6 strategies to manage cash flow during COVID-19

The coronavirus crisis has put the squeeze on many small businesses with unprecedented speed. Here are some ways to help protect your cash flow.

In such uncertain times, many small business owners are already working hard to do what they can to protect their cash flow, their businesses, their staff and themselves.

Here are some strategies that could help:

1. Apply for any government aid you’re eligible for

The New Zealand Government last week unveiled a $12.1 billion-dollar stimulus package that included measures to help businesses, employers, the self-employed, registered charities and incorporated societies overcome the immediate cash flow impacts relating to COVID-19.

Among them are:

  • Wage subsidies.
  • Leave and self-isolation support.
  • Tax changes.

The one-off wage subsidy is available to eligible New Zealand employers regardless of size, as well as to contractors, sole traders, the self-employed, registered charities and incorporated societies. The subsidy amounts to $585.80 for each person working 20 hours or more each week and $350 for those working less than this each week.

Employers and the self-employed are eligible for the subsidy to cover themselves and their employees, if the business has experienced a decline of 30% or more in actual or predicted revenue between January and June 2020, compared with the corresponding period last year.

The same payments per person have also been made available to cover anyone who is unable to work because they are sick with, or forced to self-isolate because of, COVID-19. In this instance, the isolation payment covers a period of 14 days.

For full eligibility information and other details, please refer to the government website.

Employers seeking more information on these payments can also call the government helpline on 0800 40 80 40.

Here’s what you need to know about the NZ economic stimulus package (information is current at 23 March 2020, with more schemes expected to be announced in the near future).

Meanwhile, other stimulus measures include cash flow and tax support for businesses as New Zealand moves into the 2020/21 financial year. These include:

  • Doubling the provisional tax threshold from $2,500 to $5,000.
  • Allowing businesses to depreciate commercial and industrial buildings.
  • Raising the threshold for small asset depreciation to $1,000 in the current tax year, and to $5,000 for the 2020/21 financial year.
  • Scrapping the hours test applied to the In-Work Tax Credit (IWTC) from 1 July 2020.

In addition, the Minister for Tourism and Māori Crown Relations: Te Arawhiti, Kelvin Davis, says an additional $1 million in funding would be allocated to needs assessment for Māori businesses, in order to devise and implement a dedicated business response plan.

The measures provide some much-needed “breathing room” for small businesses, according to John Cuthbertson, New Zealand tax leader at CA ANZ. However, he suggests the flagged tax changes will also help employers to recover from the COVID-19 crisis longer term.

2. Get in touch with the IRD to discuss relief options, where needed

The Inland Revenue Department has urged any small businesses experiencing cash flow disruptions as a result of COVID-19 to get in touch and discuss assistance options.

Businesses can apply to set up an instalment arrangement for taxes owed directly through the myIR portal.

There is also scope to apply for a write-off of tax debts where businesses are suffering serious hardship and know that they simply won’t be able to pay the full amount.

Other potential tax relief options include:

  • Extensions on the filing date for income tax returns.
  • Waiving of late filing penalties for GST and PAYE returns (although the due dates for the returns can’t be extended).
  • Contractors may be entitled to a certificate of exemption for schedular payments.
  • Early refunds if provisional tax has been overpaid.

And be sure to make use of the various existing tax deductions available to small businesses, including these deductions you may not already know about.

Businesses can contact Inland Revenue’s Adverse Events Line on 0800 473 566 to discuss assistance options.

3. Follow up any unpaid invoices

These are difficult times, it’s important to work with your customers and be flexible with unpaid invoices. If your customer can’t pay the full amount due, try to get a partial payment or create an instalment plan.

You can start chasing late payments with a friendly email, followed by a phone call. If that’s not getting you anywhere, try asking to talk to the person who actually makes the payment and getting a promise to pay by a particular date.

Many energy companies also offer extensions to payment terms for unpaid energy for commercial customers too – contact yours to find out if you qualify.

4. Seek relief on rent payments

It can be possible to negotiate with your landlord over commercial rents, with some tenants already securing amended terms.

“Some landlords are working constructively with retailers and offering rental holidays or reduced rents to help navigate through the crisis, and Retail NZ applauds those who are doing their best to help,” the retail body’s chief executive, Greg Harford, says.

5. Reconsider your staff structure

For many business owners, the thought of having to let staff go during a downturn is a major source of stress.

Government support packages, particularly the government’s wage subsidy, are available to help support businesses keeping staff on.

However, it is worth keeping in mind that there are a number of other options available to employers short of termination, such as:

  • Asking staff to work from home, if it is safe and appropriate to do so.
  • Encouraging staff to use their annual leave.
  • Asking staff to take unpaid leave.
  • Discussing temporary salary or wage reductions with staff.
  • Negotiating job-sharing arrangements to move full-time staff to part-time.
  • Temporarily standing down staff with a view to rehiring them as business improves.

“We recommend that employers proactively consider these issues and what their response might be, bearing in mind that the situation is likely to evolve over time,” explains law firm Buddle Findlay.

“As always, preparation and open communication are key. Aside from health and safety considerations, employers would be prudent to recall the overarching obligation of good faith, which applies to all employment relationships, when making decisions on how to deal with individual circumstances.

“Employers are encouraged to discuss and agree a format for dealing with individual risks in a way that is suitable to both parties, whilst ensuring wider compliance with duties under the HSWA [Health and Safety Work Act]. We recommend such agreements are clear and in writing, to avoid any doubt.”

Employment New Zealand has reminded employers that they must act “fairly and reasonably” when making changes to their job.

The regulator has a dedicated website on changing an employee’s working arrangements due to COVID-19, as well as a step-by-step guide for the workplace change process.

6. Review and reduce any unnecessary overheads

Rent and staff costs may be among the biggest overheads for many businesses but far from the only ones.

Now is a prime time to review some of the regular expenses your business incurs and separate out the must-haves from the nice-to haves.

One place to start is with any online software or subscription services you are signed up to that aren’t essential in this period. Cancelling them can reduce your outgoings and keep your cash flow healthier.

Other ideas are to jump online and do price comparisons on your major bills and shop for a better deal.

You could start with your internet and phone provider, and then move onto your insurance and energy bills.

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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.

What work-related car expenses can you claim?

One of the most confusing tax issues for small business owners is claiming work-related car expenses. We’ve spoken to two expert accountants to help navigate you through it.

Every week, without fail, there’s one question chartered accountant Stuart Ruddell receives from small business owners: ‘how do I claim work-related car expenses properly?’

“New Zealand tax law isn’t always clear and there can be multiple ways or approaches to deductions – the most discussed one being motor vehicles,” explains Ruddell, Director at JBM & Associates Limited.

Now, if you only use your vehicle for business purposes, then you can claim the full running costs as a business expense.

But if you use your vehicle for both business and personal reasons, then you’ll need to keep a logbook so that you can accurately calculate and justify to Inland Revenue (IRD) the work-related percentage.

“The difficulty comes with actually keeping a logbook,” acknowledges chartered accountant Butch Mawdsley, Director at REB Group.

“It’s quite difficult for business owners to actually undertake that exercise as it’s time consuming.”

The good news, however, says Mawdsley, is that you only need to keep a logbook for 90 days – and that will last for three years, providing the proportion of your vehicle’s business use doesn’t change by more than 20%.

Once your logbook (here’s an IRD template) is sorted, there are two different methods that sole traders or partnership businesses can choose to calculate expense deductions: the ‘Actual Costs’ method and the ‘Kilometre Rate’ method (both discussed below).

If you own and run a small company with shareholder-employees, more complicated rules and decisions regarding fringe benefit tax (FBT) may apply and professional tax advice should be sought.

Without further ado, let’s start by getting your logbook in order.

How to keep a vehicle logbook

Keeping a logbook is not fun, Ruddell says, but just remember, you’ll likely only need to do it once every three years.

“I initially hated it but soon found it interesting to understand how far I travel as a mobile accountant – plus it also saved me thousands of dollars in tax,” he says.

The IRD says your logbook should record:

  • The start date and the vehicle’s odometer reading on that day.
  • The date, distance and reason for each business journey.
  • The end date of the 90-day period, and the vehicle’s odometer reading on that day and any other important notes.

Once done, calculate the total distance travelled. Next, work out the kilometres that were driven for business. Finally, calculate the proportion/percentage driven for business compared to the total distance travelled.

It might be 40% business, 60% personal. Or even 80% business, 20% personal – it will depend on your circumstances.

After that’s sorted your next step is to choose a method.

METHOD ONE: The Actual Costs method

As the name suggests, this method requires you to keep track of the actual costs of running your vehicle.

That means keeping accurate records of all your vehicle-related expenses over the year, including petrol, oil, a warrant of fitness, repairs and maintenance (including tyres), insurance, registration, tolls and parking.

You can then also claim GST on the purchase price of the vehicle in relation to the business use.

You have two options to calculate the work-related portion under this method:

Option 1: By using a logbook – as explained above.

Option 2: By claiming up to 25% of all vehicle expenses. However, keep in mind you could still be asked by the IRD to justify the percentage claimed.

Then, simply apply the following calculation: Actual Costs x Work-related portion (Option 1 or Option 2) = Claimable Cost.

METHOD TWO: The Kilometre Rate method

Below are the rates per kilometre applied for the 2018/2019 income year (the IRD will publish the 2019/20 kilometre rates after the tax year ends, usually by May).

  • Petrol or Diesel: Tier One rate 79 cents and Tier Two rate 30 cents.
  • Petrol Hybrid: Tier One rate 79 cents and Tier Two rate 19 cents.
  • Electric: Tier One rate 79 cents and Tier Two rate 9 cents.

The Tier One rate is to provide for a combination of your vehicle’s fixed and running costs, and can be used for the first 14,000 kilometres travelled by the vehicle in a financial year (including for both business and personal purposes).

The Tier Two rate is to provide for running costs only. Use the Tier two rate for the business portion of any travel over 14,000 kilometres in a year.

It’s worth noting that when using this method you do not need to consider GST and that kilometre rates include depreciation, so make sure you don’t claim a separate depreciation deduction for the vehicle.

Calculation example: Let’s say your diesel vehicle travelled a total of 30,000km (both personal and business) over a financial year, and that your 90-day logbook showed a split of 60% work and 40% personal. You’d therefore calculate the following:

Tier one: 14,000km x 79 cents = $11,060
60% (work proportion) of $11,060 = $6,636

Tier two: 16,000km x 30 cents = $4,800
60% (work proportion) of $4,800 = $2,880

Total deduction amount = $6,636 (Tier One) + $2,880 (Tier Two) = $9,516.

Final tips on claiming car expenses

What method you decide to use will depend on your business’s circumstances.

While the Kilometre Rate method might seem like the more straightforward option as you don’t need to keep as many receipts, Ruddell says the Actual Cost method can better represent a vehicle’s depreciation – especially if you haven’t racked up many kilometres that year.

“Often the big expense not factored into the Kilometre Method is depreciation, which can be between 20% to 30% of the vehicle purchase price over the first year,” Ruddell says.

And if you haven’t kept an accurate logbook, but you’ve got a work diary that’s recorded accurate details of business meetings outside of your workplace, Mawdsley says that will suffice.

“You can put the address details of those business meetings into a spreadsheet and work out the distances using Google Maps. So essentially you can use a diary to keep a log of your business travel,” he says.

“Don’t try and push the envelope. Stick to realistic travel distances and don’t be greedy for a few dollars.

“Stay within the realms of the law and claim legitimate amounts.”

Need a little help upgrading your work vehicle? Talk to a Prospa small business lending specialist about how a small business loan might get your motor running.

The information in this post 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.

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: 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.

How you can use recent tax changes to fuel innovation

New Zealand has always punched above its weight when it comes to innovation and two new tax policies are aimed at further helping small businesses to continue to do so.

The new policies are aimed at reducing some of the risk of trying new things in your small business, making it easier to finance new methods and products, and are set to be in effect from the start of the 2020-2021 financial year.

So, if you’ve got a bright idea burning away at the back of your mind, now could be the time to start planning how to put these new incentives to work for you.

Tax credits for R&D

KPMG New Zealand Director, Byran Theunisen, says one of the most attractive incentives for small businesses is a new research and development (R&D) tax credit.

“Businesses will get back 15% of what they spend on qualifying R&D through a reduction in their tax bill,” he says.

To qualify, the R&D effort must be conducted systematically with the purpose of creating new ways and better processes, and services or products. It could be a new healthcare app, an algorithm or an improved method of manufacturing. Businesses must spend at least $50,000 on the R&D in a financial year for it to qualify.

Costs that are eligible for the tax credit include employee wages, depreciation on the R&D assets or the cost of plant used for the venture.

Theunisen says in addition to tax credits, businesses can also access the existing R&D grant funding, and expert and scientific assistance through Callaghan Innovation, including incubators, accelerators and researchers.

Through the combination of Callaghan Innovation and another government agency, New Zealand Trade & Enterprise, there is support for business planning and development, technology and market testing, as well as connections to international markets and capital.

Funding the feasibility ‘black hole’

In September 2019, the government also announced that from the next financial year onward, tax deductions would be available for “feasibility expenditure”.

This is money spent on pursuing a new process or product which does not ultimately lead to a depreciable asset for the business. Traditionally, these costs have not been deductible for tax purposes, making them known as black hole expenditure.

KPMG Tax Partner, Darshana Elwela, says feasibility expenditure is costs incurred to determine the practicality of a new initiative.

“This is where a business is looking to invest in a particular asset, either to construct or acquire a piece of plant and equipment, and there are costs associated with exploring how they do that,” he says.

“It will help businesses to make investments by providing greater certainty over the tax treatment of their project costs.”

Under the new rules, businesses will be able to write off the entire cost of any feasibility expenditure up to $10,000 in the same financial year. For larger sums, the expenditure can be written off over a period of five years.

Kirk Hope, the CEO of small business peak body BusinessNZ, says the current cost of exploring new enterprise is a “significant barrier to innovation”.

“This new tax rule will make it easier for more businesses to innovate and become more productive,” he says.

The type of costs that can be written off under feasibility expenditure include seeking relevant professional or expert advice about a new initiative, market research on a new product or market segment, or engineering surveys and environmental studies for a new building.

For instance, a café that is hoping to open a new location might hire a contractor to survey foot traffic flows in different areas to help it determine which area is the most suitable. Under the new rules that expenditure would be deductible.

Got your own bright idea for innovation? Talk to Prospa about how a small business loan could help turn the idea into reality.

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