Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  

We are happy to accept new clients.  We would be happy to assist colleagues and acquaintances as new clients.

INDEX

1. Tax Changes Announced 4/2/2009

2. Make Sure you Indicate the Correct Details if Paying Online

3. Increasing the Gross Profit Ratio

TAX CHANGES ANNOUNCED 4/2/2009

• The GST registration threshold will be raised from $40,000 to $60,000, allowing businesses that earn less than $60,000 to de-register from GST if they wish.

• Businesses with $10,000 or less of business-related legal expenditure will be able to fully deduct the expense in the year it was incurred, regardless of whether it is capital in nature or not.

• The PAYE once-a-month filing and payment threshold will be raised from $100,000 to $500,000, allowing more employers to file PAYE returns and pay PAYE once a month instead of twice a month.

• The FBT annual filing threshold will be raised from $100,000 to $500,000, allowing more employers to file FBT returns and pay FBT annually rather than quarterly.

• The value of minor fringe benefits (such as chocolates and flowers) that can be provided to employees without attracting FBT will be raised to $300 per quarter per employee and $22,500 a year per employer. This will mean fewer businesses will be required to return FBT on certain minor benefits provided to employees.

• The FBT prescribed interest rate applying to low-interest, employment-related loans will be lowered from 10.90% to 8.05%.

• Some other thresholds relating to accrual expenditure adjustments (such as for certain prepaid advertising/travel/lease costs) will also be raised.

• Certain SME tax simplification measures that are part of a bill currently before Parliament will be fast tracked.

When do these changes start?

The changes that involve law changes will be included in a taxation bill to be introduced in February 2009 for application generally from 1 April 2009, or from the 2009/10 income year where appropriate. The new use of money interest rates will apply from 1 March 2009, and the new FBT rate on low-interest, employment-related loans will apply from 1 January 2009.

MAKE SURE YOU INDICATE THE CORRECT DETAILS IF PAYING TAXES ONLINE

IRD forward Income Tax Statements of Accounts for clients to ourselves and  we pass these on to clients. We note on these instances where it clearly appears that clients have advised the wrong year or period to IRD when they pay the amount.  In such cases (and obviously we can't identify all wrong periods) we contact IRD on behalf of clients and get the payments transferred to the  correct period. We have also assisted  to re-allocate incorrect procwessing for other tax types.

For example, we have noted the following common errors:

• we noted in a recent spate of Income Statements of Accounts issued after the date for payment of 2007 Terminal Tax (April 7, 2008)  that a number of clients had paid their 2007 Terminal tax due but IRD had allocated the payment to the 2008 income year (and IRD usually only do so after notification of the year by taxpayers).   Due to the fact that the payments related to the 2007 income year they should have been processed to 2007 on the IRD Bill Processing template.   As a consequence the Statements indicated that 2007 Income Tax was outstanding and overdue and penalties had been added by IRD in this year, but that 2008 Income Tax was in credit by the amount of the payment.   Where we were readily able to identify these instances we contacted IRD and arranged re-allocation, and also a credit for the penalties charged by IRD.
• we have noted that  PAYE, say for the month of March 2008, where clients had advised IRD that is was for April 2008 because they paid it in April.  If it relates to the month of March it should be indicated accordingly on the IRD Bill Payment template, not April when it was paid.
• Similarly for GST- wrong periods have been advised to IRD.
• We have noted cases of one payment for a combination of tax types and periods totally put into one of the tax types and in a particular period and the expectation that IRD will guess where they should be allocated- in such cases you have to make separate payments for the separate tax types and the separate periods, so that you can clearly indicate to IRD what tax type and what period this relates to.
• we have noted inaccuracies as to payment of Provisional Tax since the introduction of the ability to pay GST and Provisional Tax together on the same form.  You should be aware that if you only paying Provisional Tax then you should use the category "Income Tax or Provisional Tax (INC)" on the Internet Banking site, but if you are paying some Provisional Tax combined with GST (and only do this if you have filed a GST/Provisional Tax Return and added the details of Provisional Tax you are paying at the same time onto this GST Return in the sections provided for this), you should use the category "GST and Provisional Tax (GAP). In the later case the payment should be exactly the same as the combined total on the GST/ Provisional Tax Form, otherwise IRD wont know how much to put to each tax type.

In respect to Income Tax we provide Payment Slips to Clients once their tax year affairs are finalised which clearly indicate the year for which a payment is due.  It is important to process these particular years when paying by internet, and if paying by cheque to provide these Payment Slips with your payment.

Any wrong allocation causes much extra work and no doubt confusion and frustration to you as clients when you know you have paid an account but IRD are saying you still owe the money.   

The Internet Bill Payment template for payments to IRD  asks clearly what tax types are being paid and asks clearly the period to which the payment relates to.  

Be extra careful to process the correct information for the payment.  Otherwise there will be the scenarios as described above. 

INCREASING THE GROSS PROFIT RATIO

The current economic times are as good a time as any to monitor your Gross Profit Ratio

How can you boost gross profit -in dollars and the GP margin?

Option 1 - Increase Dollars of Gross Profit by Increasing Total Sales

* make sure your advertising is effective - monitor each programme and either keep  it as-is, refine it, or drop it. Don't just change it for its own sake, if it works!

* make use of in-store displays and demonstrations

* make sure the exterior appearance and identification of the business is clean,  professional and helps customers find your store

* employ effective, hard-working sales staff (and train and motivate all people to stay  that way!)

* seek referrals from existing customers

* seek referrals from related businesses

* use staff incentives and competitions to encourage up-selling or sales of  companion lines - you can even use this to promote sales of older stock items or  slow-moving stock

* measure the conversion rates in your business. For every 100 prospective  customers, how many ask for a quote? Of those, how many ask for a  demonstration? then how many eventually buy? Increasing the effectiveness of the  sales process can lead to rapid increase in sales, without any additional cost or  time.

* increase the average sales size:
• sell higher quality or enhanced features
• use merchandising and display to group related products together or to promote  seasonal lines
• stock displayed at close to eye-level generally sells better
• using more lineal space for a product generally promotes sales of that product (ie  allowing twice the shelfspace will generally lift sales of that product)
• look at your stock and sales mix to ensure that they closely match each other
• sell accessories or add-on products: either have your staff do this at point-of-sale,  or use signs and 'deals' in the store to encourage purchase of additional, related  items

* increase repeat trade from customers:
• through positive, friendly and helpful staff
• sales staff members' ability to understand customer needs - promoting only the   products of genuine value to the customer
• business image/appearance/housekeeping
• provide regular follow-up
• create 'clubs' for groups of customers; use newletters or email or letters to tell them  about relevant products; run special events just for regular customers etc; add  promotional pieces into (eg) your mailings of monthly statements
• provide high quality service

Option 2 - Manage The Margin

These pointers largely influence the 'cost' aspect of 'Cost of Goods Sold'. Improvements to gross margins can be achieved here without the firm's customers even realising what is going on.

Avoid the factors that reduce your closing stock:

* eliminate shoplifting of minor items with: vigilant staff; well-located cash registers; use of mirrors etc to provide good supervision of all areas

* eliminate staff pilferage of minor items, through suitable penalties, training, etc

* eliminate or minimise damage to stock while it is in storage or on display - place it in suitable locations and use display units to protect it

* make sure that all stock received is checked against delivery dockets or invoices, so that you only pay for what is actually received in good order and condition

* make sure damaged stock is returned to supplier for replacement or credit

Eliminate or minimise high-cost purchases:

* avoid placing too many small orders with high freight costs

* avoid dealing with too many suppliers - you'll lose quantity discounts

* avoid carrying too wide a range of stock (again, losing the scope for volume  discounts)

* take advantage of settlement discounts where they are worthwhile

* plan purchases according to likely demand or seasonal factors

Eliminate 'Depressed Sales Values' from the level of stock sold:

* check your pricing practices (inaccurate cost prices lead to incorrect sales prices)

* make sure you re-price stock (e.g. on old lines, or after a promotion)

* make sure your sales mix blends sales of the low-margin items with sales of higher  margin lines

* improve merchandising and display to encourage customers to buy products they  reasonably need

* eliminate excessive discounting (e.g. 'mates rates') by your staff

* minimise the extent of heavily-discounted 'end of season clearance sales'

Option 3 - Look at Your Prices

Check your pricing:

* adjust your markups so that your prices are not out of line with competitors' prices

* price some stock lines to keep customers coming back, then set a suitable margin  on the related product sales

* make sure all stock on hand is priced consistently (don't let customers pick the  cheapest from amongst identical items on the shelves)

* use technology to make price changes quicker and easier; or to create price tags  etc

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