Key changes for small business
Government focuses on tax changes to increase cashflow
It’s fantastic to see the New Zealand Government putting words into action with a number of initiatives included in the Taxation Bill being introduced this month and coming into effect on 1 April 2009.
NZ Herald: Tax Changes – the details
These initiatives will improve cashflow, as well as reduce compliance costs and effort for many small businesses. Let’s look at what these changes mean and what you need to do.
1. Provisional Tax changes
Provisional tax payments will now not assume growth – dropping from 105% to 100%. This reduces the possibility of tying up cash by making provisional tax payments to a level that that would not be required. This move also frees up cash when you are growing your business, as you only have to pay instalments based on historic results.
This builds upon the recent changes to provisional tax payment dates, rewarding companies that have their accounting up to date, and can accurately estimate their taxable income ahead of their final provisional tax instalment due in early May, ie. they only have to pay what they actually owe.
Now more than ever, having your numbers up to date will improve your cashflow so you can estimate your tax payments more accurately.
In Xero we recommend your accountant reviews your provisional tax payments and then loads these payments as an Accounts Payable entry into Xero, ensuring you have visibility of this cash outflow on your dashboard.
2. Reduction in use of money interest rate
Sensibly, if you underestimate your tax the penalty interest rate is reduced from 14.24 to 9.73% effective from 1 March 09. That is still not money well spent, and expensive money, so you’re best to keep your accounting up to date so you pay the right amounts.
3. GST payments threshold
The threshold for businesses paying GST on a Payments basis will increase from $1.3 million to $2 million. So businesses with less than $2m in revenue can now pay GST on a cash basis; you only have to pay GST when you have the cash.
Xero tracks your accounting transactions on both an invoice and a cash basis. You can see immediately if this change has an impact on your business by simply changing your GST basis to ‘Payments Basis’. Your accountant can assist you with this to see if you should change.
4. Hold onto PAYE for an extra fortnight.
The threshold for monthly filing and payment of PAYE payments has been increased from 100,000 to 500,000. This reduces administration for small businesses and gives them the benefit of holding the cash within their business for longer.
However, we are concerned that as the payment will be more significant, there is the potential for small businesses to get into trouble by not managing these larger payments and using that cash for other purposes.
We suggest putting a dashboard watch on your PAYE liability account so you are aware of the cash required.
5. Fringe Benefit Tax
The annual FBT filing threshold will be increased from 100,000 to 500,000, meaning less admin work, but again please be mindful of the larger annual payment.
6. Government departments must pay on time
John Key announced that all Government departments must pay their bills in a timely manner and no later than the 20th of the following month.
It’s great to see leadership by example. Living in the IT hub of Wellington we know how frustrating it can be for IT services companies to be paid from Government, so this is an excellent policy. We hope small businesses also work to this principle of good and respectful business.
Are any software changes required?
If you are not using Xero, check with your vendor to find out if you need to get a new version of your software as some accounts preparation software may have provisional tax uplifts hardcoded.
We applaud the Government for listening and understanding the importance of cashflow for small businesses.
Here are some other resources that may be useful:
Please feel free to share any other suggestions you think of in the comments.