Blog JDW: Jobs Done Well

Grab a Lifeline

Grab a Lifeline!

"Resurgence": an increase or revival after a period of little activity, popularity, or occurrence. It could be used to describe the return of community transmission of the deadly virus. Or it could describe the hoped-for bounce back when the virus recedes, with the help of this lifeline.

When Auckland returned to COVID Alert Level 3 in August, the Government quickly moved to offer a further wages subsidy extension nationally. The 2-week COVID-19 Resurgence Wage Subsidy payment is for NZ employers and self-employed who have had a revenue drop of at least 40% because of COVID-19 for a 14-day period between 12 August and 10 September, compared to a similar period last year. New businesses or high-growth businesses must compare against a 14-day period that best estimates the revenue decline.

Knotted Rope

The subsidy is $585.80 per week per full-time employee (20 hours or more per week) and $350 per week per part-time employee. You can apply between 21 August and 3 September 2020. If you are already getting other COVID-19 payments for that employee, you must wait until those pay periods have run out. You must retain the employees for the period of the subsidy and try your hardest to pay at least 80% of their usual wages. If that isn't possible then pay at least the wages subsidy amount.

If you claim the subsidy you must mitigate the financial impact as appropriate, such as using cash reserves, activating your business continuity plan, claiming insurance, engaging with your bank, seeking advice or support from advisers. The Regional Business Partner programme has received a financial boost so more businesses can apply for COVID-19 support.

If you haven't claimed the 8-week Wage Subsidy Extension already, it's worth working out if you're now eligible for that subsidy rather than the Resurgence Wage Subsidy (see table).

Comparison between Subsidies

 

Wage Subsidy Extension

Resurgence Wage Subsidy

Application Period

10 June 2020 to 1 September 2020

21 August – 3 September 2020

Period affected

Any 30-day period in the 40 days before you apply

Any 14-day period between 12 August to 10 September

Decline in Revenue vs last year / comparison period

40%

40%

Weeks of subsidy

8 weeks

2 weeks

Total per full time (20+hours)

@ $585.80 per week

$4,686.40

$1,171.60

Total per part-time (<20 hrs)

@$350 per week

$2,800.00

$700.00


Calculating the Decline in Revenue

Revenue is your gross sales before deducting expenses. For many businesses you can look at your bank data or invoice history to work this out. For example, if you invoiced $15,200 between 12 August and 25 August 2020 inclusive and you invoiced $24,800 between 12 August and 25 August 2019.

Decline in sales = $24,800 - $14,200 = $10,600.

Percentage decline = $10,600/24,800 *100 = 42.7%. The decline is greater than 40%, so you are eligible if you meet the rest of the criteria.

If you collect deposits for work to be carried out later, or if your comparison period is not indicative of lost earnings, discuss it with us. We can help you with the calculations.

 Find out more about the Resurgence Wage Subsidy, and make your application here:

https://workandincome.govt.nz/covid-19/resurgence-wage-subsidy/index.html#null

Other Help for Businesses

Talk to us about whether these other lifelines can help you:

·         The Small Business Cashflow loan scheme has been extended until 31 December 2020.

·         Tax loss carry-back, tax instalment arrangements, penalty and interest waiver.

·         Tax deductions for low-value assets, depreciation on commercial and industrial buildings.

·         Regional Business Partner network for HR, health and wellbeing, business continuity, cashflow and finance management, strategy and digital capability.

·         Business debt hibernation.

·         Business finance guarantee scheme.

·         Business Mentors NZ.

We are here to help, so please reach out to us at JDW.

- Serena Irving

Download a PDF copy here or contact the author

The information and examples given in this article are general in nature and are not personal investment, financial or tax advice. We recommend that you contact the author or another professional advisor for advice that is specific to your needs. Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

How Can Low Value Assets Threshold Save You Tax?

If you are thinking of making improvements to your property or buying business assets, then take advantage of recent changes to the low value asset threshold. The Government has temporarily increased the low value asset threshold to $5,000 for writing off your business assets (see table).

Date of purchase

Low Value Asset Threshold

(excluding GST, if GST registered)

Prior to 17 March 2020

$500

 

17 March 2020 to 16 March 2021

$5,000

17 March 2021 onwards

$1,000

 

For instance, if you bought a computer and desk for less than $5,000 you could claim the cost as an expense straight away instead of gradually depreciating for 3-5 years.

This first example may not seem like a lot of savings, but consider the second example. If you owned a residential rental property, and you installed a heat pump, insulated the floors and installed a skylight on three separate occasions, each costing under $5,000. Before 17 March 2020. the heat pump would be depreciable but not the insulation nor the skylight as they were considered part of the building proper. Between 17 March 2020 and 16 March 2021, you could claim a tax deduction for all three.

Be mindful of these limitations. If you are buying multiple assets at once, keep the whole order under $5,000. If you buy 20 chairs costing $251, the total cost is $5,020 and you have to depreciate the chairs. If multiple invoices contribute to the one asset, then you may not get the deduction. For instance, you add on an extension and pay 3 different tradies $4,900, the cost of the extension is $14,700. Also be aware of residential rental loss ring-fencing.

If you're unsure if you can claim the low value asset deduction, give us a call at JDW to discuss before you undertake the spending.

- Serena Irving

Download a PDF copy here, or contact the author by email.

The information and examples given in this article are general in nature and are not personal investment, financial or tax advice. We recommend that you contact the author or another professional advisor for advice that is specific to your needs. Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

What would you do with $10,000

What would you do with $10,000? 

Congratulations! You have won $10,000! What would you spend it on? A holiday with the family? A new wardrobe of clothes and shoes? Something nice for the kids, small or big? Tonight, I am going to tell you the story of Little Ted and what he decided to do when he won $10,000 and more.  

Here is Little Ted, owner of a toy store. He has been in business for 5 years and making a modest return. Prior to the lockdown he was working most days himself as his 5 part time staff were mostly retirees and students. He spent most of the lockdown sitting in his window, watching the children walk past the store waving at the toys on display. The solitude was almost unbearable. He didn't have a relaxing 7 weeks break like some of his friends, because he was worrying about how he was going to pay his loyal staff, his landlord and his suppliers. He applied for the wage subsidy to help with the payroll, but even though his shop door is now open under Level 2, he has few customers walking in to browse. Parents don't allow their children to handle the toys as it is too risky, so the cheerful giggles are missing, and the mood is more sombre. He decides to apply for the Small Business Cashflow Loan for his business and four full-time equivalent employees including himself. That day he receives $17,200 which is just a little under the average loan size under the scheme. 

Firstly, this $10,000 is not a prize, but a loan for businesses. A one-off Small Business Cashflow loan for $10,000 plus $1,800 for every full-time equivalent employee. An interest-free loan if you pay it back within 12 months. If you keep the funds for longer, you will pay just 3% interest per annum and repay the principal within 5 years. If you miss an instalment the penalty interest is 3% plus the use of money interest rate. You only have until 12 June 2020 to claim this loan if eligible. 

The IRD has already lent more than $824m to more than 47,000 businesses as at last Friday according to an article on interest.co.nz . Some critics of the article say it is too little to support a business that has employees and bills, but no income. Other critics says that it is corporate welfare in disguise, as the IRD does not ask for any security, guarantees or cashflow reports before releasing the funds. For small or medium business owner, Little Ted, this is a welcome cash injection, on top of the wage subsidies. Little Ted knows the business must be viable and have a plan for it to be viable over the next 18 months. That's a tough ask, when the business has only just re-opened. Little Ted asked his chartered accountant to help him prepare his financial statements for last year and a cashflow forecast for the next 18 months. His chartered accountant questioned him on where his customers were going to come from, and what seasonal patterns he needed to consider for his buying and selling. 

Together they formulate a plan for spending the loan.  Some of the loan money is going to be spent on a website developer. To turn the static website into a true online store, with videos, e-commerce capability. Some of the money is going to pay the most urgent bills and the rest is going into a "rainy day" fund. 

While preparing the cashflow forecast, they identify several cost savings and other revenue sources. The annual toy buyers' expo is cancelled, so there are no travel costs. The landlord agrees to a discount for the period the shop was closed. Their website blogs and videos earn affiliate advertising revenue. 

Each month has a sales target, a cost budget, a loan contribution target. And a bit left over to put into the rainy day fund. By the time the first 12 months are up, Little Ted knows he will have enough to repay most of his loan and be in a stronger position to face any other misfortunes which crop up. 

If you are a business owner, with the Small Business Cashflow Loan, how will you spend it? The loan has favourable conditions but it is still a loan. Invest it wisely and thoughtfully in your business, so that you can maximise the return on the funds you borrowed. Chat with your chartered accountant. Be like Little Ted and have a plan to strengthen and grow your business. 

- Serena Irving 

Download a PDF copy here, or contact the author by email.

 

The information and examples given in this article are general in nature and are not personal investment, financial or tax advice. We recommend that you contact the author or another professional advisor for advice that is specific to your needs. Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Update for Coronavirus Affected Business

Update for Coronavirus Affected Business

As at 25 March 2020

Every business in New Zealand has been affected by the move to Level 3 or Level 4. This information is correct at the time of writing, but as we are all coming to realise, things in New Zealand are changing rapidly. Please refer to the links at the end of this Update and news media for regular updates.

Level 4 Lockdown is coming

From 11:59pm tonight (Wednesday) New Zealand will be locked down. Everyone will have to stay except to exercise and visit essential services. Only essential businesses will be allowed to open, for instance: supermarkets; pharmacies; health services; primary industry; and essential fast, moving consumer goods supply and distribution. Please check this weblink if unsure: https://covid19.govt.nz/government-actions/covid-19-alert-level/essential-businesses

If you have an online store, it may be possible for you to work from home depending on the products you sell, as courier services are still operating. If you are a service business it may be possible for you to work from home using phone, internet and video. Think creatively to see what you can do to help your customers.

 

Wage Subsidy and Leave Subsidy

The $150,000 cap on wage subsidies has been lifted and it is also available for high growth businesses. If you're an employer, contractor, sole trader or self-employed, you may qualify to get the COVID-19 wage subsidy. You must have experienced a minimum 30% decline in actual or predicted revenue over the month compared to the same month last year and taken active steps to mitigate the effects.

If you have been operating less than a year, then you can use a recent month for a comparison. Similarly, if you have had high growth in the past year, you can compare against a more recent month of trading which is reflective of the expected pre-coronavirus trading results. Keep your workings for claiming the subsidies.

If you cannot show a 30% decline and you have employees (or yourselves as self-employed / contractors) who cannot work from home, it is our opinion that you can claim the self-isolation leave subsidy for those affected.

Work and Income is prioritising the making of payments right now, and we expect that checks on employers records will follow later.

Some applicants are experiencing delays in lodging the applications, so you may prefer to do this out of normal business hours. Have your employee data saved in a Word or Excel file first, so you can copy and paste into the online form quicker.

Don't apply for the contractors in your labour force, as they are self-employed. Instead, encourage them to apply for themselves.

Both subsidies pay $585.80/week for employees working 20 hours or more a week or $350/week for people working less than 20 hours per week.

For the wage subsidy, you must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period. If you cannot give them their usual hours of paid work, you will need to come to an agreement with your employees whether to use leave or pay them an allowance. You cannot force your employees to take annual leave, so you may need to top-up the subsidy as an allowance to push the dollar amount up to the 80%. Payroll software providers will have information on how to do this.

For the isolation leave subsidy, the whole amount of the subsidy must be passed onto the employee minus the usual taxes. Again, you will need to come to an agreement about whether leave is used.

See below for tax treatment of subsidies.

If you have employees, or more than one shareholder salary earner:

https://services.workandincome.govt.nz/ess/employer_applications/new

If you have no employees:

https://services.workandincome.govt.nz/ess/trader_applications/new

If you have more than 100 employees:

https://workandincome.govt.nz/products/a-z-benefits/covid-19-large-employers.html

Tax Treatment of Subsidies and Payments to Employees

We have copied below a Q&A that IR has released so far.

Q         Is the wage subsidy payment subject to GST?

A           No – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act)

Q         Is the wage subsidy paid to the employer taxable?

A          No- It is excluded income (Section CX 47 ITA).

Q         Is the wage subsidy deductible when paid by employer as part of wages to employee?

A          No – it is not deductible  

Q         Is the wage subsidy taxable to employee?

A          Yes – As it is included as part of their normal wages it is subject to the usual PAYE, Student Loan, Kiwisaver deductions, etc.

Q         Is the leave payment for self-isolation subject to GST?

A          No – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act)  

Q         Is the leave payment for self-isolation paid to employees or self-employed persons subject to tax?

A            Yes – It is paid to replace taxable income so is subject to tax.         

Q1 - is the payment taxable? The helpline said yes, but the facts/info online don't say anything in terms of tax/PAYE etc. It just says that the $585.80 'must be passed onto employees in full'. Do I process it through the payroll?

As the wage subsidy is a subsidy to the employer to help them fund an employee's wages it is included as part of the employees normal wages and all deductions of PAYE, Kiwisaver, Student Loans, etc are made as normal. If the employees are paid the same wages as previously their pay and deductions on their payslip should be the same.     

Q2 - is there a limit to top up the payment? The helpline had no idea, and I can't find anything about it in the facts/info online either. Eg an employee may normally get $1000 gross each week...so are they able to use annual leave to top up the $585.80 so they're receiving close to their normal weekly wage?

As MSD are making the payment this enquiry should be made to them, however whether you top it up with cash payments or annual leave is probably between you and your employee. Although to qualify for the subsidy the MSD information states the employer must make the best efforts to pay an employee a minimum of 80% of their normal income for the subsidised period.  

Q3 - if they are an NZ based employee but overseas and are having to self-isolate and cannot work, can the employer access the support for this type of employee?

This is also an enquiry for MSD. Note however that the information on their website states that to be eligible, the employee was legally working for their employer at the time they decide to self-isolate, and they were expected to work for the period of self-isolation.

Banks weighing in to support businesses

Grant Robertson's announcement yesterday should allow banks to be more flexible with lending. The package will include a six month principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected by the economic disruption from COVID-19. More details will be announced by the banks in the next few days.

Core funding ratios for banks have been reduced and the Government will cover 80% of the credit risk. The scheme will include a limit of $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for a maximum of three years and expected to be provided by the banks at competitive, transparent rates.

If you haven't spoken with the bank this week, we suggest that you contact them again if you need business loans. We have heard from a mortgage broker that bank phone lines are overloaded at times, so the easiest way to contact them is via email or through your broker.

Remember that a six-month mortgage holiday just gets added onto the principal, so if you can keep up with interest payments once the business is operational again, you should.

We're still open, remotely

Please contact us by email or phone as usual. Our direct dial numbers are diverted to our cellphones, so that is the quickest way to call us. We are working hard to support you and your businesses. So please let us know if you need help to set up instalment arrangements, pay staff, prepare cashflow budgets or any other business matters.

-          Serena Irving, JDW Chartered Accountants

 Download a PDF copy here, or contact the author by email.

 

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

 

 

Useful links:

Message from Spice HR

https://workandincome.govt.nz/documents/eligibility/emergencies/covid-19/wage-subsidy-and-leave-payment-employer-support-factsheet.pdf

https://covid19.govt.nz/government-actions/covid-19-alert-level/essential-businesses/

https://www.health.govt.nz/our-work/diseases-and-conditions/covid-19-novel-coronavirus

 

 

 

Cash Injection to Combat Coronavirus

Cash Injection to Combat Coronavirus

On 17 March 2020, the New Zealand Government announced a $12.1 billion support package for New Zealanders to combat the effects of the coronavirus (COVID-19). In addition to additional health services funding, the Government announced financial assistance in the form of wages subsidies, leave subsidies, tax changes and welfare benefits.

green plant in clear glass with coins

Photo by Micheile Henderson on Unsplash

Wages subsidies

The wage subsidies will be available to sole traders, self-employed and employing companies that have suffered at least a 30% decline in revenue compared to last year for any month between January 2020 and June 2020. Employers must declare that they will continue to employ affected employees at a minimum of 80% of their income during the subsidy period (e.g. 4 out of 5 days of the week). Employers must also have taken steps to mitigate the financial impact of the coronavirus by engaging with their bank or financial advisor.

Applications can be made through the Work and Income portal below, for $585.80 per week for a full-time employee (20 hours or more) or $350 per week for a part-time employee. The payment will be made as a lump sum for a 12-week period, with a maximum amount of $150,000 per employer.

Work and Income MSD portal for employers - https://services.workandincome.govt.nz/ess/employer_applications/new

Work and Income MSD portal for self employed and contractors -

https://services.workandincome.govt.nz/ess/trader_applications/new

Leave & self-isolation support

The leave payment scheme will provide support for employees, sole traders and self-employed who are unable to work because they are in self-isolation, are sick with coronavirus or caring for dependents with coronavirus. It is not available to those who can work from home when self-isolating and can be paid normally by their employer.

The payment will be $585.80 per week for a full-time employee (20 hours or more) or $350 per week for a part-time employee. The payment doesn't affect paid leave entitlements and is available even if an employee is on paid leave for part of the period. Applications are made through the Work and Income portal above.

Tax relief measures

Building depreciation

Depreciation deductions of 2% diminishing value will be re-introduced permanently for commercial and industrial buildings from the 2020-21 income year. This will encourage investment and allow owners to reduce their provisional tax payments.

Low value assets

Taxpayers will be able to claim an immediate deduction for assets coding up to $5,000 in the 2020-2021 income year, by expensing the cost rather than spreading it over the useful life of the asset. From 2021-2022 income year onwards, the threshold will be $1,000 (currently $500). This will reduce compliance costs and encourage investment.

Raising the provisional tax threshold

The provisional tax threshold increases for the 2020-2021 income year from $2,500 to $5,000. This means that many smaller taxpayers will have until 7 February or 7 April 2022 to make their 2020-2021 income tax payments, instead of paying in instalments.  This measure reduces compliance costs and allows taxpayers to hold their cash longer. (Note: this doesn't affect the provisional tax payment due 7 May 2020. If you're having difficulty making the 7 May payment, you may still need to consider estimating tax down or applying for an instalment arrangement.)

Writing off interest

Inland Revenue is being given the ability to write off use of money interest (UOMI) for late payments for amounts due on or after 14 February 2020. This includes interest normally charged for income tax, PAYE and GST. The taxpayers would need to let IRD know that they are significantly affected by the coronavirus outbreak and unable to make payments by the due date. The interest write-off will be available for two years. This will assist businesses with cashflow.

Welfare benefits increasing

The main benefits are rising by $25 from 1 April 2020. The Winter Energy Payment for 2020 will be doubled. The hours test for the In-Work Tax Credit is being removed from 1 July 2020, making more working families eligible for family assistance even if their hours are reduced by their employer.

All of these measures have been designed to keep businesses operating and keep people employed. Reach out for help from your advisors and support networks, and keep your doors open.

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

-          Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

An Inconvenient Trust

An Inconvenient Trust

Nearly every family seems to have a trust. But do you even remember why you have a trust? Now that the New Zealand Trusts Act 2019 is requiring trustees to give beneficiaries more information, we believe many settlors and trustees will be winding up or resettling their inconvenient trusts.

Sunlight in Trees

Trusts not fulfilling their purpose

Trusts became fashionable decades ago to get around asset testing for rest home subsidies, but laws have changed to penalise people who make large gifts to trusts. Trusts for creditor protection may have been useful when a settlor was operating a business, but if the settlor has sold his or her business, then the creditor risk is no longer there to the same degree. There may still be a reason to protect assets held before entering into marriage, civil union or de-facto relationships but other steps are required (contracting out agreement or pre-nuptial agreements) for the trust to be effective.

More information for beneficiaries

From 30 January 2021, trustees will be required to inform all adult beneficiaries (18 years and over) that they are beneficiaries of a trust, how they can contact the trustees and what information they can request about the trust. Some trusts have children, grandchildren, friends of the original settlors, charities as discretionary beneficiaries. If these discretionary beneficiaries are unlikely to receive distributions while the original settlors and their children are alive, should they be beneficiaries at all?

Imagine a situation where trustees had credited income to a child beneficiary to be paid out at a future date. When the children became adults, they would see the financial statements and ask where their money is. Would they understand that the money is tied up in stocks or property? Or would they demand to be paid out immediately?

Trustee duties

The trustee duties in the Act have already been established in case law and shouldn't be considered onerous, yet some trustees are surprised by what is expected of them. Trustees should be aware of the terms of the trust, act honestly and in good faith in accordance with those terms, to the benefit the beneficiaries or to further the purpose of the trust. Trustees must exercise their power for a proper purpose.

The maximum duration of a trust (the perpetuity period) has been extended from 80 years to 125 years. At least one trustee needs to hold all the core trust documents and keep them updated.

There are also default duties which can be modified when the trust is established: duty of care, investing prudently, not to exercise power for own benefit, avoiding conflict of interest, acting unanimously. This allows the settlors more say in how the trust operates when it is turned over to the trustees.

Tax consequences for unwinding the Trust

If you decide to unwind your trust, there may be tax consequences. For disposing of property, plant & equipment, there may be depreciation recovery which is taxable income. Resettling property into new ownership will restart the clock for the five-year bright-line test. If the trust is a shareholder in a Look Through Company or partner in a partnership, there is a deemed disposal which may have tax consequences. In addition to the tax cost, there is also the legal cost of transferring property.

What steps to take

We suggest that it's important to have money conversations with your children as early as they are old enough to understand. Help them to understand budgeting and stewardship. Saving for a rainy day. Investing for growth. Then when they find out they are beneficiaries of a trust they can understand that it doesn't mean they can have the money to spend.

Review your trusts with your accountant and lawyer. Why do you have them – for asset protection from creditors, from relationship partners? Do they still achieve their purpose? Do you need to make your beneficiary criteria narrower? If you are a trustee, are you aware of your duties? Are the trustee duties and terms of the deed in line with the new Trusts Act? Consider the tax consequences for unwinding the trust. Don't wait until 30 January 2021 to do something about your inconvenient trust.

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

-          Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Coronavirus Preparedness for Business

Coronavirus Preparedness for Business

Elbow bumps

Like many other businesses, we have been watching warily as the news of the coronavirus (COVID-19 virus) spreads closer to home.

If employees have been travelling overseas or are planning to travel, what are our responsibilities to all employees? How do we manage health & safety risks? What if our supplies are disrupted or people are quarantined? Is there financial relief for businesses affected by the coronavirus?

We've dusted off our crisis management plan, and asked our employment and financial advisors for their take on how businesses can cope with the pandemic. Here are our tips to help your business get through.

Keeping Employees Safe

The Ministry of Health recommends basic hygiene measures to stop the spread of infections: regular hand washing, staying at home if sick, covering coughs and sneezes and cleaning surfaces regularly. Have plenty of soap, cleaning products, paper towels available and encourage their correct use.

Each business has its own risk factors, which you will need to assess as an owner/manager. If you have a retail outlet, then a bottle of hand sanitiser by the EFTPOS keypad would be a reasonable precaution. Avoid face to face meetings with people who have recently travelled. Maintain a social distance (1metre / 3feet) when meeting others. Encourage employees to stay home when sick. If social distancing is not practical, have disposal gloves and face masks available and train employees to use them correctly.

Glen and Serena bump elbows

Our favourite alternatives to handshakes are: the Thai greeting "Sawadee" with palms together, steepled fingers and a warm smile; or the playful elbow bump suggested by our client John. Not finger guns though!

Provide employees with seasonal flu vaccination, if they want it. Contact your local GP or pharmacist for more information. Make use of mental health services if employees are anxious or stressed.

Leave Obligations for Employers

Employers and employees are obliged to act reasonably and in good faith, in accordance with the employment agreement, Health and Safety at Work Act 2015 and the Holidays Act 2003.

At the time of writing, people returning from China, Italy, South Korea and Iran have been recommended to self-isolate for 14 days.

While self-isolation is not mandatory, it is important for the health & safety of your other employees. You could require a medical clearance before allowing that person to return to work. Could that person work from home for that period?

Who pays for the self-isolation when the person is not sick? Employment New Zealand suggests that if that person is not working from home, then you first treat the self-isolation period as sick leave. If there is not enough sick leave, then by agreement you could pay from annual leave or grant them leave in advance. EMA says if a person is fit to work and the employer refuses to allow them to work, the employer must pay that person for that period (such as suspension).

Getting financial relief

Coronavirus has impacted tourism and education industries, due to a sharp decline in demand. It is likely to impact hospitality and events industries if people become anxious about going out. Other businesses have been impacted due to: supply shortages from import delays; tightening demand, both here and overseas; or customers paying slower than normal. Nick Tuffley, ASB Bank's chief economist recommends making sure you are in regular contact with your key suppliers to understand their supply chains and obvious weak points. (ASB Economic Note "Thinking about coronavirus impacts on business" 5 March 2020)

If your business has been impacted financially by the coronavirus, contact your insurance advisor to see if your situation is covered for business interruption insurance. Contact your bank to move to interest-only repayments to reduce the cashflow burden. If you need help preparing cashflow projections, we can assist you. Talk to us about a fee instalment plan.

There are a number of ways that you can get tax relief. For income tax, you can estimate your provisional tax down before the third provisional tax due date (7 May for most taxpayers). If you've overpaid provisional tax you can ask for a refund.

If you need more time to pay any of your tax obligations, you can apply for an instalment arrangement. Under certain circumstances you can ask for remission of late filing and late payment penalties. IRD will also consider a write off for serious hardship.

The Government has released its Business Continuity Package  (https://www.beehive.govt.nz/release/cabinet-approves-business-continuity-package-response-covid-19) which includes a targeted wage subsidy scheme, training and re-deployment options for affected employees and working with banks for working capital support for businesses. They have opted not to stop the increase in minimum wage from $17.70 to $18.90 on 1 April 2020, and we think they missed a chance to help all NZ businesses and employment rates.

Planning for the Worst, Hoping for the Best

How will widespread illness, school closures, loss of key customers affect your business?

If you're worried about the future, then your employees probably are too. Showing leadership, being proactive and communicative at this time, will do a lot to reassure your team. Ask them for input into identifying the risks and your emergency planning. We can also help you with contingency planning.

Have a communication plan. Do you know how to reach your employees, suppliers, and key customers if your IT goes down? If you can't be reached, can someone else access this information? How do you reach families of staff?

Back up your data, offsite or in the cloud. Not just your accounts, but any vital information that you need to run your business. Assess if remote working is possible and test your systems. How quickly could you be operational if you couldn't access your workplace? Practice retrieving your data, so it becomes a familiar process.

Examine your processes and decision-making methods. Could the business continue without you or your key people? Have multiple ways of accessing key information so that business can continue, despite disruption or staff absences.

Take care of your own health and your employees. Make your business more resilience by reviewing systems and mitigating risks. Seek financial help if cashflow is tight. Plan ahead to ensure that your business survives the coronavirus.

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

- By Serena Irving, JDW Chartered Accountants

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists. 

Useful Links:

Ministry of Health

Employers and Manufacturers Assn

Employment New Zealand

National Emergency Management Agency

Inland Revenue

 

Death Knell for Cheques

Death Knell for Cheques

When was the last time you wrote a cheque? With EFTPOS, electronic banking and direct debits, I haven't written a personal cheque in over a decade. But that's not true for everyone. For some, it's going to be a challenging time when cheques are no longer accepted. Especially if they don't currently have a computer or smart phone. The death knell is ringing for the cheque, and JDW has tips to help you adapt.

 

ACC and IRD will stop processing cheques for payments from 1 March 2020. IRD Commissioner Sharon Thompson's media release says: "Cheques are part of a paper-based world and don't mesh with the increasingly digital world we now operate in. The number of cheques being used is spiralling down and will continue to trend that way. Electronic payments are simpler, easier and safer."

IRD recommends that tax payments be made electronically via internet banking (using your bank's website or app) or direct debit in MyIR (IRD's website). In MyIR, you can also schedule regular direct debits. IRD's website also accepts payment by credit card or debit card, but a transaction fee is charged when you use this service. You can also pay your tax payments by cash or EFTPOS at your local Westpac branch. Some chartered accountants, like JDW, also have trust account services to help clients manage tax payments.

Kiwibank will stop issuing bank cheques from 28 February 2020 and will stop accepting cheque deposits on that date. Kiwibank customers have been asked to stop writing cheques on that date, as they may not be honoured. The Kiwibank website says, "There are a number of ways we can help you get prepared for this change including Stepping UP digital banking workshops, Kiwibank Tech Teas or our digital support hub."

 "The cheque is in the mail" used to be a convenient excuse when suppliers called to find out why customers' payments were delayed. With electronic payments, this is a phrase that has been consigned to history, as are paper invoices (see E-invoicing sidebar). Electronic payments are less susceptible to theft or tampering, and the funds are available instantaneously or overnight, depending on the bank. They aren't fool proof though, so take extra care if you are relying on someone else to set up payments for you. Do you have appropriate invoice approval measures, security measures such as two-factor authorisation and bank account checks for your business, to protect against theft or fraud?

E-invoicing

Direct electronic invoicing between suppliers and business customers, using the PEPPOL standard invoicing framework, is on the way. This is going to be a huge time-saver and cost-saver for businesses: no printing and mailing paper invoices on the supplier side, no re-keying or scanning invoice data on the customer side. Higher accuracy, better security, fewer opportunities for fraud and fewer delays. When e-invoicing is teamed with electronic payment services, suppliers will be paid faster. 

To make sure that you get the most out of e-invoicing, make sure that you have a New Zealand Business Number (NZBN) and your accounting system is PEPPOL-compliant. New Zealand companies are issued a NZBN when they are registered. The major accounting system providers, Xero, MYOB and Reckon, are due to make announcements about e-invoicing in early 2020.

Cheques are being phased out and this is welcome news for anyone who has had to balance a cheque book. But for some payers, alternative methods of payment are beyond their current abilities or resources. If you find the removal of cheques a challenge, contact your banker or chartered accountant to discuss how you can make payments easier.

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

- By Serena Irving, JDW Chartered Accountants

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

 

Setting up as a Freelancer

Setting Up as a Freelancer

 You are a highly skilled professional, providing services to other businesses such as graphic design, marketing or IT consulting.  You are now a contractor or freelancer, a self-employed business owner. It doesn't matter if you employ just yourself or a large team, have few resources or huge capital, have lots of clients or just starting out, you are still a business owner.

Here are my brief answers to the most common business questions I have been asked by new freelancers. Each paragraph is a topic in its own right, so do ask us for more information. If you want more confidence on your business journey, start here.

Pink Rosebud

Should I Form a Company?

When deciding whether you should operate as a company, partnership or sole trader, consider these factors: ownership, commercial risk, credibility, administration, income allocation.  A Look Through Company is a hybrid company-partnership structure, with the legal status of a company, but treated as a partnership by Inland Revenue for income allocation and tax.

Ownership

How many working owners? Will there be non-working investors? If it's just you, then sole-trader would be simpler. If there's outside investment or unequal personal effort between owners, then a company would be advisable. Partnerships are simpler structures than companies, but if a partner leaves or joins, you have to register a new partnership.

Commercial Risk

Sole traders and partners in a partnership take on the risk for business losses. Companies are separate legal entities, so shareholders are not personally responsible for company debts unless they have provided personal guarantees. Directors may still be liable if they have been careless, negligent or trading recklessly.

Credibility

Some suppliers and customers prefer to deal with a company.

Administration

Companies must be registered at the Companies Office, and file an annual return confirming addresses and other company information in the same month each year. Registered companies are issued a company number and New Zealand Business Number. Companies also have stricter reporting requirements, so company accounting fees are generally higher. Companies need an IRD number, which is different from the IRD number of the shareholders.

Partnerships and sole traders need just an IRD number, but it's a good idea to get a New Zealand Business Number (NZBN) to store your contact details. Sole traders use the same IRD number for all their personal income. Partnerships can have their own IRD number. The Government is working towards using the NZBN for e-invoicing, which will make it easier for businesses to send out invoices and get paid.

Income Allocation

For a sole trader, the business profits (losses) belong to the individual. For a partnership, business profits (losses) are allocated evenly between partners, unless you have a partnership agreement which specifies a different allocation. For a company, the business profits (losses) after deducting shareholder salaries remain in the company unless it is a Look Through Company (LTC) or personal services attribution applies.
For a sole trader, the business profits (losses) belong to the individual. For a partnership, business profits (losses) are allocated evenly between partners, unless you have a partnership agreement which specifies a different allocation. For a company, the business profits (losses) after deducting shareholder salaries remain in the company unless it is a Look Through Company (LTC) or personal services attribution applies.

What Records Do I Need to Keep?

Your business needs its own bank account. It is easier to track income & expenses that way. If you need to use money for private expenses, then transfer the funds to your personal account (this is called Drawings).

You'll need to keep copies of invoices (customer & supplier), till receipts and other accounting records for over 7 years. Many accounting apps allow you to scan or photograph invoices or till receipts so that you don't have to retain the paper copy. Keep your GST workings attached to copies of the GST returns you lodged.

There are a lot of accounting apps available for freelancers, to send out invoices and track your business transactions. Our favourites for freelancers include invoicing and bank reconciliation: Xero Starter, MYOB Essentials, Wave, Reckon One.

Don't just look at cost, look at ease of use and what you want to do with it. Choosing a suitable accounting app depends on how many invoices, bank transactions a month; whether you employ staff, sell goods, manage projects with milestones; whether you charge GST. 

Keep copies of important contractual agreements, like service performance agreements. You'll need these if you have a dispute with a client. If you form a company you will also need to keep a register of shareholders and directors.

Every year you will need to lodge a tax return with IRD. Sole traders will lodge an IR3 individual return. Partnerships and LTCs will lodge an IR7 return, and the partners/LTC owners will lodge an IR3. Companies will lodge an IR4 return, and shareholder-employees will lodge an IR3.

Do I need to register for GST?

If you are GST registered, then you add 15% GST to your service fees, and pay the GST you collect to IRD. You can also claim back the GST you have paid on your business purchases and expenses.

If you expect your business to earn income (before deducting expenses) of $60,000 or more, then the business must register for GST. If you expect it to earn less than $60,000 then you can voluntarily register for GST. Voluntary GST registration may be helpful if you are buying a vehicle or expensive equipment for the business, because you can claim back the GST. It may also be helpful to register early if you are near the $60,000 threshold, so you don't have to adjust your fees.

If you are freelancing for clients based offshore, you may be able to zero-rate the fees (charge 0% GST) , as you are exporting your services. Check with us if you think this applies to you.

You can lodge GST returns on a 6 monthly, 2 monthly or 1 monthly frequency. You can choose invoice, payments or hybrid basis, which determines if you disclose GST when invoiced or when paid. Most of our freelancers choose to file GST returns 6 monthly on a payments basis.

What Expenses can I Claim?

You can claim a variety of expenses for GST and income tax. This is not an exhaustive list and there are some limitations, so it pays to check with your tax advisor. Some suppliers may not be GST registered, so you can only claim those expenses for income tax and not GST.

  • ACC levies, professional indemnity insurance, other insurances. Life insurance and some disability insurance premiums are not claimable for GST and income tax.
  • Accounting, legal, business coach and other professional fees.
  • Bank fees and interest on business borrowing (no GST).
  • Courses for professional development.
  • Depreciation - gradual write down of equipment or vehicle cost. (No GST on depreciation, but you may claim GST on equipment and vehicles used for business.)
  • Entertainment - coffees with clients and prospects (50% claimable) or meals while travelling.
  • Home Office – Proportion of house costs related to your office, studio, workshop and storage space. Rent (no GST), interest (no GST), water, rates, power, gas, repairs.
  • Marketing – paid advertising, branding.Mobile phone, business landline, internet.
  • Motor vehicle expenses - Either keep a logbook and claim some mileage for income tax (no GST). Or claim the business portion of expenses for income tax and GST.
  • Rent, parking, travel.
  • Software licences.
  • Stationery and printing.
  • Subscriptions e.g. professional associations, networking groups.

What are Schedular Payments?

Schedular payments are made to contractors, usually individuals, for certain activity types. The payers deduct tax at a set rate, usually 20%. You can apply to IRD in MyIR for a tailored rate (10% or more) or a certificate of exemption to manage the taxes you pay more closely. The tax deductions are passed by the payer to IRD on your behalf, and offset against the income tax you have to pay for that year.

What is Provisional Tax?

Provisional tax is a regular payment of income tax to spread the amounts across the year that the income is earned. Most taxpayer have a March year end (balance date) and pay provisional tax three times a year: 28 August, 15 January and 7 May (after balance date). If you are GST registered on a 6 monthly basis, then provisional tax is due on the same dates as GST: 28 October and 7 May (after balance date).

Terminal tax is the final instalment of income tax and reduces by the amount of provisional tax you have paid. Terminal tax for 31 March 2020 balance date is due on 7 February 2021 or 7 April 2021 if you have a tax agent.

Setting up as a freelancer/contractor/self-employed business owner can be easy, once you know the answers to these initial business questions. Please contact us if you need any help.

 Rose pair

This information in this article is for general information purposes and should not be relied on without additional advice specific to your circumstances. If you require advice in relation to your specific circumstances please contact the author for a consultation.

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

- By Serena Irving, JDW Chartered Accountants

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

 


Scaling Up

Scaling Up

Petronas Twin Towers

A Cautionary Tale

When to scale and how fast? Sales are booming for the first time, so is it time for fancy new offices, more staff and more powerful equipment? I know of a tech company which grew too fast: hired more salespeople and developers, got into an expensive lease and then lost its major client a few months later. The company used up its cash reserve as month after month of trading losses took their toll. The company had to shed two-thirds of its workforce, sell its expensive "toys" and negotiate with the landlord to return to profitability. 

What are you basing your decision to scale on? Is your turnover reliant on the continuing support of one major client? Is current growth rate sustainable? Be conservative with your revenue forecasts. See our article on Key Metrics for help. 

How to Scale Up

  • Reinvest profits – leave money earned in the company
  • Invest your own capital or make loans to the company
  • Borrow from the bank, other lenders
  • Invite new investors

When you are looking beyond self-funding options, with its greater potential for growth on a grand scale, you take on greater responsibility to others. Don't over-promise results. Start fundraising early enough so that you have the funds when you are ready to move to the next stage.

Clear Strategic Purpose

Have a clear strategic purpose for each round of fundraising. For instance:
- Seed rounds: concept into prototype
- Series A: commercial viability
- Series B: viable product, scaling up
- Series C: scaling up including capital expenditure (capex)
- Series D+: preparing to exit via acquisition or initial public offering (IPO)

By having clear purpose for each round, you can set realistic timelines. If you meet your deliverables on the first round, it will give investors and lenders more confidence to support you in future rounds. If you over-promise and fail to deliver, you will have tighter constraints in future rounds.

Make sure that you invest for the best return. For each new hire or new equipment or marketing campaign, can you justify it with projected increase in revenue or reduction in costs? Don't indulge in luxuries of first-class travel and sensory deprivation chambers, especially when you have outside investors.

Pay Yourself Realistically 

Ask for enough funding to get the job done. As founders and initial employees, you may be willing to pour in sweat equity, but eventually you and they may burn out if you haven't hired enough people. Or you may take on a paying gig and then be too tired to focus on your business.

Fundraising Takes Time

How long is your funding runway? That is, how many months will your funding last before you run out of cash? Build an extra three-month buffer into your projections.

Start raising funds about 12 months before you need it. This allows 3 months to plan, 6 months to promote and start conversations and 3 months to complete serious conversations. 

Diluting Capital

New investors want to protect their investment and will negotiate for better terms for themselves. Make sure that you get good legal advice in terms of the contractual arrangements, share rights and how that affects your control of the company and returns you can expect from your founding investment.

Conclusion

Scaling up should be a strategic decision. Planning involves clear goal posts, budgets and timelines. Meet or exceed performance targets to keep your investors and lenders supportive of your business. Start fund raising early. Engage professionals to put together your fund raising proposals, so that you can wow the investors and show your business is a serious contender for their money. 

Download a PDF version here or contact the author by email. Like our Facebook page for regular tips.

- By Serena Irving, JDW Chartered Accountants and Jing Seth, Kahu Partners

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

Jing Seth is a partner in Kahu Partners Limited, a boutique business strategy consultancy. A quantitative analyst who also has deep experience in taking complex propositions to market, Jing has sold to high-tech start-ups, national defense agencies and Fortune 100 corporates. He has codified winning processes, and designed and led specialist sales teams. In his most recent role he rebuilt the growth engine from scratch and closed deals that ended a 12-month sales drought for the company.

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