The end of the financial year varies depending on your business and industry. Most typically it will be 31 March or 30 June, although there are other dates that the IRD may recognise as a balance date, too. Getting everything together for the financial year reporting and tax obligations can feel like an overwhelming task - especially when you’ve got all the other parts of your business to think about, too. Often the end of the financial year is a rush in other ways too, especially for those businesses where they see an influx in project work before a financial year’s budget is gone.
As always, it’s worth making sure you’ve got the right help to navigate tax, GST and other financial matters. Going it alone, especially if financial literacy isn’t your strength, can create opportunities for mistakes.
Beyond professional support, there are some key considerations to make as the year winds up. In this article we’ll talk about some of these so you can start to think about what your business needs to do to meet your obligations - and to make your accountant’s life a bit easier!
1. Reconcile your bank transactions and accounting software carefully
Reconciliation of accounts is a really important part of any business's financial statements. At its core, reconciliation is about comparing and coding transactions from your business’ bank statements and business activities. This is important for many reasons including:
Getting accurate financial reporting for the business to review and make strategic decisions from, such as where expenses may be growing, or specific products or customers that are bringing the business more income
Making sure that all sales and expenses are coded so the business can file its tax returns accurately
Ensuring that any legitimate business expenses are being offset against total tax to pay
Capturing the GST component of both your sales and expenses, to assist with processing an accurate GST return
It’s a really good practice to reconcile your accounts regularly as opposed to in one big go - the more frequent accounts are reconciled, the more valuable your financial data is at any given time. There’s also another reason why reconciling accounts is a good weekly if not daily practice - you may want to attach documents to the reconciled transaction in your accounting software - trying to find these from months ago can be a really challenging adventure!
With all that said, it still pays to do a review of your accounting transactions in your software and ensure there aren’t any unreconciled bank transactions for you to sort out. Platforms like Xero will tell you in the dashboard if your bank feeds (the automated bank statements that are sent into the software) are misaligned with your Xero transactions. Sometimes there is a discrepancy that needs a bit of investigation to find. You may need to go back a few months to see where the issue might have happened.
Getting your bank statements, within your internet banking, and comparing this with transactions in Xero is a good way to compare by date to find the issue. It will also help to ensure that you’ve had all bank transactions come through from your feed.
If there are some challenges here, our advice would be to chat to your accountant, especially if they’re certified in the software you use. They’ll have seen most things at least once before!
2. Check all expenses are coded properly
Along with reconciliation being up to date, coding each of these transactions against the ‘account’ or category they belong to is really important. At a high level, you need to make sure that there's a clear designation of a transaction being an expense, overhead, liability or asset. Your accountant will be able to guide you on different types of outgoings.
Another important part of coding expense transactions relates to the GST component. Not all suppliers or subscriptions will have a GST component, so it’s important to make sure that your different expenses have captured this. In a tool like Xero, once you’ve set up the supplier or cost in your chart of accounts (or directly in the reconciliation view) and selected whether or not there’s GST against it, you shouldn't have to worry about it again for that same supplier - provided their bank account stays the same.
Going a bit deeper into the types of expenses - you’ll want to ensure that you’ve got enough categories to assign an expense accurately so that end of year financials are clear. If there isn’t an existing account to code it against, set one up - this way there’ll be no guesswork for your accountant when they’re preparing everything to file.
There’s also expenses related to the depreciation of assets the business has - but we’ll save this for another article. In the meantime, get in touch with us or your accountant to ask about what assets you might be able to claim the depreciation on.
3. Make sure you include expenses that may not come through your business accounts (sole traders)
Do you run as a self employed business (sole trader)? There are expenses that aren’t typically associated with a normal business bank account but represent legitimate costs that you can claim back against taxable income. Examples of this could be a mobile phone that you use for business - same with internet at home that you use for work too. There’s even a way to calculate home expenses using the square metre space of your home that you operate in.
It’s really important to only claim expenses that are related to your business. We can’t give you specific advice through this article, but if you want to be safe with your expense claims, make use of a knowledgeable accountant.
4. Confirm what your obligations and dates are for paying tax, GST and ACC
As you approach the end of your financial year, it pays to understand exactly what you need to do to meet your tax obligations. Information online from sources like Business.govt.nz and the IRD have useful information around filing dates and requirements. Beyond the basic filing dates (which can change depending on whether you’re engaged with a tax agent and other factors), you should make sure you’ve got a good idea of the amounts you’ll likely have to pay shortly after the end of the financial year - and what payments may come a bit later. The last thing any business wants is to be caught blindsided by payable amounts that they haven’t been prepared for.
One commonly missed business liability is ACC levies to cover you for income loss and other expenses resulting from an accident. If you’re an employer you’ll have to pay invoices to cover your team and shareholders, and self-employed people need to pay their own cover. ACC has a good resource as an introduction to levies and why they’re paid each year.
A really common motivator for business owners to have reliable accounting partners is to keep ahead of these obligations - so they can be prompted and guided when they need to be!
5. Bring any paper-only records digital
Do you have receipts from purchases that haven’t been captured electronically? Have you paid cash for something - or equally, been paid in cash by a customer? This all needs to be recorded in your accounting software ready for preparing end of year statements. Like reconciliation, we’d suggest doing this as it comes up, not in one big go - doing the latter takes days in many cases to sort out. There’s nothing inherently wrong with cash, but it does demand a bit of extra administrative work to capture.
Make sure your end of year tax and GST are done right!
Accuracy and timeliness are the name of the game with tax and GST obligations. Think about the cost to your time and lost business opportunities of tyring to do this stuff all on your own. The numbers often don’t stack up when there are professional, highly experienced tax agents that can take care of this for you. Engaging a tax agent gives other benefits too, such as extensions on filing.
Ultimately, it’s your responsibility to ensure that your business is filing accurate information. But the help of an accountant to guide you through the end of the financial year can really alleviate a lot of stress.
Outsourcing to RightWay
RightWay provides a range of business advisory services through our Business Partners, who act as your ongoing guide through the various stages of business ownership. Together with our bookkeeping and accounting teams, we can remove all that time-consuming admin from your business so you can run a streamlined, profitable business.
Let us help you!