filings,” Priday says.

Cost: Many bookkeepers will offer monthly retainer packages between five hours (about $250) and 40 hours (about $1500­-$2000). Generally, the more hours you require, the lower their hourly rate.

What does an accountant do?

An accountant takes more of a strategic approach to your business, explains Chris Mercer, Managing Director at MBP Advisors + Accountants, which also runs a bookkeeping service.

“We review, either on a bi-monthly or quarterly basis, everything that’s done by our clients’ bookkeepers. And we use that data to have strategic conversations with businesses about the trajectory of their cash flow or the way they’ve worked towards their business goals for the year,” he says.

“We also use that reliable data at the end of the year to produce official financial statements and tax returns.”

Mercer adds that accountants are generally going to be more highly trained in the area of tax compliance.

“That said, a bookkeeper also has to have a high degree of working knowledge in tax because they’re going to be doing the coding and classifying of transactions that will have an impact on GST and income tax,” he says.

Priday says small businesses generally consider enlisting the services of an accountant when they start employing more staff members, or need specialised reporting and analysis completed.

“An accountant can be very helpful when a business owner is looking to upgrade or improve how their business runs,” she says.

“The accountant will supply meaningful, relevant, reliable and accurate financial information that will allow the users of that information to make informed judgements and decisions.”

Cost: Accounting firms may charge a fixed monthly fee for their accounting services, generally ranging from $100 to $400 per month, or a casual rate between $100 and $300 per hour.

Best of both worlds

As you’ve probably worked out, the two roles complement one another and it’s not uncommon for many small businesses to employ the services of both.

“A good bookkeeper will attach evidence to transactions, which most small business owners don’t do, so if the accountant has ever got any queries, the information is all there,” Mercer says.

Mercer recommends checking that the bookkeeper is a member of The Institute of Certified NZ Bookkeepers (ICNZB). You can also search for a bookkeeper near you on that site.

To find an accountant near you visit The Accountants and Tax Agents Institute of New Zealand (ATAINZ) or the New Zealand Chartered Accountants (NZ CA).

The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information as at the date of publication, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information for any reason, including due to the passage of time, or any loss or damage suffered by any person directly or indirectly through relying on this information.

Infographic: The 2019-20 end of financial year dates you need to know

For something that happens every year, the end of financial year (EOFY) period has a rare power to catch small business owners by surprise.

But getting ahead of the key tax year dates that NZ small business owners need to know will do more than just reduce your stress – it can potentially save you money as well.

2019-20 tax year dates you need to know

NZ’s financial year period

In New Zealand, the financial year, or tax year, is from 1 April to 31 March.

“The majority of businesses have this and it is known as the ‘standard’,” explains Geoffrey Hughes, Director at Hughes Judd Accounting.

“You can apply to change from the usual financial year to a ‘non-standard’, which will be considered on a merit basis. For example, many farming and agricultural businesses have different tax dates due to the seasonal nature of their business.”

Too many businesses leave it too late

Hughes says his business is often approached by new clients who are being followed up by Inland Revenue (IRD).

“The consequences, apart from IRD financial penalties, is possible loss of extended filing times going forward and an unexpected tax bill,” he says.

Stuart Ruddell, Director at JBM & Associates Limited, says the number one reason new clients approach his business is that they’ve left EOFY tax obligations too late.

The financial penalties of ignoring tax obligations

Inland Revenue currently charges $50 or $250 anytime you file a tax return late, depending on your circumstances, says Ruddell.

“On top of that, if you’re late filing the return you will be late for payment,” he explains.

“This then adds on Use of Money Interest of 8.35% (per annum), but you also get late payment penalties, which could be 5% (per annum) of the due amount during the first month and then 1% (per annum) of the tax due every month thereafter.”

Meanwhile, Hughes says, if you’re going to be late you should contact IRD prior to your tax deadline.

Of course, it’s better to be on time than it is to ask for forgiveness for being late, so make sure you mark the above key EOFY tax year dates in your calendar.

If you need some extra funds to grow your business in the new financial year or to get on top of your tax payments, talk to Prospa about how we could help meet your business finance needs. 

The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.