As we roll into a new financial year and start to wrap up the data for the 2021 financial year, it is prudent to look at the changes to compliance that may affect your financial reporting.
The Covid pandemic has created extraordinary economic circumstances, and there is still uncertainty around the future and the impact of this on the economy. The Government has rolled out a number of changes that will affect businesses when they are completing their accounts and determining their tax position.
Temporary Loss Carry Back Scheme
Businesses that are expecting to make a loss in either the 2019-2020 or 2020-2021 year can estimate the loss and use it to offset profits in the past year. That means that they can carry back the loss for one year. Therefore, the IRD could refund some tax paid for the past in-profit year. If at 31st March 2020 you were in-profit and paid tax, and once the loss for 2021 is carried back, you are then in a loss position and can have tax to refunded from the IRD. This allows businesses to cash out some, or part of, their losses.
The Wage Subsidy was introduced by the Government as a payment to support self-employed people and employers, to continue to pay employees and protect jobs for businesses affected by Covid lockdowns and alert level changes. The subsidy has been extended over 2020 with the most recent extension in March 2021.
It is important to note that the receipt of the subsidy is not income to your business, however on the flip side, the equivalent amount of wages are non-deductible. There is a nil impact on your bottom line. The wage subsidy is just a pass through of Government funding to your employees – not a part of your income earning business. Therefore, when you are looking at your profit pre-tax, remember to discount both the receipt and the payment.
If you are worried that you have taken the subsidy when it was not required, please feel free to talk to us about this. The subsidy process is transparent, and the recipients of the subsidy are listed for all to see. If you have taken it in error, you should pay it back before the Government comes knocking on your door!
Depreciation on Commercial Buildings
For the year ended 31st March 2021 onwards, the IRD changed depreciation rules on commercial buildings. Previously, commercial buildings could not be depreciated (after tax changes in 2011). The new depreciation rates are either 2% diminishing value or 1.5% straight line. Residential buildings are not included – and that is because the IRD considers that they depreciate at a much slower rate. These changes are designed to help the economy recover faster by encouraging investment in new and existing buildings.
Increase in low value asset thresholds
The Government has also increased the low value asset threshold. Prior to 16th March 2020, all assets purchased over $500 had to be capitalised. However, changes were brought in, so that from 17th March 2020 to 16th March 2021, any asset purchased under $5,000 can be expensed. From 17th March 2021, the threshold falls to $1,000 ongoing. This change was made to encourage investment in business and assets.
Working for Families, Paid Parental Leave, In Work Tax Credits, Family Tax Credits & Income Relief Payments
There have been some changes to the legislation around the above topics. If you require more information on any of these please contact me.