IRD CONCENTRATING ON CASH ECONOMY
The Inland Revenue Department has revealed more details of its strategy
for cracking down on the "hidden economy" - jobs done for cash and
similar activities designed to disguise how much income is really being
The department recently released its second annual compliance focus
report, and once again it has the hidden economy in its sights. It plans to
use around a third of the extra $119 million allocated to it in the Budget
for investigation activities on tracking under-the-table earnings. It has
already hired more staff to concentrate on this.
Group Manager Assurance of IRD Martin Scott said. "We make use of a number of different data sources to identify
suppressed income. For example, a painter would buy his raw materials from certain places
that offered a trade discount. Based on how much paint you buy we can
determine, broadly speaking, what your income should be. The crackdown on the cash economy would follow a similar pattern to the
way IRD focused on internet trading, he said.
First, the department wanted to make people more aware of their
Secondly, it would contact individual taxpayers and ask them to come
forward with their correct position. Then it would investigate.
There had been concern from small retailers that people were undercutting
them by trading online and avoiding tax.
"We now regularly download about 3 million transactions at a time
off the internet. We're then able to compare those to the records that we
Traders who were "at the very far end of some significant sales and
no return" were investigated straight away.
IRD received a lot of anonymous information and it always followed up on
that by contacting the taxpayer concerned directly.
It encouraged people to voluntarily put things right because tax evasion
or fraud attracted penalties of 150 per cent. "If you come and disclose
to us there are substantial reductions on those penalties."
Scott also urged consumers to always demand a legitimate invoice. Without
it they had no comeback if anything went wrong, and in the case of things
like house repairs it could have insurance implications.
People did try to massage their income to remain eligible for benefit
payments, and IRD kept an eye on that: "If we think it would lower
people's perception of the integrity of the tax system then we focus on
companies provide limited liability and are considered a separate
legal entity, directors can become personally liable if they breach
their duties. These duties have become increasingly important in light
of the recent financial downturn. When there is financial uncertainty,
directors are more likely to make decisions for which they could be
held liable. This in turn gives rise to increased media attention.
there have been numerous reports of the Securities Commission taking
proceedings against directors of finance companies for misleading
investors. Under the Securities Act these directors face fines of up
to $500,000 in civil proceedings, and up to five years imprisonment or
fines of up to $300,000 in criminal proceedings. Therefore directors
need to be aware of their obligations to the company.
under the Companies Act 1993
key duties, found in Part 8 of the Companies Act 1993 sections
131-137, include the following:
duty to act in good faith and in the best interests of the company.
duty to use their powers for the purpose for which they were conferred
and not for any ulterior motive.
duty to act in accordance with the obligations under the Companies Act
1993 and the company’s constitution.
a director must not agree to cause, or allow the company’s business
to be conducted in a manner that is likely to create a substantial risk of serious loss. To determine this the court will look at what an
‘ordinary prudent director’ would have done in the circumstances.
duty not to take on any obligations unless it is believed on
reasonable grounds that the company will be able to perform those
obligations when required to do so, and
duty to use the reasonable care, diligence and skill that a reasonable
director would exercise in the circumstances.
must actively ensure that they are meeting their obligations. The recent
case FXHT Fund Managers Ltd v Oberholster held that directors who are
not actively engaged in the company or ‘sleeping directors’ can be
liable. In this case the inactive director was held liable for a breach of
his duty of care even though it was his co-director who defrauded investors.
Initially he was not aware of his co-director’s dealings, but as soon as
he became aware he reported the matter to the authorities; however he was
still held liable.
in Lewis v Mason and Meltzor the directors relied on a manager and
did not exercise sufficient control over the company’s financial position
or the day to day running of the company. It was found that reliance on a
manager does not excuse a director from liability and the directors were
ordered to contribute to the Company’s debts.
above cases show the need for directors to take positive steps to discharge
their obligations under the Companies Act, and be proactive directors who
are aware of and adhere to the duties imposed on them.
MAKE YOUR FINANCIAL PLAN PROFITABLE
Creating a Financial Plan assists markedly in making your
business more profitable.
If you don't keep track of how much money you're making, you have no
idea whether your business is successful or not. You can't tell how well
your marketing is working. You need to know what your net profit is. If
you don't, there's no way you can know how to increase it.
To be successful in business, the creation of a Financial Plan and
the checking of results on a regular basis against this Plan, and the taking immediate
action to correct any problems, greatly assists in the restoration and
maximisation of profitabily.
Here are 8 steps that are recommended:
- Create a Financial Plan: Estimate how much income you expect
to bring in each month, and project what your expenses will be.
- Review the Plan periodically (say monthly): Even if time is taken to prepare a
financial plan with profit and loss projections, it often sits in a desk
drawer. It's not enough to have a plan -- you have to review it
- Lost Profits Can't be Recovered: When comparing your
projections to reality and finding earnings too low or expenses too
high, the conclusion often is, "I'll make it up later." The
likelihood is though that you really can't make it up later; every month profits
are too low is a month that is gone forever.
- Make Adjustments Right Away: If incomes are lower than
expected, increase efforts in sales and marketing or look for ways to
increase your rates. If overhead costs are too high, find ways to cut
- Think Before you Spend: When considering any new business
expense, including marketing and sales activities, evaluate the
increased earnings you expect to bring in against its cost before you
proceed to make a purchase. You can often increase your profitability
simply by delaying expenses to a later month, quarter, or year.
- Consider the hiring of staff: The likes of retailers and restaurateurs wouldn't
consider operating without employees, but many service businesses limit
themselves by being understaffed. Your business could potentially benefit from
hired or contracted help. You can better use your talents for generating
revenue than for performing menial tasks that hired staff could as an
- Pay yourself a Salary: You may
already be doing this. If not, allocate an amount as a salary on a monthly/
weekly basis. Each month that your business meets its
profitability goal, pay yourself the full amount. When you miss your
target, dock your "pay" and when you exceed it, pay yourself a
"bonus." Paying yourself on a monthly/ weekly basis will give you a
strong incentive to keep your business profitable.
- It's About Profit, Not Income: It doesn't matter how many
thousands of dollars you are bringing in each month if your expenses are
almost as high, or higher. Many high-income generation businesses have gone under
for this very reason .