The Taxman is looking hard at the Building Sector
The Inland Revenue Department has warned businesses in general and tradies in particular to desist from undeclared cash transactions.
A notification said that Tradies who do undeclared cash jobs can be hit with tax penalties or criminal convictions that could lead to prison, costing them their business and income.
“Declare it all. Or risk everything,” the notification said.
An accountant told Indian Newslink that it was not uncommon for some people in the building trade (such as plumbers, electricians, cleaners and others) to demand cash for their services and some customers willingly doing so to avoid GST.
“Most tradies are honest and issue invoices and request customers to transfer payments into their bank account. However, some people prefer cash. I have advised two of my clients to issue invoices and document all cash received. Tradies are busy people and good accountants should take care of them,” he said.
The IRD communication said that doing jobs for cash or doing work for friends or anyone else is alright, so long as they keep a record of these jobs and declare the income earned while filing their tax returns.
“Make sure that you record every job, no matter how big or small. Find out more about keeping good business records from our website. You should charge GST if you are registered. All businesses earning more than $60,000 must register for GST. Tradies must also register all their employees and declare all income while filing tax returns,” the notification said.
IRD has also advised that tradies and others who have not filed their actual income, have an opportunity to do so under its ‘Voluntary Disclosure’ through its IR281 Form.
The advice is, “Tell us before we find out that you have hidden something from us”
“A Voluntary Disclosure is when you tell us what is wrong with your tax returns before we find out in some other way. It may be that you have omitted some income from your return or incorrectly claimed expenses. Anyone can make a Voluntary Disclosure, including salary or wage earners, individuals, businesses, trusts and employers.”
New Accounting Method
IRD has also recommended small companies to understand the way Provisional Tax works and adopt the new Accounting Income Method (AIM).
The Department has urged businesses with annual turnover under $5 million to talk with their accounting software provider or tax agent about a new option that allows them to pay provisional tax only when they are making a profit.
Deputy Commissioner for Transformation Greg James said that AIM makes managing cash flows simpler because provisional tax payments are based on the business’ actual results.
“IRD has created a product that takes the guesswork out of provisional tax payments,” he said.
Businesses take a stab in the dark about their projected earnings for the current year. When that’s off the mark, it can lead to either an overpayment of tax and a long wait for a refund or an underpayment and a penalty charge.
Image Source: www.ird.govt.nz