McLEAN AND CO.

Accounting          Taxation         Business Advice and Development Assistance           Audits                             

 P.O. Box 10 , Clive         133 Main Rd, Clive           Tel. (06) 8700952          Fax. (06) 8700955 

Email murray@mcleanandco.co.nz                                  Website www.mcleanandco.co.nz

 
 
EMAIL NEWSLETTER  MARCH 2006
 

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

McLean and Co. is a home based chartered accountancy practice based in Clive, Hawkes Bay.    Readers are invited to peruse the practice website www.mcleanandco.co.nzwhich lists services provided, gives contact details and indicates how to become a client, contains an extensive base of articles on business and taxation matters,  and has links to other websites that may assist your business.    Being a small firm itself,   McLean and Co. strives to provide a personal and professional service largely to a self employed person and small business client base.  Enquiries are welcomed.

 

NEW CLIENTS

We are happy to accept new clients.  Please contact ourselves at the contact points highlighted above if we can assist you in your accounting and taxation requirements. Our website lists information required for this in the following link:

www.mcleanandco.co.nz/Documentationrequired.htm

 

INDEX

  1. Relevant Business and Taxation Articles.

  2. Future Changes to IRD Numbers

  3. Changes to Withholding Tax Rules

  4. Income Thresholds for Repayment of Student Loans

  5. Interest Free Student Loans from 1 April 2006

  6. How to Balance your Bank Account

  7. Financial and Non-Financial Key Performance Indicators

 

RELEVANT BUSINESS AND TAXATION ARTICLES

The McLean and Co. website contains an extensive number of articles prepared by McLean and Co. relating to taxation and business matters.    Here are a selection that will be of interest:

Beating a Housing Bubble                       www.mcleanandco.co.nz/Page155.htm

Koha                                                          www.mcleanandco.co.nz/Page46.htm

Bankruptcy                                                www.mcleanandco.co.nz/Page56.htm

Business Legal Structures                        www.mcleanandco.co.nz/Page128.htm

Taxation on Land Tranactions                  www.mcleanandco.co.nz/Page136.htm

 

FUTURE CHANGES TO IRD NUMBERS

Currently your IRD and GST number is 8 digits long.  From 1 April 2007 IRD will be adding another digit to all new and existing IRD and GST numbers, due to the fact that by then they would have issued all possible 8 digit combinations.  

If you already have an IRD Number it'll have a zero added to the front of it e.g. 12-234-678 will become 012-345-678.

If you apply for an IRD or GST Number after 1 April 2007 you'll be automatically issued with a 9 digit number.

 

CHANGES TO WITHHOLDING TAX RULES

Currently, when you make withholding payments to a contractor who is trading as a company, you don't deduct any withholding tax.  However, shortly deductions will be required from payments to certain companies working in the agricultural, horticultural and viticultural industries.

From 1 April 2006, if you hire any type of contractor (individual, partnership, trust or company) for services or work related to the pruning or thinning of fruit trees or vines, or the picking or packing of fruit or grapes, you must deduct withholding tax at the rate of 15 cents in the dollar, unless the contractor has a certificate of exemption or a special tax code certificate authorising deductions at a lower rate.

The changes to the rules are being made to reduce tax evasion prevalent in the fruit picking industry.  Some contractors are evading tax which makes it difficult for honest contractors to compete.  Deductions of withholding tax should help "level the playing field".

A further change is that all payments for these activities will need to be recorded on the payer's employer monthly schedule, whether they deduct withholding tax or not.  The requirement to notify IRD of the details of the payments only relates to payments made for the specific work mentioned.

If you are currently not an employer and you are a grower hiring a contractor or a contractor hiring a subcontractor you will need to register with IRD as an employer by 1 April 2006.

You can apply for a certificate of exemption online by following the link:

Apply for certificate of exemption online >

 

CHANGES TO FAMILY ASSISTANCE

From 1 April 2006, the income thresholds for family assistance will increase and the rate at which family assistance payments start reducing will change.  Families on higher incomes may now qualify for family assistance.

You can check out the IRD 2007 family assistance entitlement chart - this shows the income limits for each type of family assistance payment from 1 April 2006.

You can also estimate your family assistance for the 2007 financial year by using the IRD calculator, and register for family assistance by either using the new IRD online family assistance registration form, or downloading and completing a Family assistance registration form 2007 (FS1).

You can choose whether to receive your family assistance payments weekly or fortnightly based on your estimated income  or as a single lump sum after 31 March based on your actual income.

If you are already receiving family assistance and you want to change to weekly payments (instead of fortnightly) just give IRD  a call on 0800 257 700.

 

INCOME THRESHOLDS FOR REPAYMENT OF STUDENT LOANS

The income threshold at which borrowers must begin repaying their student loans will rise from $16,588 to $17,160 a year from 1 April, 2006.  The increase is in line with annual movement in the September Consumer Price index of 3.36%.. 

 

INTEREST FREE STUDENT LOANS FROM 1 APRIL 2006

Interest free student loans will be delivered by an interest write-off.   Your Inland Revenue and StudyLink student loan statements will show interest being charged but if you are eligible, this interest will be written off after the end of each tax year (31 March).  The first interest write-offs under interest free student loans will occur in April 2007.

Only the interest charged from 1 April 2006 will be written off.  The interest free student loan change does not cover interest charged before this time.

If you have met the 183-day requirement then leave New Zealand for 184 or more consecutive days, you may still be entitled to an interest write-off for the period up and including the date of your departure from New Zealand.  Any entitlement will be credited to your loan account after the end of the tax year (31 March).    

 

What is written off?

All the interest you are charged while you are eligible to the interest free loan will be written off. 

Inland Revenue will write off the interest charged from 1 April 2006, including any interest charged by StudyLink for the period you are eligible. This write-off will happen after the end of the tax year (31 March). 

 

Refunds requested on or after 30 November 2005 excluded from interest free write off

If you have requested a refund from your student loan account on or after 30 November 2005 (and the reason for your request was not due to significant financial hardship - see below for an explanation), you may not be entitled to have all of your interest written off.  This only applies to refunds for the 2005 and 2006 tax years.  Over-payments relating to tax years prior to 2005 can no longer be refunded.  (An overpayment is an amount paid in excess of a repayment obligation.)

However, you may still qualify to have all or part of this interest written off under one of the other interest write-offs.

Significant financial hardship includes significant financial difficulties that arise because of:

a borrower's inability to meet minimum borrowing expenses; or
a borrower's inability to carry out his or her usual occupation because of his or her temporary or permanent illness, injury, or disability; or
a borrower's inability to meet mortgage repayments on his or her principal family residence resulting in the mortgagee seeking to enforce the mortgage on the residence; or
the cost of modifying a residence to meet special needs arising from a disability of a borrower or a borrower's dependant; or
the cost of medical treatment for an illness or injury of a borrower or a borrower's dependant; or
the cost of palliative care for a borrower or a borrower's dependant; or
the cost of a funeral for a borrower's deceased dependant.

 

HOW TO BALANCE YOUR BANK ACCOUNT

When you enter records of money paid into and out of your bank account into the cash book, there is a delay of at least a couple of days until these transactions are cleared through the banking system and appear on your bank statement. Therefore, the bank balance according to the cash book will normally be different from that on your bank statement at any given date.

To ensure that the difference between the two balances is due merely to the time difference in entering items, you should draw up a bank reconciliation statement:

1: Bank balance per the cash book: $
Balance at beginning of month (in hand) 654.20
Add cash book receipts (total for month) 3421.06
Less cash book payments (total for month) (2189.70)
Balance at end of month (in hand) 1885.56


2: Bank reconciliation from the bank statement: $
Balance at end of month (from bank statement) 2189.65 
Add outstanding bankings (bankings made in the last few days of the month that do not appear on the statement until after the end of the month) 561.20 
  2750.85 
Less outstanding cheques written before the end of the month but not yet presented to the bank  
Cheque No. Amount  
001378 69.25  
001381 686.19  
001384 50.00  
001385 59.85  
    (865.29)
Balance at end of month: 1885.56

If after your reconciliation there is still a difference between the two balances, check the cash book and bank statements in detail to find the discrepancy.

Common mistakes are:

Cheques either not recorded in the cash book or entered twice
Standing orders or direct debits not recorded
Bankings or direct credits not recorded
Mis-additions in the cash book
Cheques still outstanding from the previous month

You should amend the cash book to agree with your bank reconciliation.

 

FINANCIAL AND NON-FINANCIAL KEY PERFORMANCE INDICATORS

If you are not measuring the performance of your business, then:
you have no way of knowing how well you are doing
you canít make improvements
you are unlikely to spot critical trends in your business performance that need to be corrected.

If things are going wrong, the sooner you can spot trouble (for example, a deteriorating profit trend or a blow-out in overhead costs) the sooner you can take corrective action.  Speedy intervention can save a business.  On the other hand failure to spot dangerous trends can lead to business collapse.

In every business there are key areas that need to be measured against a benchmark on a regular basis. These are known as Key Performance Indicators (KPIs). They can be divided into financial and non-financial KPIs.

 

Examples of financial KPIs

Gross profit percentage.   How does this percentage compare to previous figures or to a benchmark figure for your industry?
Operating profit as a percentage of income. Is this rising or falling?
Debt collection period.  How many days, on average, it takes you to collect debts.    The more you can improve this figure, the better your cashflow and working capital are likely to be.
Quick ratio -a test of whether you can pay your debts as they fall due.

Examples of non-financial KPIs

The return on marketing promotions.  For example, coding advertisements or including a coupon to measure the number of sales from each advert or the returns from a direct mail campaign.   Knowing the returns will allow you to work out if the exercise is worth repeating or whether you need to change the advert or direct marketing package.   If you donít measure the returns, you really have no way of knowing whether you are wasting your time and money.
Employee turnover and the number of sick days.  These two measurements provide an indication of employee motivation and morale.
Customer service satisfaction.  One way to gauge customer satisfaction is to use mystery shoppers.
Customer conversion ratio (measures the number of customer contacts or visits converted into actual sales).  This measurement allows you to work on sales skills and training (for instance, better telephone answering skills) that result in a better conversion rate.
Website visits (measures the number of Ďhitsí per webpage per month, which webpages were most popular, and the ratio of visits to actual sales).  Your ISP provider should be able to provide these figures which will enable you to fine-tune your website for better results.

Non-financial KPIs are often more important as they can influence the financial KPIs. For example, if you can improve the customer conversion ratio this will lead to increased sales which in turn should feed into a better operating profit.

Tip

Because there are many possible KPIs that you could measure to help you improve your business, it is more practical and realistic to focus on a critical few.

 

 

The information provided in this email newsletter is for informational purposes only.   McLean and Co. accept no responsibility for the opinions and information expressed in the information provided and it is provided "as is" without warranty of any kind.    The user assumes the entire risk as to the accuracy and use of this document.   Readers are asked to seek professional advice pertaining to their own circumstances.    The McLean and Co. email newsletter may be copied and distributed subject to the following conditions:
All text must be copied without modification and all pages must be included.
This document must not be distributed for profit.    

 

If we can assist further, please email McLean and Co as follows:

 CONTACT McLEAN AND CO. BY EMAIL BY CLICKING ON THIS LINK

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