For many people, the December holidays are fast approaching and is an opportune time to take a break from work, spend time with friends and family, and recharge their batteries. There are a few things to tick off before getting there though, to ensure that you and your business are well placed to restart in the New Year and avoid any nasty surprises.
January can be a challenging time for cashflow.
Not only have you not traded through the summer break therefore not generating income, but you have continued to pay staff and other operational expenses during this time. On top of this, there is Goods and Services Tax (GST), provisional tax, and fringe benefit tax (FBT) payments to make. So, whatever you have in your cash war chest before you stop for your summer break will need to last you until the end of January. Now is the time to make a final push on sales and debtor collection, as just like you, your customers may also be on holiday during that time and will only pay you when they are back in the office. A robust cashflow forecast will help elevate any surprises. Having some cashflow contingency plans in place will also make sure you are prepared to quickly react to any cashflow challenges. Contingencies may include requesting a GST payment instalment plan with the Inland Revenue Department (IRD), exploring tax pooling options to help finance the provisional tax payment, arrange a temporary increase to your overdraft facility with your bank, or defer any non-essential capital or discretionary expenditure until after the New Year.
Dodge the Tax Grinch!
Also, the Christmas period is a good time to say thank you to your staff for their efforts which they have contributed during the year. Whether it be an additional day off given to staff, a Christmas party, team activity, and/or staff gifts, there can be an unintended tax consequence to consider.
Generally, any staff gifts less than $300 per employee per quarter that doesn't total more than $22,500 in unclassified benefits annually for all employees, will not be subject to FBT. The unclassified benefits category also captures offering staff free, subsidised or discounted goods and services, and non-cash redeemable vouchers. Keep an eye on the value of any staff gifts otherwise you will need to pay FBT in January which may add to your cashflow woes.
Is cash king?
Alternatively, you may be considering paying a cash bonus to your staff. Any cash bonuses will be subject to the PAYE rules which means returning this cash bonus as income for your employees through the payroll system.
Some employers may get a bit creative and provide staff with additional leave to say thank you and keep employees engaged with the business. As this additional leave is over and above the standard statutory requirements under the Holidays Act 2003, there is some flexibility as to how an employer may wish to treat this. The employer will need to make it clear to the employee that this is an additional benefit being received by them, it may be on a use it or lose it basis, and it may be paid out at the employee’s ordinary pay rate. It would be good to lay this out in a letter or an agreement with the employee to ensure there is no confusion from either party.
The holiday period can be a good time to gather your thoughts, evaluate what went well, what challenges you faced, and what you want to achieve next year. It would be good to compile these thoughts as you can use this to set the theme for a strategy session with your senior leadership team, updating your business plan, and assisting with some of the assumptions for next year’s annual financial budget.
Please get in touch with our advisory team at Bellingham Wallace if you would like to know more about the above.
Author - Kelvin Sam
