McLEAN AND CO MARCH 2007  NEWSLETTER  PAGE 2     

KIWISAVER

KiwiSaver is a voluntary, work-based savings initiative to help you with your long-term saving for retirement.  It's designed to  maintain a regular savings pattern.  It is administered by Inland Revenue Department.

Work-based Saving

For many people, KiwiSaver will be work-based. This means you will receive information about KiwiSaver from your employer, and your KiwiSaver contributions will come straight out of your pay.

What you Get When you Retire

NZ Super provides for a basic standard of living in retirement, but it may not be enough for the kind of retirement you want.     KiwiSaver is intended to complement NZ Super.

Government Initiative

The government has created the framework for the KiwiSaver initiative, to help New Zealanders financially prepare for retirement.   There is a range of membership benefits to encourage you to get saving, including a $1,000 tax-free kick-start and subsidised scheme fees. Some people may also be eligible for help with the deposit on their first home.

Membership

KiwiSaver membership is voluntary and open to all New Zealand residents and people entitled to be here indefinitely, aged up to 65 - the age of eligibility for NZ Super.

If you are 18 years or over and start a new job from 1 July 2007 , you will be automatically enrolled in KiwiSaver and contributions will start from your first pay. You then have eight weeks from starting to decide if it's right for you.

There are some exceptions to automatic enrolment. You won't be automatically enrolled if you:

Opting Out

If you are automatically enrolled and decide to opt out you can do so from the end of your second week of employment. To opt out, fill in the opt out form in the information pack you will get from your employer.

If you opt out, any contributions already deducted from your pay will be refunded.

Opting In

If you are in a job already you can join directly through a scheme provider or your employer. This also applies to government employees working overseas. Those who are, for example, self-employed, under 18 or on a benefit can join by contacting a KiwiSaver scheme provider directly.

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      McLEAN AND CO MARCH 2007  NEWSLETTER  PAGE 3     

KiwiSaver Schemes

With KiwiSaver you can choose a savings scheme to suit you. There will be a range of scheme providers and several investment types, from conservative risk to growth funds. You can change KiwiSaver schemes but can only belong to one scheme at any time.  If you don't want to choose your own scheme IRD will allocate you a default scheme, or to your employer's preferred scheme, if they have one. You can change this later if you wish.  The Government has named the six default providers they intend to appoint for people who join KiwiSaver without nominating a preferred savings scheme.  They are- ASB, AMP, ING, Mercer, AXA and Tower.

Use KiwiSaver to Help Pay your Mortgage

Some scheme providers could offer a mortgage diversion option. After you've been with a scheme for 12 months you can choose to have up to half of your regular contribution go towards the mortgage on your home. The rest would go to your KiwiSaver account. Mortgage diversion may be available for new and existing mortgages, but can only be used towards the mortgage on your main home (not an investment property or holiday home).Once your mortgage is paid off, all contributions would go to your KiwiSaver account. Employer contributions cannot be diverted to your mortgage.

To find out more about mortgage diversion, talk to your scheme provider.

First Home Deposit Subsidy

KiwiSaver offers a first home deposit subsidy of $1,000 each year of membership in a scheme, up to a maximum of $5,000. To be eligible you must have been saving through a KiwiSaver scheme for at least three years and meet criteria. Income and house price caps will apply.

The first home deposit subsidy is administered by Housing New Zealand and will be available from 2010. To find out more visit the Housing New Zealand website.

Accessing Savings

Generally, you cannot access your savings until you're 65 or have been with KiwiSaver for five years - whichever is later. But there are special circumstances when you may be able to make a withdrawal (excluding the government contribution of $1,000). Special circumstances include:

If you move permanently overseas, you can also withdraw your funds 12 months after you leave. This includes the government kick-start contribution of $1,000.

When your savings mature you can withdraw them in a lump sum. Alternatively, some KiwiSaver schemes may offer other options. If you die before you are 65 your savings will be paid to your estate.

You cannot borrow against your savings.

Role of Employers

Employers' main KiwiSaver responsibilities include:

      McLEAN AND CO MARCH 2007  NEWSLETTER PAGE 4     

Employers can also contribute to their employees' KiwiSaver accounts. These contributions can count towards your minimum contribution of 4%, and are also exempt from specified superannuation contribution withholding tax (SSCWT) up to a cap of whichever is less: your contribution or 4% of your before-tax pay.  Employers already offering registered superannuation schemes can apply to the Government Actuary for an exemption from enrolling new staff.

Employees

Your KiwiSaver Account with your scheme provider is kick-started with a $1,000 tax free contribution from the government. Each pay day your contribution is deducted from your pay for investment through your KiwiSaver account. You can choose to save 4%, or 8% to speed things up. The amount you contribute each pay is based on your before-tax pay. After a year in KiwiSaver you can take a break from saving, called a contributions holiday. Employers can help their employees to save, with tax-free contributions to their KiwiSaver accounts (limits apply-refer above). The amount you save each pay is calculated on your before-tax pay.

If you are automatically enrolled your savings will be deducted from your first pay. If you're already in a job and opt in to KiwiSaver, your savings will start as soon as your employer starts making deductions. Once your contributions have started, Inland Revenue Department will hold them for three months while you decide on your KiwiSaver scheme and investment profile. Your contributions are then paid, with interest, to your KiwiSaver scheme provider for crediting to your KiwiSaver account - along with the $1,000 tax-free government contribution. Inland Revenue Department then regularly passes your contributions to your scheme provider.

Your Regular Savings Amount

If you are self employed, talk to your scheme provider about your contribution rate. If you are an employee, your savings will be 4% of your before-tax sal ary or wages (that means your total sal ary, including bonuses, commission, extra sal ary and overtime). Or, you can contribute 8%. You can also switch between contribution rates.

Lump Sum Payments

You can make lump sum payments whenever you like. Once you've made a lump sum payment you can't withdraw it until your savings mature. You can pay lump sums directly to your scheme provider, or to Inland Revenue Department by:

Temporary Breaks from Saving

After you've been saving with KiwiSaver for 12 months you can apply for a savings break, called a contributions holiday, of between three months and five years. There is no limit to the number of times you can take a contributions holiday. If you suffer financial hardship within the first 12 months of saving, talk to Inland Revenue Department. You may be eligible for an early contributions holiday.

Going on holiday

If you take a trip overseas or in New Zealand , but are still paid by a New Zealand employer, your KiwiSaver contributions will continue unless you request a contributions holiday. If you take a break from saving while you're away you can still make lump sum payments.

      McLEAN AND CO MARCH 2007  NEWSLETTER PAGE 5     

FINANCIAL PLANNING SERVICE

To extend the range of services to our clients we have entered into a business arrangement with Jim Hubble, a certified Financial Planner with 22 years experience in comprehensive financial planning.    Jim is home based and can assist you with your personal or business risk management; he can help you develop a personal financial plan and if required construct a suitable retirement or investment portfolio for you.   

Jim will provide an initial consultation free of charge and with no obligation. To avail yourself of this service all you have to do is complete the enclosed questionnaire entitled  “Business Financial Health Check” and return it to McLean and Co by mail or fax.  (0ur fax. No. is 8700955)

GETTING PAID ON TIME

Here are 12 ways to make sure your invoices are paid on time.

1.       Get invoices out promptly. Send them with the goods, or on the day the service is completed, instead of waiting until the end of the month.

2.       Get agreement on payment terms when you make a sal e. Your customer might negotiate with you, but once you’ve both agreed they should feel obliged to pay on time.

3.       Make new customers fill out a credit application form stating your conditions of trade. It pays to have the wording checked by a lawyer to ensure it covers everything correctly. You can get hold of a sample form quite easily by applying for hire purchase facilities at a large store, but it may not be applicable to your situation or may not be legally watertight so it’s best to seek help.

4.       Make sure the payment terms are spelled out clearly on your invoices (eg ‘Payment due on June 20’ or ‘Payment within 20 calendar days please’). Also include a statement saying: 'Please pay on this invoice as no statement will be sent.'

5.       Change the terms for some of your customers, or for new customers – eg if your payment terms are 14 days from the date of the invoice, reduce them to seven days.

6.       Establish minimum amounts of business a customer must buy before you’ll give them goods or services on credit. This reduces the time and paperwork costs involved in sending out accounts for tiny amounts of money. Alternatively, you could send friendly reminders regarding your terms, pointing out that the credit facility might be cancelled if business continues under the stated minimum.

7.       Follow up promptly when invoices aren't paid by due date. Be polite but firm. If you haven't the time to do this yourself, then appoint someone to do it for you.

8.       Establish the average age of your  Debtors and set yourself the goal of reducing this age by a set target every month. If your customers or clients have been taking advantage of you because of your previous laxity in invoicing, then you may need to re-educate them. Do this politely so you don't offend customers:
"Have you received our invoice, Peter? I'm just checking that you're happy with the goods/services we provided?"
"We've got a new invoicing system going here, because we've been a bit lax in the past. My accountant has set some tough goals for me to meet in reducing the average age of our Accounts Receivable, so if you could settle that invoice promptly I'd be most obliged."

9.       Ask for a deposit (even a small amount) so you do have something. Some people get a deposit that covers their expenses. This tactic at least allows you to stay in business.

10.    Consider offering a discount for prompt payment. Discounts aren’t a good option for low-margin businesses, but can be an option for high-margin operations. You have to work out whether the use of money gained earlier is worth the discount you're offering. Never give the discount if the person has missed the due date for the discount offer (some will try this on).

11.    Consider charging interest on late payments. But remember, this is only enforceable if the customer is aware of this penalty before the deal is struck. Ask a lawyer to write the contract wording for this tactic, and be careful how you apply the rule: it’s easy to lose customers if you’re too inflexible.

12.    Consider selling your  debtors to a finance company. That way, instead of having to wait 30 days or more until an invoice is paid, you receive your money upfront from the finance company which, in turn, will collect the money from your customer. The finance company will of course charge you a commission for this service.  There are risks, though. The finance company might be heavy-handed and antagonise your customers. Have a talk to them first about their collection methods.  

      McLEAN AND CO MARCH 2007  NEWSLETTER PAGE 6     

HOW TO INCREASE YOUR PROFIT

In business, your profits are your reward for your endeavours. In fact, profitability is the only reliable measurement of a business' success. Profits are the very lifeblood of a business. They fuel growth, support the owners, provide for the well being of the staff, and ultimately determine the success or failure of the business. So how can you increase your profits?

Gross Profit

The objective is either to expand sal es income while controlling direct costs, or reduce direct costs to increase gross profit.

You should ensure that:

Warning - Be wary of dropping prices to boost sal es. The increased volume may not be sufficient to cover the reduced gross profit margin

Warning - Before changing your supplier, consider the level of service you are receiving as well as the cost

Overheads

You should aim to keep costs under your control:

You must be aware of your income and expenditure. Proper books and records are essential for monitoring the trends and patterns in your business.

It is not necessary to produce a full profit and loss account every month, rather select the key factors that will best help you understand how you are doing, e.g. chargeable hours, sal es volume, wastage, and materials used. Compare these figures with previous months, and with your targets.  

      McLEAN AND CO MARCH 2007 NEWSLETTER PAGE 7    

 INSURANCE MATTERS- IS YOUR BUSINESS AT RISK?

Without a doubt, proper insurance cover is vital for peace of mind and for the future prosperity of your business. But how do you select the covers that are right for your business, at the right price?

If you’re running a business from home, or freelancing with home as your base, don’t assume that your normal household insurance will meet your business needs – the chances are it almost certainly won’t.  Even so-called ‘home with business cover policies’ will leave you exposed in a number of key areas. One thing to check if you are basing yourself from home- many insurance companies insist on separate insurance for plant items  (that is, your home contents insurance does not provided cover for these) if they are used in business activity.

Or if you’re renting office premises, don’t assume that the landlord’s insurance will cover your business – again, it’s not likely.   

In any event, it makes good sense to keep your business covers separate from any other arrangements – it will make claiming easier should you have to, and as business insurance premiums are tax-deductible, having stand-alone business policies make it easier to account and claim for them.

Whatever insurance cover you have got, check it in detail to see that it matches what you need. . You’ll probably need Fire, Damage and Theft Insurance. But beware, even today, some insurance companies still treat portable business equipment like laptops and mobile phones with great suspicion and won’t cover them at all – never mind that for most of us believe they’re now essential everyday business tools!  And if they do cover them, they’ll sometimes exclude cover for Accidental Damage – the most common claim for this type of equipment.

And if you carry cash you’ll have to consider insurance pertaining to the Carrying of Cash.

Even more importantly, there are some key areas that ordinary policies simply won’t include, like Business Interruption.   A standard fire and natural disaster policy may not  pay for the costs of temporarily re-housing you if something awful like a fire or flood devastates your business premises.   So  what about your business?    Who is going to pay  for suitable business accommodation and all its related costs like heat, light, rates and so on?   Unless you’ve got proper Business Interruption cover, you are.

Any business, no matter how small, needs to consider Liability insurance. Designed to cover the cost of compensation awarded to people who become ill or injured in connection with your business, Liability is a business insurance fundamental.

Public Liability Insurance protects you against the cost of being sued by a member of the public injured in connection with your business.  

Any business that offers advice of any sort to its clients ought to think about Professional Indemnity cover – which means that if you’re sued for having made a mistake, you’re covered for the costs both of defending the case and any award made against you.  In an increasingly litigious society, this is protection well worth having. What many people aren’t aware of is that no matter how “right” you might be in such cases - and even if this is proven in court - the cost of defending any claim, no matter how ludicrous, can run into thousands. With a Professional Indemnity policy in place, it’s taken care of – without a PI policy, you pay.    The problem is, the PI policies most generally available are designed for big business, with multi-million pound levels of cover – and premiums to match. For the smaller business, it’s unaffordable overkill.   The answer is to seek out the smaller, more flexible insurer that recognises that the small business customer wants lower levels of PI cover and lower premiums.

Income Protection Insurance is an important insurance type to consider.  It provides ongoing income if there are breaks if the business owner is unable to work due to health factors, and therefore is important to achieve a continuing income stream. ACC will generally only cover you for an accident, so what about stoppage from business activity due to a health problem that is not an accident?

If you haven’t got the right insurance protection, your business can be vulnerable. Getting reliable advice from experienced, qualified professionals is the key to selecting the insurance that’s right for you, whether through an independent broker or directly from an insurer who can offer flexible, affordable policies.

With the proper protection in place, you can concentrate on steering your business into the future, rather than worrying about  the risks.

      McLEAN AND CO MARCH 2007 NEWSLETTER PAGE 8    

TAX TITBITS

GST DUE DATES AND CHANGES TO GST RETURNS  

GST Return and payment due dates will be changing for taxable periods ending on or after 31 March 2007 .   For most months, GST Return and payment dates will fall on the 28^th (or the next business day) of the month following the end of the Return period, except for the following periods:

·          30 November- the due date remains 15 January

·          31 Marc- the due date will be 7 May  

This is the first stage of aligning the due dates for GST and Provisional Tax payments.  

As part of this alignment IRD will be changing the GST Returns in a two stage process.  The first stage will occur in April 2007 with the removal of the carbon copy of the Return.  

USE OF MONEY INTEREST RATES  

Use of money interest rates charged by IRD increased  from 8 March 2007 .   The rate for tax increased to 14.24%.  The rate for overpaid tax increased to 6.66%.

MOTOR VEHICLE EXPENSES- DEDUCTIBILITY/ KEEPING LOGBOOKS

Motor Vehicle Expenses are generally deductible:

To claim this deduction, adequate business records must be kept.   This particularly applies to motor vehicles which are used partly for business purposes and partly for other purposes.  Where insufficient records are maintained, Inland Revenue Department are required to limit the allowable deductions for all motor vehicle expenses (including depreciation) to a maximum of 25% of the amount claimed.   

A taxpayer need only keep a logbook recording total distances travelled and the reason for business trips, in any consecutive 90 days in a year which reflects average proportion of travel.   The proportion of business use established can be used for a period not exceeding three years.  If actual business use fluctuates to a degree of  20% more (or less) than the previous records, the logbook ceases to apply i.e a new logbook record of three months should be prepared. The logbook can apply to a replacement vehicle if it is representative of the business use of the previous recorded vehicle.

 Motor  Vehicle expenses can only be claimed by self employed persons from their work base.   Travel between a taxpayer’s home and place of business, if his/her business base is not the home, are not claimable for tax purposes.