Year-end 31 March 2019 tax check list
To assist you and ‘save-some-tax’ we outline below some common tax issues and planning that you must consider leading into year-end balance date, and tax year end, 31 March.:
Trading Stock, and, Consumable Aids
All trading stock must be valued at the lower of cost or realisable market value. A physical stock take should be carried out at balance date to confirm the actual stock on hand. This will help to identify any obsolete items which the company should write off. An accurate stock take is also an important control procedure which can reveal a more serious problem, like theft. Low turnover companies can take advantage of concessional tax valuation methods (less than $1.3 million + less than $10,000 stock, and also less than $3 million turnover).
Consumable aids that you use and consume in your production / manufacture processes are fully deductible. Unused consumable aids are added back. However, businesses with less than $58,000 of unused consumable aids at balance date can write off the actual full amount on hand.
Fixed Assets, and, Depreciation / Loss
Review and update your fixed assets register. This is an important record of business fixed assets. This will determine that all assets exist, and are still in use and workable. If not, you should consider writing them off which will create a tax deductible expense.
Consider your tax profile and look at disposals of assets before or after balance date?
Have you identified low-value assets (<$500) that can be fully deducted on acquisition rather than depreciated?
Also, have you capitalised expenditure on fixed assets (for book purposes) that can be immediately deductible for tax as repairs and maintenance?
Do you own a building that has had a fit-out? The fit-out costs can be depreciated. Traps exist here where fit-out is capitalised to the building cost and non-depreciable for tax.
Review the rates of depreciation in use – Diminishing value (DV) or straight-line (SL)? If in loss, can you defer depreciation? Look at elections not to depreciate certain property.
Special Income Tax and GST rules will apply. In particular, for holiday homes, boats and aircraft. Are these used for business and private purposes and also not used for 62 days a year? Income may be exempt or taxable. Expenses may be apportioned non-deductible. GST partial input tax may only be claimed.
Doubtful Debts and Bad debts
Doubtful debt provisions are not deductible for tax. Does your tax profile favour writing off debts before or after balance date? To be a bona fide bad debt deductible for tax, you must reasonably decide that the debt is likely to be irrecoverable, and, you must write off the debt in your ledger – all prior to 31 March.
Imputation Credit Account Balance
The imputation credit account balance is 31 March (regardless of your end of year). Check that the balance of your ICA is in credit to avoid immediately enforceable tax payments and rolling 10% penalties, and interest. Companies with heightened risk here are those with large shareholding changes (more than 34%) and companies that have opted for R&D loss ‘cash out’ tax credit.
Also, have you completed all dividend imputation statements for filing?
Shareholder Current Accounts
Are these in credit or debit? Private companies typically have ‘overdrawn’ shareholder current accounts. To avoid FBT being payable to the IRD interest will need to be payable by shareholders on these loan accounts (taxable to the company, and possibly not deductible to the shareholder). Can you overcome this tax conundrum by (a) the shareholder repaying the loan; (b) the company paying out remuneration; (c) the company declaring a dividend?
It is important to capture all costs that are eligible R&D expenses and deductible for tax. This will also assist with any R&D tax credit claims.
Employee Share Schemes – “ESS”:
New tax rules took effect on ESS grants from 29 September 2018. Some older ESS may be grandfathered and taxed under the old rules. The new rules bring the ‘taxing date’ forward with shares issued to employees. The new rules also allow company deductions for ESS benefits. Finally, employers can elect to put ESS benefits into the PAYE system rather than leave employees being subject to difficult provisional tax treatment. These ESS rules are not easy, and you should talk with us.
Income Tax Payments – options and cash savings:
Tax is cash, and for all businesses, cash flow is ‘king’.
Firstly, the drop-dead terminal tax payment date for 2018 is 7 April 2019 (extension for businesses linked to VCFO tax agency). This must be paid on time.
What are your provisional tax instalment dates? These can vary depending on your balance date (convention is 31 March), use of AIM option (accounting income method), and GST activity dates alignment.
How well can you predict your yearly profit? Have you paid sufficient provisional tax over the year, and what more do you need to pay by P3 on 7th May?
If you have under-paid your taxes, several situations arise:
First, following 2017 rule changes, if your P1 (28 August) and P2 (15 January) provisional tax instalments have been made in accordance with your statutory elections (110% uplift of residual income tax from 2 years ago / 105% uplift from last year), the IRD UOMI on underpaid 2019 provisional tax will only run from P3 (7 May).
If you have not followed the statutory elections, you should consider the IRD endorsed Tax Pooling arrangements where you can save on the penal IRD interest rates (8.22%) and pay materially less interest. In the right circumstances, you could consider ‘borrowing’ and other tax options from Tax Pooling where you may be cash strapped?
If you have over-paid your 2019 tax, you should get the tax return to the top of your “to-do” list as soon as possible after year-end so you can get the tax refunded and into your bank account.
For businesses and individuals that have low RIT (residual income tax less than $60,000) that have paid instalments of provisional tax on the standard uplift basis correctly a low safe-harbour rule applies that means the UOMI rules do not apply at all. This means no UOMI payable on under-payments (or receivable on over-payments).
Have you fully reconciled your IRD tax account balances and used all past year tax credits available to you?
Can you access tax losses from other companies that your company is in the same 66% common group to relieve your own tax liabilities? You should talk to us if you need to “pay” for the transfer of these losses (called a loss subvention agreement payment).
Will you be able to claim all foreign withholding taxes you have paid (these are forfeited if you have losses).
Finally, there is quite a bit to consider.
Do not hesitate contacting us if you have any questions whatsoever. Time is short now.
Best wishes on behalf of the VCFO Team.