Our Kiwi summer will soon be here and with it comes the holiday and festive season. This year has been challenging for business owners and households. It is therefore tempting that the end of year ‘silly’ season can be a time to celebrate, wind down and take the foot off the gas in your business. Before you do, consider your business cashflow and costs over the coming months so you can go through the next few months in good shape.

Christmas parties
The annual Christmas party is a great way to show gratitude to staff and celebrate the efforts from the year. By now party venues are likely to be booked and potentially you have paid a deposit. Plan to pay the restaurant or venue immediately after the event, or within 7 days at the latest. Our local hospitality businesses will certainly appreciate your custom in the lead up to Christmas.

The cost of your Christmas party (team activity, food and drink) is 50% deductible for tax purposes. This means also that you can claim 50% of the GST inclusive amount in your GST return. The remaining 50% (GST inclusive) is a non-deductible entertainment expense.

Staff and Client Gifts
In New Zealand we have a generous culture of showing appreciation to our team and our clients by giving gifts such as hampers, boxes of beers, hams, merchandise, wine and chocolates. These gifts can amount to quite a bit of additional cost to businesses, especially when done at scale. Weigh up whether the value and appreciation received back (including meeting other’s expectations) exceeds the cost to your business.

All food and drink related gifts are 50% tax deductible and you can claim 50% of the GST inclusive cost in your GST return.

Staff bonus & Gift Vouchers
An alternative to a gift is to give staff a Christmas bonus or gift voucher. Your team may really value a gift voucher to help assist with the additional end of year costs rather than a food hamper or similar.

Vouchers can be 100% deductible provided you are within the fringe benefit tax (FBT) rules. At a high level, if you provide a voucher under $300 per employee (per quarter of the year) and your annual staff vouchers (and fringe benefits) are under $22,500 then the voucher is 100% tax deductible to your business. FBT can be tricky area so please give us a call to check on your obligations and the FBT rules.

Vouchers and gift cards do not contain GST. The GST is triggered at the point of sale where the voucher is redeemed. When entering the purchase in your accounts watch out for GST and ensure the transaction is marked exempt from GST.

If you opt to pay your team a bonus this needs to be processed through your payroll system as a one-off pay. The manual calculation for tax deductions is not the same as a regular pay as this income is paid and calculated on top of the annual wage. Please contact our friendly payroll team to calculate the PAYE deductions if you don’t use payroll software or have any questions on paying staff bonuses.

Work in progress and debtors
With the end of year in sight there is a push to complete orders and finish work in progress. This can be a busy period for your team. Be proactive to review your work in progress jobs now and see what work can be invoiced to customers. Aim to get your invoices sent out promptly to ensure your customers load them in for payment before the holiday season. November is the time to get invoices sent to ensure you get paid this year (dependent on your payment terms).

November is also the time to look at your accounts receivable ledger to see whether some customers need to be followed up for payment. Set aside time to call overdue customers to get paid now rather than waiting to check your overdue accounts next year. Many businesses need additional cash in the bank to pay for holiday pay and cover costs during the holiday period until the end of January. Be proactive to protect your cashflow rather than being a ‘bank’ for others.

Cash Outflows December & January
December can be tricky for productivity with many businesses having an annual shutdown starting around Christmas Day to early or mid-January. This means you will pay holiday pay to your team and no or little work can be invoiced to customers during this time. Holiday pay cycles are often calculated at a higher amount than a standard pay. This is because annual leave is calculated at the rate being the higher of the last 52 weeks or last 4 weeks of an employee’s pay. Annual leave calculations are not straight forward, with some large Government departments getting it wrong in recent years. Please contact our payroll team if you have a payroll question or need the annual pay calculations checked.

If you pay your employee their annual leave in December for their January leave the PAYE is due for payment to Inland Revenue by the 20th of January. For cashflow reasons it can be preferable to pay employees on your standard pay cycles to help balance when the cash leaves your bank account. It needs to be writing (ideally in an employment contract) should you opt to pay employees their annual leave in their usual pay cycle rather. The default position is to pay employees leave before they go on leave.

When an employee’s January annual leave is paid in January the PAYE and deductions are due for payment in February. You can process the payruns and upload your banking payments in advance to be paid in the future.

Tax Due in January & February
January and February can be tax payment time for many businesses.

Here is a list of some of the key due dates to remember (some won’t apply to you):

•  15 January 2025 – GST due for period ended 30 Nov 2024
• 15 January 2025 – 2nd instalment of provisional tax for March balance dates
• 20 January 2025 – PAYE due for December 2024
• 7 February 2025 – Income tax due for 2024 year (for those who do not have an extension of time)
• 20 February 2025 – PAYE due for January 2025
• 28 February 2025 – GST due for period ended 31 January 2025
• 28 February 2025 – 2nd provisional tax due for May balance dates

If cashflow is a struggle there are options to help with tax payments including instalment arrangements with Inland Revenue and tax pooling for provisional tax. Please contact us if you need advice or assistance with tax payments. Our team will be available from the 8th of January 2025.

Review your cashflow
It is important to be aware of the cash inflows and outflows in your business during December and January, especially if your business has an annual close-down period. Ensure you have an understanding on the timing of funds coming in and going out of your business, especially where you have approved payments to go out (such as wages, supplier payments) for a future date and regular automatic or loan payments.

Key Takeaways:

• Enjoy celebrating the end of year with your team. Be aware of the rules concerning GST and taxable deductions for entertainment, and gifts.
• Keep your cash conversion cycle as tight as you can by invoicing customers promptly and chasing overdue debtors before the holiday period.
• Be mindful of annual leave and tax payment obligations and payroll timings.
• Take note of your tax due dates and be proactive should you need additional time for payments (even in the short term).
• Plan your cash flows, both inflows and outflows, during December and January to ensure your pre-approved payments are made as planned.

We hope that you enjoy the upcoming summer holiday period. Our team will use the holiday period to refresh and enjoy time with family and friends. Our offices are closed from 20 December 2024 and reopen on 8 January 2025.

Please contact us in person, by phone or email for assistance with paying your staff, tax payments or cash flow planning. We are here to help support your business, either side of the Christmas break 🙂