22nd February, 2022
The challenges of running a business are often all-consuming, but if there’s one thing you can’t afford to let out of your sight, it’s taxes. Here’s why.
Getting to grips with the admin commonly associated with the ‘back office’ side of a business isn’t for everyone. And that’s fair enough, too.
Dealing with the myriad requirements and complexities of local (or in some cases, multiple) taxation law is probably the hardest part, and that’s why many small business owners and entrepreneurs seek guidance from qualified experts early on in their business journey.
For those that opt to ‘go it alone’, they take on the responsibilities of bookkeeper and accountant on top of the other ‘hats’ they’ve intended to wear, increasing the likelihood that an IRD return is missed, or GST payments aren’t met.
The resulting penalties can quickly cripple a business that doesn’t have sufficient cash reserves to pay down its dues in short order and this is the worst kind of ‘bad busy’.
Here are the seven reasons why staying ‘good busy’ means avoiding this situation at all costs.
Eventually, unless you just give up completely, the returns and payments will have to be dealt with.
But by then, you will have been bombarded by countless expensive penalties and late payment interest.
Getting finance from the IRD by not submitting your returns or making the necessary payments is in fact a very expensive way to borrow money.
If you really do get behind with your IRD payments and you lack cash, assets or borrowing capacity, it is possible to apply to the IRD to have your tax debt written off.
However, the IRD will not agree to any write off of tax debt unless your tax returns of all types are fully up-to-date.
You can understand their logic; they need to know how much they are losing before they agree to the write-off.
The first thing a bank or other lender asks for these days is a copy of your tax returns and confirmation that all IRD returns are up-to-date,
This is particularly true today, with recent changes to lending rules creating a greater level of scrutiny from the lenders, resulting in them taking a ‘fine-toothed comb’ approach to identifying any possible reasons you might not be able to afford loan repayments.
If you want to sell your business, being behind with your returns or payments to the IRD does not exactly paint a picture of quiet efficiency and adequate organisation.
It may also indicate to the prospective buyer that there are other aspects of your business which are deficient and could well be a real deal killer to those well-advised and/or experienced in the world of business.
It’s hard to see how you could prepare the annual financial statements for a business which is in arrears with its returns to the IRD.
Annual financial statements are very useful for a number of reasons, including determining whether you are actually making a decent profit, or for getting finance.
If you are up-to-date with your returns to the IRD but not your payments, it will take your accountant longer to prepare the accounts so your accountancy fees will undoubtedly be higher.
Annual financial accounts are also essential for carrying out any type of financial planning or future budgeting which is essential for any meaningful business.
Are your overheads under control? Are you maintaining your gross profit margin? When was the last time you increased your prices? What about the sales mix of your products or services?
The problem just builds into an impossible situation. It’s difficult enough to pay the money to the IRD for current returns, let alone prior returns, or even worse, payments for returns stretching back many years.
For those individuals who find themselves five or more years in arrears on Income Tax returns or 20-plus GST returns behind, getting back on track becomes an overwhelming effort that can put a strain on life and livelihood.
All in all, getting behind on IRD returns and payments is a huge mistake, and it’s a situation you’d much rather avoid.
And if you do make an error – no matter how big it seems – seeking qualified, independent guidance should always be your first port of call.
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The information provided in this article is general in nature and only applies in New Zealand. MYOB recommends engaging a qualified tax professional for advice specific to your situation. Find an advisor here.