The financial impact that COVID-19 has had and will continue to have on businesses is only just unfolding.  While some businesses will find new opportunities in the current climate, there will be a significant number who will struggle.  Those businesses that come out of this wounded but still alive will have taken early action through contingency planning and scenario analysis and have communicated to and consulted with key stakeholders including staff, customers, suppliers, lenders and shareholders.  In this time of uncertainty, we want to reassure you that we will do our best to support both you and your business and provide you with the advice you need to make sure you are making the right financial decisions to ensure you address the immediate financial impacts on your business and ensure we help to facilitate your long-term business success.

UPDATE:  The information in this article was based on information available as at the date of publication.  There have been numerous updates from Government in relation to COVID-19 since.

 

What the Government’s response to COVID-19 means for your business

 

The Government has announced a Wage Subsidy and Leave Payment for businesses impacted by COVID-19 and have released a Business Continuity Package with proposals relating to tax which will help businesses cope with COVID-19 that are anticipated to be fast-tracked into legislation prior to 1 April 2020.  Further to this, a Business Finance Guarantee Scheme will be implemented for small and medium-sized businesses to protect jobs and support the economy through this time and banks have announced a major financial support package for home owners and businesses affected.

UPDATE:  Since the date of publication, updates have been made to the criteria for applying for the Wage Subsidy, the Leave Payment can no longer be applied for and The COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (No 8 of 2020) received the Royal assent on 25 March 2020.

As your trusted business advisors, we want to help you interpret what these mean for you if your business has been or will be negatively impacted by COVID-19.

 

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Wage Subsidy

 

UPDATE: Since the date of publication, various amendments have been made to the criteria for applying for the Wage Subsidy.  Refer to the declaration required by Work and Income via the link below for the most up to date criteria:

https://www.workandincome.govt.nz/online-services/covid-19/declaration-wage-subsidy.html

Quick facts:

• Your business must be registered and operating in New Zealand.
• Your employees must legally work in New Zealand.
• This may be available if you are an employer, contractor, sole trader or self-employed.
• The general rule is that your business must have experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared with the same month last year and the drop must relate to COVID-19.  However, there are specific allowances for new businesses (those that have been in business less than a year) and high-growth firms (firms that have had significant increase in revenue) who can demonstrate the revenue loss assessment against a similar time period, for example a 30% loss of income, attributable to COVID-19, in March 2020 compared to January 2020.  Further to this, self-employed people with variable monthly incomes are also eligible if they can demonstrate the revenue loss assessment against the previous year’s monthly average.
• You must have taken active steps to mitigate the impact of COVID-19.
• You must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period.
• It is paid in a lump sum covering 12 weeks per employee at a flat rate of $585.80 for people working 20 hours a week or more and $350.00 a week for people working less than 20 hours a week.
• The subsidy is for wages only.

 

Our advice:

If your business has been significantly impacted by COVID-19, apply for a wage subsidy via these links:

Employer application  https://services.workandincome.govt.nz/ess/employer_applications/new

Self-employed application  https://services.workandincome.govt.nz/ess/trader_applications/new

Should you be contacted for further information to support your application, for example to prove a drop in revenue, please contact us so that we can work with you to provide prior year financial information or to show that your budgeted figures have been impacted.  We would suggest getting your end of financial year information to us in a timely manner so that should you need these records for the year ended 31 March 2020 urgently, we can provide these on request.

You should also be keeping track of when customers are cancelling due to COVID-19 so that should you be required to provide supporting information, you have a record to provide which shows cancelled jobs and the value of lost revenue to prove predicted revenue.  If you need help with forecasting, please get in touch with us.

 

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Leave Payment

 

UPDATE:  The Leave Payment can no longer be applied for since the date this article was published.

Quick facts:

• This may be available if you are an employer, contractor, sole trader or are self-employed.
• It covers full-time, part-time and casual employees as well as contractors legally working in New Zealand who need to self-isolate in line with Ministry of Health Guidelines and have registered as needing to self-isolate with Healthline, cannot work from home and their self-isolation is not because they left New Zealand since the travel restrictions on 16 march 2020 and have since returned, or who cannot work because they have been diagnosed with COVID-19 or cannot work because they are caring for dependents who are required to self-isolate or who are sick with COVID-19.
• It is paid at a flat rate of $585.80 to a person working 20 hours or more per week and $350.00 to a person working less than 20 hours per week.
• It can be received for 14 days if an employee is required to self-isolate, or for the whole period an employee is sick but it must be applied for every 14 days.
• It can be applied for more than once.
• Self-employed people are eligible only if they are legally working in New Zealand and are usually earning at least minimum wage when they decide to self-isolate, were expecting to work for the period of self-isolation and cannot draw an income for the period of self-isolation.
• The payment must be passed on by employers to employees in full.

 

Our advice:

Do what you can to make sure your employees can work remotely but where this is not possible, give your employees warning early on that should self-isolation be required, it is by agreement that they can use their standard leave entitlements and let them know what the parameters of the COVID-19 leave payment are should this be necessary.

 

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 Business Continuity Package

 

UPDATE:  The COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (No 8 of 2020) received the Royal assent on 25 March 2020, subsequent to the date this article was published.

 

Proposal 1: Reintroduction of depreciation on commercial and industrial buildings

Quick facts:

• Depreciation deductions for new and existing industrial and commercial buildings, including hotels and motels, is looking to be reintroduced from the start of the 2021 income tax year at a rate of 2% Diminishing Value.

 

Our advice:

Businesses may be able to start reducing their provisional tax payments for the 2020-21 income tax year immediately and should be in discussion with us to determine the effects of this on upcoming provisional tax payments if the Bill containing this measure is passed.  Depreciation on commercial and industrial buildings increases expenses and therefore decreases taxable earnings.  Reduced provisional tax payments would help business owners with cash flow in the near-term.

The broader economic effect this move would have is that commercial and industrial property investment could become a more desirable investment vehicle as the cost of such premises over time is reduced.  There could become an opportunity to be realised here and if you are in a position where this could be a consideration, you should be talking to us to forecast what this looks like for you and your business.  Further to this, increased business investment improves business confidence and this would have a flow on effect to bringing customers back through your doors.

 

Proposal 2:  Immediate deductions for low-value assets

Quick facts:

• The threshold for low-value assets could be increased temporarily from $500 to $5,000 for a year ie. The 2020-2021 income tax year.
• The threshold for low-value assets could be increased permanently to $1,000 from the 2021-2022 income tax year onwards.

 

Our advice:

This proposal would allow the full cost of more low-value assets to be deducted in the year in which they are purchased, rather than spread the cost of the asset over its life.  More deductions could result in lower taxable income in the short-term and therefore you may need to revisit your provisional tax payment obligations with us if this would have a material impact on your bottom line.

The aim of this proposal is to stimulate business purchases so that we keep each other in business.  There is an opportunity for businesses to revisit their product pricing in order to appeal to this new threshold for savvy business owners looking to take advantage of this proposed change.

 

Proposal 3:  Fewer small businesses having to pay provisional tax

Quick facts:

• The provisional tax threshold is looking to be increased from $2,500 to $5,000 for the 2020-2021 income tax year.

 

Our advice:

Raising this threshold would mean you may not be required to pay provisional tax during the 2020-2021 income tax year and instead, if you have a 31 March balance date, your income tax would not fall due until 7^th February 2022 for the year ended 31 March 2021.  This will help short-term cash flow.  If you anticipate your income dropping significantly for the 2021 income tax year, you should speak to us about the impact on your provisional tax payment obligations.  The impacts of COVID-19 will be different on each business and we encourage you to explore your options with us so that we can help guide you to ensure your business continues to thrive in the long-term.

 

Proposal 4:  Writing off interest on some late payment of tax

Quick facts:

• The Commissioner of Inland Revenue would be given the power to waive Use of Money Interest on late tax payments for taxpayers who have their ability to pay their tax on time significantly adversely affected by COVID-19.
• This would apply to interest on tax payments due on or after 14 February 2020.
• This power would be held by the Commissioner for two years.

 

Our advice:

Should this proposal be passed, if your business is significantly financially impacted by COVID-19 and you are unable to pay your taxes, then you should speak to us so that we can present your case to the Inland Revenue on your behalf as your tax agents.

 

Additional assistance

 

The package also included additional measures to help support our most vulnerable:

• A $25 permanent increase to main benefits.
• Doubling of the Winter Energy Payment.
• Removal of the hours test from the In-Work Tax Credit from 1 July 2020 aimed at assisting those working variable hours.

 

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Business Finance Guarantee Scheme

Quick facts:

• Loans of up to $500,000 will be made available for SMEs with a turnover between $250,000 and $80 million per annum.
• Loans will be for a maximum of three years.
• Loans will be provided by banks at competitive, transparent rates.
• Further details still to be announced.

 

Our advice:

This may be a viable option to maintain cash flow for businesses impacted by COVID-19.  The important fact to understand is that this money will need to be paid back so businesses will need to make sure they factor this into their cash flow forecasting projections.

 

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Financial Support Package

Quick facts:

• The package includes a six month principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected by the economic disruption from COVID-19.
• Specific details available through your retail bank.

 

Our advice:

Check your retail bank’s website for specific financing options that are available to you during this time and discuss with us the most appropriate course of action to take for your business should you need to apply for these measures to ensure your long-term business success.

 

Actions business owners can take

 

Strategic planning, debt control, budgeting, cash flow forecasting, tax planning, process optimisation and your online business presence will be vital over the coming months as your business navigates unchartered waters.

As we see it, some of the key action points that business owners need to consider are:

• Strategic planning – Map out worse-case scenarios for your business. For example, is there a potential that customers may cancel your services or choose to forgo purchasing products in the current economic climate of uncertainty?  What percentage of lost revenue can your business withstand with its current cash flow obligations?  What expenses can you cut?  Do you need to look at alternative channels for sourcing goods or materials required to continue your business if your current suppliers and their businesses are disrupted?  If your customers cannot pay you, what will be the flow on effect for your ability to pay your suppliers or staff?  How will this reduce your ability to meet your personal financial commitments?  Will you need to consider redundancies for your business?  What new opportunities could COVID-19 create for your business?  Is COVID-19 a catalyst to accelerate the uptake in technology or create new service lines?
• Budgeting – Your 2020 budgets may have to be completely restated to adjust for the change in circumstances. Budgets should be realistic and in light of the current climate, will need to be conservative.
• Cash Flow Forecasting – If you expect your revenue to drop, will you be able to meet your short and long-term financial commitments? A cash flow forecast will help you make decisions around where your funds are best spent right now.
• Lending – Do you need to speak to your bank for extensions on bank overdrafts or do you need to apply for loans?
• Tax planning – If you are anticipating a drastic change in revenue for your business, your provisional tax obligations may need to be adjusted for the coming year. Options such as the ratio method which can be elected into before the start of the next financial year may be desirable to help with cash flow, or an election into the estimation method before your first provisional tax payment becomes due may be appropriate.  You should be discussing these options with us.
• Changes in processes – What changes can you make in your business to reduce the financial impacts that COVID-19 may have on your business? For example, requiring customers to pay in full or requiring a deposit before commencing any work may be preferable.  So too would be getting your staff set up to work remotely should the situation require it.
• Online business – Is your business set up to run efficiently online? Are there any opportunities for your business to generate new leads and new customers through your online channels?  For example, if your website is not generating enough traffic or is not resulting in new leads, could you be using this lull in business to innovate?

 

As your trusted business advisors, if you need help with any of the above, we can help you.  Giles & Liew Chartered Accountants is committed to helping you find innovative ways to not only help your business survive but also to thrive.  We offer a range of business advisory, process optimisation and digital transformation services to help business owners build successful businesses.  If you simply want a sounding board to voice your business concerns or would like help with any of the aforementioned services, please get in touch with us.

 

How COVID-19 impacts how Giles & Liew is doing business and what this means for you

 

Giles & Liew Chartered Accountants are committed to helping our clients through this time and to continuing business in an uninterrupted manner.  There will be no disruption to phone and email and we will ensure that your statutory and compliance obligations continue to be met.  We aim to give you the highest level of business advice we can to guide you and your business through this time.  That being said, some necessary changes will need to be made to ensure we keep our team safe and able to assist you and your business.

 

Paper records and signed documents

 

We would prefer not to receive any paper records due to the risk of contamination and in the event our team is required to work remotely, we will not be checking our PO Box nor will there be anybody available at the office to receive your records.  Accordingly, please email all signed documents back to us and make sure you send any end of year information and/or GST information to us through email.  Please also expect more documents to be sent to you via email from us that may otherwise have come through the post.

 

Bank feeds

 

Online bank feeds are the most efficient way for us to track your business performance throughout the year and to code or make changes to your bank transactions from an accounting perspective.  If you are not already set up on an online accounting software package that gives us access to your bank feeds, please contact us to explore the available options.

If you need to send us bank transactions that are not already on an accounting software package, please contact your Client Manager to discuss how to best go about this.  Downloading transactions from your internet banking and forwarding to us a digital extract is the best way to send this to us.  Your Client Manager will advise you of the file type we need for your individual circumstances.

 

Client meetings

 

Client meetings can be held through video conference.  Let us know if you would like to book a video meeting and we will arrange this.

 

Don’t panic

 

Testing times can bring us all together and we want to assure you that we are here should you need to bounce ideas or explore your options.  Our team of Business Advisors are experts in their field and our priority is to ensure that our clients are well-informed and able to make decisive decisions to ensure long-term business success.  The actions you take now will determine what success looks like in the future.