3 Simple Tax Planning Strategies

Planning for and paying your tax is not as straightforward as you might think as there are a number of different ways to ensure that your business is using the most optimal aspects of the tax system.

There are a number of strategies that you can use in order to manage your tax and minimise the amount that you have to pay. The reason that there are various options available is because the Inland Revenue is aware that there is no ‘one size fits all’ scheme that can work.

Define Your Business Correctly

How you define your business will affect the tax rates that you pay. This is because there are a number of different ways to trade as a business in the form of a company, a sole trader or as a trust.

So take a careful look at how you trade and made sure that your business definition matches with the one defined by the Inland Revenue that you are being taxed against. You should carry out this comparison as early as you can in the development of your business. This is because changing your business structure after a company has been fully established can incur a number of problems.  Not only can altering the structure of your business be an expensive venture, it can also be risky, particularly if there are additional tax benefits that will be claimed.

You should also remember that tax rates change and while one particular option may be more attractive currently, it may change in the future and so you should choose an honest representation of your business in order to ensure that the right structure is assigned at the beginning.

There are also other factors that will affect your tax payments that include owning shares, the performances of other business within a group depending on the level of common shareholding.

Best Way To Fund Your Tax

For many companies the provisional tax rules present problems. This is because they are based on the end of financial year profits, and there are a number of provisional tax dates during the year when payments have to be made in order to fully cover the end of year profit. While it may be thought that there wouldn’t be an issue making payments at the end of the financial year in order to cover any additional profit not already covered, the way the rules work mean that a company is charged interest by the Inland Revenue if the provisional date tax does not cover the total amount of tax that is owed at the end of the year.

While it may not feel like the best option, the interest rate that is charged is 8.40% per annum, which represents low interest rate unsecured finance from the Inland Revenue Department.

Goods And Services Tax and Tax Periods

Much of the success of a business is the ability to get the timing right so that positive cash flow is maintained. If this is not achieved it can be the reason for the demise of a company.  Registering for GST requires decisions to be made on the filing frequency and the accounting basis that will be used for the GST returns.

Consider carefully how your business operates and use this information to register for a sensible option. For example, a business that registers on a payments basis is likely to have significant lead times on recovery of debts from the point of invoicing to payment made.

You should also be aware that there are different compliance levels related to each registration type and so should be aware of the differences between registering on an invoice basis and a payments basis, particularly in terms of the software that is required to be used for each one.

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