Business Results Group Articles Archive:

Get the Staff Hiring Right

Staff (1)

 

If your business is doing well and you can no longer do it all yourself, you need to hire staff. That's when the real work begins.

Hiring the right staff is what small businesses say is the one most difficult task – and one which can so often lead to problems. Potential staff might look good on paper and in person, and interview well, but you'll only know whether you've made the right decision when they begin to do the work.

Here are a few tips to help you get the right staff.

Do the checks. Too many companies in New Zealand don't check to see whether qualifications are genuine, or follow up with previous employers. The experience of those employers could be critical to your decisions. Three key questions to ask have to be:

Why did the employee leave?

Did you have any specific or general problems with their work, their behaviour or their attitude?

And perhaps most crucial, would you hire them again?

Identify the role and aim at getting the person with the right attitude (first and foremost) and skills for the job. Don't be side tracked by a good candidate who's not suited to the role you need to be filled.

Consider experience, but also learning ability. Your company will always operate differently than someone else’s, so a staff member's ability to learn how you do things is important. They are also more likely to use their initiative to suggest improvements in work practices.

Include someone you trust in your interview team. If you can afford to hire a professional recruiter, you should do so. There are self-employed individuals, if you can find them, who would be happy to receive a fee.

As a business owner, your focus is going to be different than theirs. You will ultimately make the decision, but another person's perspective can often provide insights you might never think of.

Whatever your business, if you're expanding it means a new staff member is going to be part of a team. The big companies always look for people who are able to work in a team. They also look for good written communication skills and an ability to solve problems. Whether you're hiring waiting staff for a cafe or an IT specialist, these qualities will matter.

Tax is not for the DIYers

Female

The following story indicates the folly of trying to prepare your own tax returns.

It involves a taxpayer who bought three properties. He paid costs for his business and his rental, plus personal costs, from personal credit cards and funds in a revolving credit account. He also put all his income into the revolving credit account.

He mixed up his personal, his business and his rental income and expenditure.

When it came to a claim for interest on money borrowed, he was unable to identify precisely how much had been borrowed to finance the rentals. As he couldn’t prove the amount, Inland Revenue allowed none of the expense.

Believe it or not, in spite of his family trust owning one of the properties, he returned the rental income as his own income. To make things even worse he bought furniture, carpet, stove and other household items and couldn’t show that these were actually bought for the rental properties.

Inland Revenue had a field day. Don’t let this happen to you. Let us deal with tax issues so you can claim all your entitlements and be compliant with tax laws.

Don't get caught by Phishers

Phishing

The dictionaries can hardly keep up with the words coming from new technology. One of them is phishing, which sounds like fun but is far from it.

Phishing is a scam that tries to trick you into providing personal online information such as passwords, bank details and payments to legitimate sources. Once the “phishers” have your details, they can steal your money, or even use your identity for their own gain – and your loss.

Knowing how to spot a phishing expedition online will help ensure you're not caught.

Phishing is usually activated through a phony email. It often looks like it's coming from your bank or other trusted sources. It often suggests you need to reactivate your account, your account will be closed, or you need to claim a prize. With logos and corporate-style wording, it looks legitimate.

So how can you tell if it is?

Firstly, don't trust emails from someone you don't know. If it's legitimate and important, they'll ring you.

Banks rarely ask you to verify anything online.

Many phishers don’t have English as a first language, so look for poor spelling and grammar, and the quality of logos and other images.

Look at the email address it's coming from. It might have a bank name in it, but often along with something else, for example, anzguest, or bnzinfo.

If it's not addressed to you personally, ignore it.

If you're asked to click to a website, beware. Look for https in the url – the 's' means it's secure. Just http is not secure, so don't go there. However, even https doesn't guarantee authenticity, so remain wary.

If you do feel you've been caught because you've clicked through and provided details in good faith, notify the appropriate organisation, such as your bank, or shut down your browser, restart and change your relevant password immediately.

Paid Parental Leave updates

Parental

1 July 2018, the paid parental leave entitlement increases from 18 weeks to 22 weeks. This is expected to increase to 26 weeks from 1 July 2020.

Self-employed parents (including farmers) are eligible for paid parental leave under the Parental Leave and Employment Protection Act 1987. Paid parental leave applies to both births and adoptions.

The amount of paid parental leave payments will equal the applicant’s average weekly income. Currently, this is up to a maximum weekly payment of $538.55 per week before tax. This equates to an annualised income of $28,004.

Taxpayers who make a loss or earn less than the minimum wage are entitled to receive payments for 10 hours a week at the minimum adult wage ($157.50 based on minimum wages of $15.75/hour but will increase to $16.50 from 1 April 2018).

Herd Sale & Purchases - Which Year Should it Fall In?

Cow

For May balance date farmers who are looking to buy or sell herds, when is the best time for the transaction to occur – in May 2018 (2018 income year), or June 2018 (2019 income year)?

This is a balancing issue, with both parties trying to get the best tax planning opportunities and timing of tax payments. Depending on the negotiating position, one party may be in a stronger position that the other, and will have a greater ability to influence the transaction date. In many cases the date is chosen by the lawyer or real estate agent. We need to be reviewing the sales and purchase agreement.

Sale of Herd
For those looking to sell, having the sale of the herd occur in June 2018 has the sale fall into the 2019 income year, allowing tax to be deferred by another year. The ability to defer tax helps the cashflow and provides greater opportunities to manage the timing and the amount of tax payable.

The earlier that an accountant knows of a pending herd sale, the more opportunities there are to utilise livestock valuation elections, deferred fertiliser, losses carried forward and income equalisation deposits.

If the sale occurs in the 2018 year and the taxpayer has RIT of less than $60,000, the additional tax from the sale is payable as terminal tax on 7 April 2019. The third and final 2018 provisional tax payment can be made based on the 2017 income plus 5% uplift. The livestock sale increases the 2018 taxable income, increasing the 2019 provisional tax payments. Thought will need to be given to clients using AIM as once elected into the scheme there is no easy exit.

If the sale is delayed until June 2018, the sale falls into the 2019 income year. The 2019 provisional tax payments are based on the 2018 income with 5% uplift, meaning that the additional tax from the herd sale isn’t due until 7 April 2020 (assuming RIT is less than $60,000).

Where possible, farmers should look to only sell the mature livestock and that they keep the R1 heifers on for another year. Not only will their heifers’ sales price increase, but any tax on their sale is also deferred by an additional year. This works if the farmer still owns land to rear them on, but it may also work if cheap grazing can be found.

If the vendor’s balance date and GST periods are aligned, the GST from the sale of the herd will also be delayed. For a client on a two-monthly payments basis GST, the GST will be payable on 28 August rather than the earlier 28 June.

Purchasing a Herd
The deductibility of the livestock purchase is generally offset by the increase value of livestock on hand. This reduces the tax impact of the settlement date for the purchaser.

Where a client has their livestock on herd scheme, there is an opportunity to shift off the herd scheme by selling the existing herd in May and purchasing the new herd in June. As there will be only limited stock on hand at balance date, the herd scheme base numbers will drop. As the new livestock are purchased in the following income year, new livestock elections can be made.

Where the GST aligns with balance date, a purchase of a herd in May will result in a GST input claim in the May return (probable June refund). If the purchase occurs in June, the transaction falls into the June/July return for an August refund. A one day delay in the sale from 31 May 2018 to 1 June 2018 can cause a two month delay in claiming the GST refund.

Reproduced from the Busing Russell Farm Accounting NZ Newsletter

Farming - ACC & Passive Income

Acc

For farming clients who are in the process of moving away from the day-to-day farming activities, the question of whether they are still actively farming comes up annually when the ACC invoice arrives.

This tends to affect older clients who may have employed a 50/50 sharemilker, a farm manager or are leasing out their farm. The client is no longer actively farming - they are no longer milking, shearing, doing stock work or the general day to day farm activities. But is their involvement in the business still enough for their income to be subject to ACC premiums?

It can create particularly strong feelings when the taxpayer is a superannuant. They have to pay ACC levies on their business income but will not receive any loss of income compensation from ACC if injured.

ACC considers passive income to be income which continues to generate without there being any need to put in physical exertions or manage the farm on a day-to-day basis.

In short, passive income is income which is not affected by the client’s incapacity.

Legislation requires ACC to consider any income dependent on personal exertions to be liable for ACC levies. Any income generated from either physical or non-physical activity (mental) contributions to the day-to-day running of the business is liable for ACC.

For a farmer that has ceased to do physical day-to-day farm work, the income may still be subject to ACC due to the farmer’s mental exertion involved in the management, administration and planning of the business.

The key issue is the difference between how ACC and many farmers define the active/passive distinction. For many of our farming clients, active farming involvement is seen as hands-on farm work, while the administrative running of the business is perceived to be a passive role.

In reality, the administrative/management role is still active, but could possibly be subject to ACC levies at a lower levy rate.

What is Considered Passive Income?
Whether an ‘ex-farmer’s’ income from the land is considered passive will depend on the specific facts of their situation. What is their involvement in the farm, what contracts exist, and who is operating the farm. There needs to be proof that an individual has no physical or mental involvement in the farming activity to ensure that income is passive.

If farm land is leased out for a long-term period with fixed terms and conditions, and there is no expectation of either management or physical function in managing the lease, then it is likely to be passive income.

However, where the lease is to be renewed periodically with new terms and conditions, and it is required to be regularly monitored, the same activity can come under the scope of active income.

Other factors considered by the ACC as indicators of active/passive involvement:

• Taxpayer’s age (older is more likely passive)
• Residential location (living in town more likely passive)
• Taxpayer’s health (are they physically able to be actively involved)
• Taxpayer’s historical role in the business

What can be problematic is when an older farmer, who receives passive income, helps out on-farm or fills in as relief labour. If the farmer then gets injured, it may raise questions on the legitimacy of the passive nature of previous years’ income.

What To Do
As the financial statements and tax returns are prepared, there is an opportunity to review the client’s situation and their active/passive role in the business. It is easier to ensure that ACC invoices are correct at this stage, rather than after the ACC invoice has been received by the client. As business and taxpayers change, we should review this regularly and keep good file notes.

ACC levy rates need to be reviewed to ensure that the business industry description is appropriate. If the farm owner is no longer actively involved in the day-to-day farming but still has a mental exertion involvement, then the appropriate ACC category could be “holder investor farms and livestock”. For a shareholder employee or self-employed person, the levy rate is $0.77 per $100 dollars versus $2.51 for dairy farming or $2.49 for sheep/beef farming.

Are all individuals actively or passively involved in the business? In some partnerships, one partner may be active and the other passive. If so, only the active person’s income should be subject to ACC.
ACC CoverPlus Extra allows taxpayers the ability to have an agreed level of ACC cover. This can provide those farmers who are still somewhat actively involved in the farming business a minimum level of cover while reducing the ACC levy.

Farming companies have the ability to allocate income via a dividend (passive) rather than shareholder salaries (active). This can be useful when the farming business has greater than usual income from one-off activity such as timber sales, depreciation recovered or sale of livestock. However, the IRD generally expect someone in the business to be deriving an active income at an appropriate fair market value, such as a PAYE or shareholder salary.

For taxpayers with in-fund current accounts or loans to the business, interest on these balances can be charged to the business. This will be passive income to the individuals, but will expose the business to RWT if interest paid exceeds $5,000 per annum. As mentioned above, the IRD will generally require one of the individuals in the business to be deriving active income at an appropriate fair market value.

Correction to ACC Invoices
To get an ACC invoice corrected when passive income is incorrectly returned as active income in a tax return, now requires correspondence with the IRD. Previously, this could be sorted with a phone call to the ACC helpdesk. Now the correction requires written correspondence with the IRD to get the tax return corrected. Once corrected, the IRD will then pass on the amended income details to ACC, who will then issue an amended levy invoice. A call needs to be made to ACC to advise them of the changes to the tax returns to avoid recovery proceeding for the unpaid ACC levies. Clients require us to be actively involved in managing this process.

Reproduced from the Busing Russell Farm Accounting NZ Newsletter

Accounting Information Method (AIM)

Income Tax

AIM could be helpful

If you have seasonal income or will pay more than $60,000 of tax in the year, the new Accounting Income Method (AIM) could be good for you.

From 1 April 2018 you're going to be offered another opportunity to avoid the interest charge on the shortfall of your provisional tax. If you use accounting software approved by Inland Revenue, you may be able to calculate and pay your tax on a two-monthly basis in tandem with GST. Provisional tax will no longer apply to you. If you don’t pay GST, you can still use AIM.

You will need to make several adjustments, but these are not difficult. Those who wish to use the new system will need to notify Inland Revenue before the beginning of the financial year for which they wish to use it. We recommend checking with us, first.

The following adjustments will be required for each return:

  • Private expenditure included in business payments.
  • The stock adjustment is perfectly easy. We won’t detail it here.
  • If you're on a payments basis or not registered for GST, you don’t need to adjust for money owing to you and money owing by you (accounts receivable and accounts payable).
  • If you make losses, these are adjusted period by period so you don’t have to pay any income tax until they are used up.
  • You can choose whether or not to adjust for depreciation, but you must conform with the IRD depreciation rules if you decide to claim a deduction for depreciation.
  • There are special rules for livestock.