AIM Method of Calculating Provisional Tax

Many of our clients may have seen or received information from IRD about the AIM method of Provisional Tax calculation

This method will become available for use on 1st April 2018. We are not recommending it to our clients for the following reasons:

  1. Most SMEs (Small Medium Enterprises) qualify to use Standard Provisional Payments without any Use of Money Interest
  2. Depending on your business you may have to do things such as a physical stock take every two months
  3. While IRD are promoting that this is an easy method to use in fact, in our opinion, it is not and also the option is not available through Xero and MYOB for clients to use – it is only available to firms such as ours to use.

If you want to discuss the AIM option please give Sari or Anna a call.

Paying contractors or working as a contractor

IRD’s latest update to tax agents includes some clarification around contractors and withholding tax.

There is a misunderstanding that all contractors are now subject to withholding tax. This is not the case. The change is only for contractors hired by a labour hire business.

From 1 April 2017, contractors working for a labour hire business under a labour hire arrangement must have withholding tax deducted from their income.

Activities and examples of a labour hire business
One of the main activities of a labour hire business is arranging for a person to perform work or services directly for:

  • its clients, or
  • clients of another person.

Examples of labour hire businesses are:

  • an on-hire business
  • an employment agency
  • contract management, or
  • recruitment services.

Withholding tax rate
The standard withholding tax rate for this category is 20%. However, a contractor may choose a lower rate (the lowest rate is 10%) when they fill in their Tax rate notification for contractors (IR330C) form.

They can also apply to us for a 0% special tax rate by filling in a Special tax code application (IR23BS) form. We review their tax compliance history before deciding if we’ll issue a 0% rate certificate.

Sub-contractors

Businesses (eg an engineering business) hiring sub-contractors don’t come under the new legislation. The sub-contractors wouldn’t be paid schedular payments so withholding tax isn’t taken out of their payments.

See some examples of what is and is not a labour hire business

Deductibility of Farmhouse Expenses

IRD have released a Statement considering the deductibility of expenses relating to a farmhouse that forms part of a farming business. The general rules of deductibility and apportionment applies, ie you will be able to claim a percentage based on values and usage.

However, the minimum deduction of 25% for all farmers has been reduced to, and now available only in situations where the compliance cost of calculating private use element outweighs any likely deductions,  20% for farmhouse expenses ie power, while rates and interest remains at 100%. These deductions are allowed for some sole traders and partnerships when the value of the farmhouse is 20% or less than the total value of the farm. If the value of the farmhouse is more than 20% of the total value of the farm, all expenses that relates to both the farm house and the farm (rates, insurance, power, interest) must be apportioned.

Tax Refund Companies

Yes, it’s that time of year again – the tax refund companies are back advertising!

Remember, if you are a client of ours, that we automatically check your tax situation so will advise you if there are any refunds due.

These tax refund companies take a percentage of any refund due. So, if you have a friend or family member who is thinking about using a tax refund company let them know that they can check on IRD’s website whether they are due a tax refund or not, at no cost.

Payroll – End of Year & Start of New Year

Employer monthly schedules and ir-files filed with IRD are based on the payment date of the pay run (not the pay period end date). After you have finalised the last pay for March and printed your end of year reports (make sure this includes leave liabilities/balances), go ahead and file your ir-file with IRD as usual.

The next step is to review and update your employees’ salary and wage information. Ensure all employees on minimum wage have their rates updated to the new minimum wage of $15.75. The new rate needs to be applied from 1 April. If 1 April falls in the middle of a pay period, you can either pay different rates by inserting an extra line with the different rate, or apply the new minimum rate for the whole pay period.

If you have contractors using the WT tax rates on schedular payments (including those hired by labour-hire firms), they are from 1 April able to choose their own tax rate, subject to minimums. New contractors, existing contractors (if they need to change tax rate or starting a new contract) and those opting in to the schedular payments rules need to complete the IR330C Tax Rate notification for Contractors form.

ACC levies, ACC threshold and student loan repayment threshold are automatically updated if you are using payroll software.

Want to read more?

Tax and Contractors

IRD Contractor Changes 

 

7 April Tax Payments

IRD will again be sending reminder letters or texts to some entities with tax to pay on the 7th April. This means you may receive two payment notifications, one from us and one from IRD for the same payment. Please follow the instructions on the email/letter received from Savage & Savage.

Inland Revenue GST Online Changes & Services Unavailable

Inland Revenue is improving their GST online services. While the update takes place, all IRD systems will be unavailable from 3pm on Thursday 2 February until 8am on Tuesday the 7 February. You will not be able to access any myIR online services or contact IRD through their call centers. The system update will cause draft returns to be deleted so make sure you complete any draft GST returns before 2 February.

If you are using myIR to file your GST return(s), from the 7th February you will be able to:

  • Pay your GST at the same time you file your return
  • Arrange GST installment plans online
  • Add file attachments online
  • Choose to receive email and/or text message reminders

If you have provided others with administrator or user access (not your accountant) to your myIR account, you’ll need to review and confirm the level of access you want them to have by 1 February or they will not have access to the improved GST services from 7 February.

The myIR mobile app will no longer be available, you will need to file  your GST through your myIR account.

If you have any queries about the changes or how to use the new system, please contact us.

Could your Volunteer or Woofer be an Employee?

Did you know, that anyone working in return for food and accommodation is likely to be an employee? This means they are entitled to the same minimum employment rights as a paid employee and you need to register as an Employer, file Employer forms with IRD and pay PAYE, check they are allowed to work in New Zealand, keep time and wage records and enroll them in KiwiSaver if they are eligible. You need to make sure they receive minimum entitlement including that the value of what they are getting is not less than minimum wage, and pay sick leave and accrue holiday pay! If you do not deduct PAYE, you still need to calculate the amount of PAYE on the market value of accommodation etc provided and pay it to IRD.

This is not an exhaustive check list, please contact us if you need further information or have any queries.

Gifts of Food & Drink

IRD have recently clarified their position on gifts of food and drink, ie hampers, Christmas ham etc, and these gifts now fall under the Entertainment rule and are only 50% deductible as there is a private benefit. It makes no difference whether the gift is to staff, suppliers or customers. Gifts other than food and drink are still 100% deductible as long as it’s business related, keep in mind FBT for staff. As before, any meals, drinks and entertainment are only 50% deductible, unless it is morning or afternoon tea or meals while travelling, however not if accompanied by a potential or existing business contact in which case it is only 50% deductible.

 

IRD focus on cash jobs continues

IRD are continuing to focus on cash jobs among builders and other tradespeople. They are looking into record keeping and tax compliance in these industries with the most recent focus being on Christchurch. It’s never too late to voluntary disclose income that might not have been declared previously in your tax returns. A voluntary disclosure to IRD will generally reduce the amount of short fall penalties applied, especially if this is before IRD notifies you of a pending tax audit.

If you are paying cash for a job, keep in mind that you then have no record of the work being done in the event of something going wrong.