Accountants | On London

When you run a business one of the first decisions you make is whether to purchase an accounting software program or to set up a manual system. You might think that your small business isn’t big enough to need a software program - surely you can manage things yourself? 

But all it takes is a busy week, or a customer who needs to pay in instalments, misses a payment, wants to split the bill, or pays the remainder owing in a lump sum and you’ve got a potential problem. Throw into the mix the outgoing invoices you have to send, the bills you have to pay, and your mother-in-law coming to stay (added external stress) and you have a bit of a situation on your hands.

Software can make this process simple and you avoid doubling up on information. It will tally figures and group numbers for you, saving frustrating hours on the end of a calculator - your hair will thank you as it remains securely in your head, and there is less room for operator error. Software helps you set up systems for handling the endless flow of paper that your business generates. It is just a program - it cannot be held accountable for you forgetting to record that you received a cheque, but with a secure system in place, it is more likely that you will effectively execute your end of the bargain. 

Here at Accountants on London, we are big supporters of Xero Accounting Software, it fits in well with our philosophy of using the latest computerised systems to turn data into solutions and opportunities that will help you. Read about Xero on our blog here.

If you are thinking about accounting software, be it Xero, or something different, now is the time to take action, with the new financial year looming, (April 1) you can start afresh and make next year much less painless! Contact us to discuss and implement – remember, your first consultation is free!

To learn more about Xero check out our blog posts, or call us to discuss your accounting software options today.

Accounting
This is the system that tracks the transactions that make up your business income and expenses and then uses this data to create reports that show the financial and task status of your business.

Accounts Payable
This is the money that your company owes to its vendors.

Accounts Receivable
This is the money that your customers owe to your company.

Accrual Basis Accounting
This is the accounting system in which reports are drawn from accounts payable, accounts receivable, cash sales, and cash payments. Most accountants recommend accrual basis accounting if you bill your customers or incur debt. (See Cash Basis Accounting)

Assets
The are the things that add value to your company: cash in the bank, accounts receivable, property, equipment, stocks or bonds, etc.

Balance Sheet
Think of a Polaroid picture. This is a snapshot of where your company is on a particular date. It lists assets, liabilities, and produces your equity -- the net worth of your company. (Download a Sample Balance Sheet, and visit our Tools Library for more samples.)

Bookkeeping
This is the process of entering data into an accounting system, including the amount, date, and source of each revenue or expense. No accounting system will work without reliable bookkeeping.

Budget
This is a process for managing cash flow in your company.

Cash Basis Accounting
This is the accounting system in which cash transactions are recorded and reports drawn from actual payments made into and out of your company. (See Accrual Basis Accounting)

Cash Flow
This is a summary of your company's sources and uses of cash. A cash flow report will show you changes in your cash position over a period of time. (Download a Sample Cash Flow Statement, and visit our Tools Library for more samples.)

Cash Sale (Receipt)
This is a sale of a product or service that is paid for when it is delivered. The paperwork that accompanies a cash sale is called a receipt and documents the delivery and payment.

Equity
This is the net worth of your company when all assets and liabilities have been accounted for.

Invoice
This is the written record of a transaction, often given to a customer or client when a service or product is delivered, but not paid for. Sometimes invoices are called bills, or even statements, although statements are technically something else (see below).

Liabilities
These are the things that your company owes to others: accounts payable, credit card debt, mortgages, etc.

Profit and Loss Statement
This is one of the reports that your accounting system will generate to give you a picture of how your company is faring. A P&L statement will look at a period of time such as a month, a quarter, or a year. You can compare with other periods of time to make decisions. (Download a Sample Profit and Loss Statement, and visit our Tools Library for more samples.)

Statement
This is a written summary of unpaid invoices. Statements may contain several invoices and are usually sent as a reminder of payment due.
   
Glossary courtesy of howstuffworks.com

You can easily save more than 25% of IRD’s interest cost on your provisional tax.  All with the seal of approval of the IRD. 

If you don’t pay the correct amount of tax on time the IRD charge you interest.  The current rate is 8.89%. 

Tax pooling is a service introduced by Inland Revenue in 2003 that allows provisional taxpayers to reduce their exposure to IRD interest costs.

How it works: When we have finished your income tax return, we will inform you whether you owe any further tax to IRD.  In many cases, you will also owe IRD interest. 

Tax pooling allows you to buy tax credits that other taxpayers do not need.  These tax credits have already been paid to IRD, but through the tax pool can be transferred from the seller to you.  The cost of buying those credits is substantially less than paying IRD interest.    

The table below shows the savings you can make on 2011 underpaid provisional tax if purchased in March 2012.

We can quickly arrange a tax purchase on your behalf as we work closely with NZ’s leading tax pooling company, Tax Management NZ.  They’ve assisted thousands of NZ companies and individual provisional taxpayers in saving money.

The story begins with John Ross, boat builder, farmer and frequent visitor to Tonga. In 2002, following Cyclone Waka, John recruited six Rotary Club colleagues to deliver medical supplies, help rebuild houses and restore infrastructure to the Tongan village of Utungake in Vava’u. In return, a local chief gifted him the use of dormant land. Upon discovering wild vanilla orchids growing, he developed a vanilla plantation, enhanced job prospects for locals and created Heilala Vanilla.

Upon harvest, the vanilla seed pods are imported to Tauranga where the vanilla products are manufactured and packaged per order. They are then dispatched to executive chefs, gourmet food manufacturers and specialty retail outlets.

Heilala Vanilla’s growing product range includes vanilla beans, vanilla extract, vanilla paste, vanilla syrup, ground vanilla, vanilla sugar and vanilla ice cream and has received numerous culinary awards.

From the early days of knocking on restaurant doors with a delicious nameless product it was clear they required a strong brand. The challenge would be enlisting the right advocates - the brand needed to entice. Margins are much tighter on small orders, but they knew this temporary pain would spark wildfire momentum and secure the big orders.

Down the track, John oversees the Tongan plantation. Garth is in charge of research and product development and daughter Jennifer (a qualified accountant with a marketing degree) is onboard to manage sales and marketing. We spoke with Jennifer about their journey to date.

Biggest challenge? Giving up the security of her day job. ‘But if you have the passion then it’s definitely worth it’.

Best management decision? Implementing quarterly Client Advisory Boards with specialised ‘foodies’ to drive their focus and direction. ‘In a family business tunnel vision can be a natural stumbling block’.

Advice? Jennifer was fortunate to utilise her accounting skills within the business, stressing ‘every entrepreneur needs guidance, advice and a close relationship with their accountant’. Clearly defined budgets and goals, performance measurement, viability testing and patience are also required for any long term business model.

Jennifer emphasised ‘when engaging external services you get what you pay for’. Don’t scrimp on the things that support the backbone of your business, whether it be your branding, marketing, or business mentors.

Highlights so far? ‘Taking Peter Gordon and US pastry chef Natasha MacAller to the Tongan plantation’. The Heilala crew guided 20+ foodies to witness the source of Heilala Vanilla, and enjoy local produce prepared amongst the plantation by Peter and Natasha. Entering the Williams Sonoma food retail chain (boasting 200 stores across America and Canada) was another memorable milestone.

With each hurdle successfully mounted, the Heilala team keep moving the finish line. As they enter the American market they’re aware that initial margins will be tight, sales and profits low. But they’ll soon achieve the exposure and reputation their product deserves.

Having John on the ground has been vital to this multi-cultural business. Jennifer and Garth are equally committed to maintaining relationships with the locals, keeping in touch with the dream at its roots. When one day John steps back, their succession plan will have a solid foundation.

The passion, hard work and commitment of this Kiwi family and their Tongan colleagues have made Heilala a sweet story of generosity, imagination and ingenuity. It’s about rising to the challenge and seizing the opportunities that are gifted to you.

www.heilalavanilla.co.nz

Information on your full or part-time status no longer flows through to ACC’s database on the IRD IR3 form.  If you held part-time status last year and this year your earnings crossed the threshold you will receive a letter from ACC automatically confirming your change to full-time status.  In all other scenarios it is up to you to formally confirm a change of status with ACC.

It would pay to check your invoice this year and call us if there’s any confusion.  Clients could get stung, for instance, if they have been paying levies on the basis of part-time status, have an accident, and then declare full-time status.  In such a case ACC may query it and can backdate levies up to four years. 

We provide an ongoing ACC administration and advisory service to our clients on an agreed annual fee basis.  Being recognised by ACC as your online agent gives us secure online access to your levy information, your cover status and invoices, allowing us to work directly with ACC. 

A simple signed authority from you and we’d be happy to review your cover structure and premiums, to ensure your cover is appropriate and levies are minimised.

Essentially, the Supreme Court decided in favour of Inland Revenue, concluding that setting artificially low salaries amounted to tax avoidance.

Penny and Hooper were two orthopaedic surgeons, each earning taxable income of between $600k and $850k a year. 
They restructured their businesses into companies with a family trust owning most of the shares.  They provided their services to the companies in return for salaries of $100k - $120k each year. 
The balance of the company’s income was declared as dividends to the family trust which the surgeons drew from regularly.

Each year tax of between $20k and $30k was saved by having the profits after salaries taxed at the trustee rate rather than at the surgeons’ individual top personal tax rates.  The court found these savings a ‘more than merely incidental’ reason for their low salaries.

The IRD has put businesses on alert and is actively reviewing those operating through a company or trust where the income is generated from services provided by an individual, and the individual’s salary is unreasonably low.  Although there may be good reasons for setting the salary low in a particular year, e.g. adverse business conditions, or a planned expansion of the business, in some cases the sole reason for the salary level is to take advantage of the lower tax rate that applies to companies.

The IRD is entitled to go back four years into a business’ records, but have publicly confirmed that where a ‘voluntary disclosure’ is made, only the last two income tax returns will be reassessed.  A voluntary disclosure might significantly reduce IRD penalties or avoid them entirely.

Whenever we’re discussing your business we’ll look at this for you.  In the meantime, if you are concerned and would like to discuss this with us, please do contact us.

Are you ready for the end of the financial year?

Click on the checklist to view it in full size or select 'download full size (it appears when you roll your mouse over the image) to print it off.

We aim to prepare your financial statements and tax returns in good time.  To do this we need your completed annual questionnaires with full supporting documentation.  Minimise costly delays by keeping in mind likely supporting documents for:

• New Bank Loans, balance outstanding at year end, security, interest rate, loan term
• Fresh Hire Purchases Items, interest rate, term and repayment plan
• Vehicle/Plant & equipment purchases, agreements.  Was finance obtained?
• Closing Stock and WIP (Work in Progress).  Stock on hand at year end?  Any un-billed work in progress?
• Income, include details of Wage or Employer Subsidies, additional income as defined for Working for Families
• Bank Statements.  If you use MYOB or a similar system, copies of final bank and credit card statements let us check the reconciled balance
• Property/Business Sales/Purchases, agreements and settlement statements
• Debtors and Creditors.  What is owed by or to your business, including whether amounts are GST inclusive or exclusive?
• Donations/school fees?  Receipts needed please
• Interest, dividends and rebates?  Provide details

Working For Families

From April 1 2012 many of the small changes to Working For Families signalled last year come into effect:

• The family tax credit amount for children under 16 will rise for inflation:

• The net income level guaranteed by the minimum family tax credit will rise from $22,204 to $22,268
• The abatement rate will increase from 20 to 21.25 cents in the dollar
• The abatement threshold will decrease from $36.827 to $36,350

KiwiSaver

As of 1 April 2012 employer contributions will no longer be tax free.

Employer Superannuation Contribution Tax will apply at the employee's marginal tax rate.

Minimum Wage

As of 1 April 2012 the minimum wage will increase from $13.00 per hour to $13.50 per hour.
Training and new entrants' minimum wages will increase from $10.40 to $10.80 - 80 percent of the adult minimum wage.

                                                                                                  
New GST rules for multi-use assets

The new rules came into effect 1 April last year replacing the old charge-in-use rules by apportioning input tax deductions in line with the actual use of the goods and services. As the 2012 financial year closes, the new rules will be applied for goods and services acquired on or after 1 April 2011. In subsequent periods, when a change to the actual taxable use occurs, from what was first intended, a GST adjustment within an adjustment period must be made (a number of exemptions may apply).

There is a maximum number of adjustment periods according to the asset's value or estimated useful life and special 'wash-up' rules apply when goods and services that have been subject to the apportionment rules are sold or the person deregisters.