Are You Paying the Right Amount of Tax?

As we enter a new financial year this April, it’s a great opportunity for business owners to take a step back and evaluate how their business’s financial performance aligns with the provisional tax payments they’ve made so far.

Provisional Tax Payments

By now, provisional taxpayers should have already made their first two instalments to IRD. The third and final instalment is due on 7th May 2025.

2025 provisional tax is calculated based on business results from 2024, with a standard 5% uplift applied to those results.

Increase in Business Performance

If businesses have experienced significant growth compared to last year, income tax obligations may also increase accordingly. While the IRD uses prior year’s earnings to calculate provisional tax, it’s possible that  actual income has exceeded this estimate. In such cases, businesses may owe more tax at the end of the year.

If your business is outperforming expectations, it may be a good idea to adjust your provisional tax payments for the final instalment to avoid a large tax liability at year-end.

Decrease in Business Performance

Alternatively, if businesses have faced challenges or a downturn – perhaps due to market conditions, reduced sales, or other factors – then provisional tax obligations may seem excessive. The IRD’s standard uplift method for provisional tax assumes you’re still on track for the previous year’s profit, which may no longer reflect your current situation.

Cashflow restrictions?

If you’re unable to meet your tax obligations in full by the due dates, it’s essential to take action sooner rather than later. There are options available to help manage payments and prevent unnecessary financial stress. Provisional tax payments may be able to be adjusted to better reflect the current financial situation or set up a payment plan with the IRD if cash flow is tight.

Now is the Perfect Time to Plan

With the financial year just finished and the third provisional tax payment due soon, now is the ideal time to plan ahead. If you'd like to gain a better understanding of your tax position and explore options for adjusting your payments, book a time with us. We’ll help guide you through the process and ensure your tax obligations align with your current financial situation.

Mel Smith

Company Taxation Specialist

Company Dividends: To Declare Or Not declare

Does Your Company Need to Declare a Dividend Before the End of the Financial Year?

For businesses operating under a company structure, one key decision to make before the end of the next financial year (31 March 2025) is whether to declare a dividend. Understanding the role of retained earnings and the tax implications will help you to decide.

What Are Retained Earnings?

Retained earnings represent the net profits a company has kept within the business rather than distributed to shareholders. Over time, this balance may increase, reflecting the company’s profitability and the decisions made about reinvesting profits versus distributing them.

What does the retained earnings balance mean for your company?

Retained earnings can be an important source of funds for reinvestment, expansion, or paying down debt. However, the decision to distribute these funds as a dividend is not always straightforward. In some cases, it might be a strategic move to reward shareholders, while in others, it may be more beneficial to retain the profits within the company for future growth.

Tax Implications of Retained Earnings and Dividends

Before declaring a dividend, it’s critical to consider the tax implications. The tax cost of declaring a company dividend includes a 5% withholding tax calculated on the gross dividend amount. Additionally, dividends paid to individual shareholders may be subject to additional personal tax, depending on the shareholder's income level and tax bracket.

Key Considerations Before Declaring a Dividend

There are several factors to consider when deciding if it’s the right time to declare a dividend:

1. Are you planning to close your company in the next 1-5 years? If you are considering winding up the company soon, declaring a dividend now may be a good strategy to distribute accumulated profits before closure. Looking at this now will increase the options you have to ensure the best personal tax outcome.

   
   

2. Do you expect your income to increase or decrease in the future? If you anticipate a higher income in the future, it might make sense to take a dividend now, when you’re in a lower tax bracket. However, if you expect your income to decrease, you may want to hold off on declaring a dividend, as you could pay less tax in the future.

   
   

3. How will the timing of the dividend payment affect my earnings? The timing of the dividend can have a significant impact on your personal tax situation. If you declare the dividend before the end of the financial year, it will count toward your current year’s income. Alternatively, deferring the dividend until the next financial year could allow you to take advantage of any changes in your tax circumstances.

   
   

4. Will I have to pay more tax if I receive a dividend from my company? Receiving a dividend could result in additional personal income tax, depending on your overall earnings. If you’re already in a high tax bracket, taking a dividend may not be the best option.

   
   

Additional Considerations

• Cash Flow Needs: Ensure that your company has sufficient cash flow to meet the demands of a dividend payment.

• Retained Earnings vs. Future Growth: Consider whether retaining earnings for future investment or expansion is more beneficial to the long-term growth of your business than distributing the profits now.

Conclusion Deciding whether to declare a dividend involves multiple factors, including tax implications, company plans, and personal financial goals. If you're unsure whether declaring a dividend is the best move for your business, book a time with us and we can help guide your decision.

Contact Mel

Company Taxation Specialist

Is Your Business Structure Working For You?

As your business grows and your personal circumstances evolve, it’s important to regularly review your business structure to ensure it’s still aligned with both your financial goals and personal needs. Changes in your lifestyle, family, or long-term plans can impact the way your business should be set up, and reviewing your structure now can help ensure you're getting the best outcome.

Financial Considerations:

• What are your 5-year and 10-year business goals?
• Is your business in a growth phase? -Are you planning to sell or retire in the next 5 years?
• Have you planned for succession, or is the business set up to pass on to the next generation or new owners?
• Do you operate under a single entity or multiple entities?
• Is your structure either too complicated or too simplistic for your needs?
• Is the business structure contributing to unnecessary complexity or administrative costs?
• Are you optimising your business for tax efficiency?

Personal Considerations:

• Has your family income changed (either increased or decreased)?
• Have your family’s needs changed, such as more time for travel or family commitments?
• Are all owners in the business properly compensated with a wage or salary?
• Are you achieving the work-life balance you desire?

At Pulse Accountants, we can help you assess whether your current business structure is positioned to support both your business and personal goals. We offer personalised consultations to ensure your business is optimised for success.

Schedule a time with us today to explore your options!

Contact Mel

Company Taxation Specialist