23rd June, 2023
The end of the financial year is a critical time for all businesses, and it can present a bunch of everyday EOFY problems that you may not have foreseen.
There is much to consider, from balancing the books and organising paperwork to maintaining tax compliance.
Needless to say, it can be stressful.
To help make the process easier, this article will explore ways to solve everyday EOFY problems.
The financial year, also called the tax or fiscal year, is the 12 months covered by a tax return. It tends to run differently than the calendar year and depends on the country you operate in.
If you own a business or are self-employed, the end of financial year (EOFY) is the time to get your bookkeeping in order and prepare to lodge your tax returns. This means looking at profits, expenses, and payroll (if you have employees).
For example, you might have invested in the virtual phone system by Dialpad or business management software by MYOB. Either way, you need to identify which business purchases are tax-deductible.
It’s also an excellent time to prepare for the year ahead and ensure all paperwork and bookkeeping are current.
If you are coming up to your company’s first EOFY, you may not know what to expect. It’s best to get organised in advance, keep up with your bookkeeping, and prepare your tax returns early.
But in business, obstacles will always pop up at the last minute. Here are some of the common EOFY challenges and how to solve them.
If you have outstanding invoices and are coming up to EOFY, it can be challenging to balance your books.
You have two options: chase the invoices or push them into the next financial year. Your decision may depend on your accounting method.
If you use accrual accounting, your payments will be accounted for as they appear, not when they are paid. So as far as tax is concerned, it makes no difference.
If you use cash accounting, look at your taxable income for the last year against the projected income for the year ahead. If you plan on having several taxable expenses next year, you may be happy to wait on those outstanding invoices.
Either way, you must ensure that your books clearly show your income and expenses so your taxable income is accurate.
The most common payroll errors are missed payments (e.g., for overtime), overpayments, and wrong tax codes. As an employer, you must ensure all employee payments are correct.
Payroll errors mean that payroll tax, a company’s taxable employee wages, won’t be worked out properly. It could also mean that your employees’ benefits are affected or they pay the wrong amount of tax.
You may think that overpayments to employees can just be corrected in the next pay. But this isn’t exactly true.
If you have underpaid an employee, you can add it to their next period’s pay. But an employee must give their consent before you take any deductions from their wages.
The best thing you can do with overpayments (or underpayments) is to inform the employee first.
You can then arrange how the payment will be rectified. If you have overpaid them, you must discuss how they will pay it back. With larger amounts, overpayments are usually taken back in instalments.
For tax purposes, you should already have a taxpayer identification number (IRD in New Zealand or TFN in Australia) in the country where your business is based.
However, if you have recently expanded your business into other countries, you must also maintain tax compliance in those regions.
Just because you are paying tax in one country, doesn’t mean you won’t have to pay it in another. So check the business tax laws of other jurisdictions.
For example, you may need to apply for an EIN (Employer Identification Number) if you do business in the US. Similarly, if you set up a business address in the UK, you must register with Companies House.
You may have filed your tax returns without a hitch in previous years. But tax rates or the way you file your taxes could change at any time. Another thing companies usually get caught out by is changes to taxable expenses.
To avoid this, keep track of tax changes in your region and monitor deadlines for tax returns and payments. Last-minute rushes are a common reason for errors in tax returns.
End of financial year is a legal requirement for all companies. But it shouldn’t be a stressful time if you know what challenges you are likely to face.
Get organised in advance and stay on top of your bookkeeping. This gives you more time to file your tax return when the time comes.
If you have any problems or are unsure about filing your tax returns, don’t send them off and hope for the best.
Consider talking to a tax advisor. It can be costly for your business if your EOFY is not completed correctly.