Year end tax planning checklist

Date: 25th January 2012

1. Consider pre-paying certain expenses


Some expenses can be prepaid in March and claimed as a tax deduction in the year to 31 March 2012, regardless of their amount. These include stationery, postage and courier charges, vehicle registration and road user charges, rates, subscriptions for papers or journals, and even audit and accounting fees!


Other expenses have limits on the extent to which they can be claimed if prepaid. These include rent, consumables, insurance premiums, professional or trade subscriptions, travel and accommodation, advertising, periodic charges and other services. The rules surrounding prepayments are quite complex, so if you’re planning this type of expenditure, please contact us.




2. Trading stock


Trading stock (excluding livestock) must be valued at the lower of cost or realisable value. General adjustments for obsolete stock are not acceptable to Inland Revenue. It’s important therefore to perform a physical stock take at year end and actually dispose of any obsolete lines or alternatively write that stock down to its net realisable value.

Clients with an annual turnover of less than $1.3m can value their closing stock at the opening stock value, but only where closing stock can be reliably estimated to be less than $10,000.



3. Loss offsets and subvention payments


2011 loss offset or subvention elections must be filed with IRD on or before 31 March 2012. Subvention payments relating to the 2011 income year must be paid by 31 March this year. The IRD recently changed its practice of requiring an actual physical payment, and now accepts that a subvention payment can also be made by book entries so long as the payment obligation is discharged.



4. Write off any bad debts


To claim a deduction for a bad debt you need to physically write the debt off in your debtors’ ledger prior to the end of your financial year. For most clients that’s 31 March 2012. There should also be evidence that you have taken reasonable steps to recover the debt prior to writing it off.




5. Employee expenses


Any amounts owing to employees at year end (such as holiday pay, bonuses, long service leave, redundancy payments) can be claimed for tax purposes in the current year as long as they are paid within 63 days of balance date.



6. Review last year’s fixed asset register


The book value of assets can be written off for tax purposes if the asset is no longer in use by the business, the business has no intention of using that asset in the future and the cost of disposing that asset is expected to be greater than the proceeds from its sale. Actually, it’s simpler than that. Scan your asset schedule from last year’s accounts and you’ll probably notice assets that no longer exist (the mobile phone that you dropped in the tide at Christmas time), or simply don’t work.



7. Retentions


Retention on building contracts are generally taxable in the year the contractor becomes legally entitled to receive them. This can result in significant deferral of income.



8. Discount reserves


A deduction for a discount reserve, to cover for example prompt payment discounts, is allowable where debtors are entitled to such a discount. In the first year a deduction of the actual discount percentage is allowed and in subsequent years a calculation is made to maintain the discount reserve at that percentage level. If the credit period offered to customers exceeds 93 days, different rules apply.



9. Repairs and maintenance


General adjustments for repairs and maintenance reserves are not allowed as a tax deduction. Instead it may be worthwhile to undertake any necessary repairs and maintenance on key assets prior to the end of the financial year to ensure a full deduction. Deciding whether expenditure on an asset is deductible as repairs or maintenance or should be capitalised is not always cut and dried, so please contact us if you aren’t sure.




10. Imputation credits and dividends


Companies have until 31 March 2012 to distribute imputation dividends that arose based on the old company tax rate of 30%. From 1 April 2012, imputation credits to be distributed are limited to the equivalent of 28%, in line with the new company tax rate effective from that date.

In addition, imputation credit account balances must not be overdrawn as at 31 March each year. If so, they attract penalties.

We realise the subject for imputation credits is complex for many of our clients. Rest assured we will contact you regarding any necessary dividend and taxation planning before 31 March.



11. Income


Be sure to review any credit notes issued to customers following balance date that can be applied to the previous year, i.e. 31 March 2012. In doing so, you will be entitled to effectively reduce your current year’s taxable income.



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