As we step into the new tax year, we see the Inland Revenue Department tightening up on various business sectors when it comes to income tax.
There is a strong focus on ensuring that industries claim their expenses correctly with what Inland Revenue call ‘risk assessments’ being done on industries such as real estate and trades.
A closer eye will be kept on what expenses are being claimed to ensure that they are not being over-claimed and income has not been understated.
Checks on other industries will follow, so it is important that you ensure that what you claim and declare is correct.
A large area that is under the spotlight is vehicle expenses. There is an increasing amount of private expenditure being claimed without a logbook being kept. A logbook is essential in determining the percentage claimable for business and should be recompleted, and the percentage of business usage updated, every three years. If Inland Revenue believe there is reason to review the expenditure, you may be required to provide your logbook as evidence of claim ability, so make sure this is up to date. If Inland Revenue undertakes a review, and you don’t have a logbook, the car expense claim will be limited to 25 percent of what you have claimed.
It is essential to keep record of all expenditure, including bank statements and receipts and invoices. A reminder that these records need to be held for seven years and need to back up all that expenses that you have claimed.
As well as ensuring the expenses are correct, Inland Revenue is clamping down on the understating of your income. This is where certain industries come under the spotlight above others, and Inland Revenue is keeping a close eye on cash income.
It is okay to receive payment in cash, as long as it is declared at the end of the year. If your business deals in cash, which many do, make sure you keep records of all your incomings. All cash should be banked through a bank account. If cash is not banked and used for business purposes, full records should be kept.
The past few years have put a lot for strain on businesses (as well as everyday living) and many people are just trying to get by.
If you have any doubts or questions about how to correctly calculate your income or expenditure, contact your accountant or tax agent or visit the Inland Revenue website where they have put together various tools to help business and business people get it right.