Client Newsletter – Summer 2014/2015

 

Chocolates prove to be the right sweetener

A South Island company sent a box of handmade chocolates as a thank you when they delivered an order.

The company makes furniture.

It's different from its competitors. It doesn't only send the chocolates after it has delivered the goods, but it sends another box a year later and so on.

Is this a good idea? We think it's brilliant. Some people will include a present as part of their after-sales service, but whoever thought of repeating the present several times. This is what happened.

"We got a box of handmade chocolates from …," the customer was saying to someone who also needed some furniture. "Come up and I'll show what we bought." she said. "You can go on the internet and see their full range."

 The friend placed an order worth $5000!

When you've made a good sale, keep in touch with the customer.

You're looking for referrals.

 

Take care when setting remuneration

Rules exist to stop people paying too much salary or profit share to a family member, as a way of paying less tax.

Make sure any income you want to allocate to a relative, working in your business, can be justified.

If you get caught paying amounts you can't justify, IRD can reallocate the income. In most cases the consequence will probably be a Use of Money Interest charge going back three or four years and potentially penalties. For small companies, the company income is increased by the amount deemed excessive and the shareholder is deemed to have received a dividend, with no Imputation credits attached.

A defence against excess remuneration in a partnership or Look Through Company is to have an agreement, which must comply with these rules:

·               Be in writing and signed by all partners.

·               Binding for at least three years.

·               All partners or owners must be over the age of 20 when the contract was signed.

For partnerships, each partner must have control over their share of profits and be liable for their share of losses.

 

Tax Tips

-A couple of IRD don'ts

Here's a couple of don'ts when dealing with IRD.

DON'T try to bend the rules. The boundaries might seem vague to you. We're likely to have a better idea of what you can and can't do, so consult us. For example, don't try putting down a new pair of spectacles as a general expense of the business. Though you might think they are needed to work, the cost is personal. Similarly, if you're employing staff and would prefer they were contractors, make sure IRD would agree with you. Ask us.

DON'T discuss your problems with IRD. The department is not bound by the advice its staff give. You might be dealing with an inexperienced person and get the wrong answer. It happens. IRD would say "If you get the wrong advice it's your fault. We are not here to give tax advice. Relying on IRD advice can protect you from use of money interest, but if it is verbal you will not be able to prove what was said.

 

-Tax law never sleeps

Tax law is evolving at an ever increasing rate.

In addition to regular tax Acts, we have counted seven regular publications the IRD uses to tell us their interpretation of the law. New tax interpretations, which affect small businesses, are coming out constantly.

What should you do?

If you've any doubts about what you're permitted to do, ask us.

If you listen to what others say, don't assume they are right, even if they tell you their accountant allows them to do it. We'll back our advice with written authority, if you need it.

If you start something new or different, ask if there are any tax implications before you begin.

 

A contract is a contract - no ifs or buts

In our culture, once you have entered into a contract, it is not renegotiable. You can't add conditions after the event. 

Here's an example. A customer wanted to buy a new fridge.  As part of the deal he was offered a replacement if the one he purchased went wrong, rusted etc within the first six years.  He paid $150 extra for this. 

The fridge was delivered and that afternoon he found a letter in his mailbox.  It was the invoice and a copy of the details of the special offer for which he had paid the $150.  He looked inside.  There he found a long list of the exceptions, which would not entitle him to the new fridge. These were so extensive as to make the $150 investment almost valueless.

When he ordered the fridge on the phone, he was never told there were any exclusions.  

He rang the supplier. As predicted, he was told he could cancel the contract and have his money back. He refused.  Instead, he insisted the supplier honour his side of the bargain, exactly according to their contract, and that the exclusions should be deleted.  After some wrangling, the retailer gave in.

If you're the seller and you do this, in most cases you'll probably get away with it because not many people know they can contest it. If you're the buyer, stand your ground, if you wish to.

The retailer missed a golden opportunity.  When faced with a situation like this, give in gracefully and quickly (and even better, never renege on a contract in the first place). The customer is much more likely to tell people what a wonderful firm yours is, instead of bad mouthing you and warning people about your business practices.

A contract does not have to be in writing. The extra $150 paid was sufficient evidence of the agreement.

 

Tax Calendar

Due 15 January 2015

 - Second instalment of 2015 provisional tax (for March balance dates except for those who pay provisional tax twice a year)

 - GST for period ended 30 November 2014

Due 7 April 2015

 - 2014 terminal tax

Christmas Hours

We are closing for the Christmas break on Tuesday 23 December 2014 at midday and reopening on Monday 19 January 2015.  We wish you a Merry Christmas and a Happy New Year.

 

Please note: 

The above E-newsletter notes and the related articles on our web site are of a general nature and therefore we urge clients who may be affected by these changes to contact us to discuss your specific circumstances before making any changes or drawing conclusions.
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