“This paper needs to be seen in context, not in isolation,” says Paul Dunne CA, Chair of NZICA’s Tax Advisory Group and National Managing Partner for Tax at KPMG.
“Financial reporting standards are changing, tax laws are changing, technology is changing and Inland Revenue systems are changing. The Tax Advisory Group has been thinking about this context and about how NZICA can contribute to the development of the system.”
The proposals are a result of reviewing how the tax burden for small business could be lessened, and how chartered accountants could help small business growth.
“Feedback from business on the proposals has been generally positive.”
Dunne says this latest version of the paper includes changes driven by member feedback.
“For example, we introduced the concept of a ‘health check’ for business which we think will be good for SMEs, CAs and IR. And we recognise that with more discussion the proposals will be refined further.
“The world is changing. CAs need to focus on what services they can contribute to business alongside tax compliance work. Business compliance will remain important, but an equally important role is to add value and help businesses reach their economic goals.”
Small business welcomes proposal
Jo Keall CA is Director of Mum 2 Mum Ltd, a company that designs and manufactures practical, stylish baby products.
She says as a business owner, the SME tax proposal has a lot of merit.
“Income tax will be able to be paid ‘real-time’ and not based on an estimated year end result. This will help any small business, especially those in high growth or with seasonal peaks in turnover,” Keal says.
She also believes it will simplify things.
“If you are a small business earning under $600,000, you may not need a full set of financial statements prepared at the end of the financial year. This information may not benefit you, especially if it is prepared 6-8 months after balance date.”
Keall says the proposal has been designed to make life easier for business owners so they can get on with the job of running their business.
Chartered accountants need to see the positives that could come from this proposal, Keall says.
“How can they help their clients benefit from these changes? What are they doing to add value to their clients businesses? Are they delivering what their small business customers need?”
She believes there is the potential to have more regular and timely reviews with clients that link in with the two monthly returns. “The benefits are there for both the chartered accountant and the business owner. It can be a win-win with the right approach.”
Concerns of a public practitioner
Doug Campbell CA, Director, Campbell Thompson Ltd, is concerned about the practical implications of the proposals.
Many small businesses fall over within the first three years, and the proposals raise the prospect of those businesses having had little or no contact with a chartered accountant, Campbell says.
“I hate dealing with people whose business is falling over when it is the first time I see them.
“I don’t think that fits in with NZICA’s message that ‘business does better with a CA’. We are telling people we don’t want to see them until they earn over 60k.”
He warns people may revert to a barter system to keep themselves under the $60k level.
“The $600,000 level is fine, although I don’t know of there has been a lot of thought on how people transition from one level to another.”
At a basic level, it will be impossible to compile accounts with comparative figures for a business that has just moved into the higher level as they will not have previous annual accounts to compare with, he says.
“A small percentage of members have got their noses out of joint – looking at it from a dollar perspective and the money that may be stripped out of accounting firms. A lot of CAs in public practice, especially in provincial regions, will look seriously at their membership. This is a threat to their livelihoods and their clients’ livelihoods.”
Campbell expects the governments to pick “bits and pieces” from the proposals and for these to resurface in the run up to the next election.
An architect’s vision
Ian Kuperus CA’s business Tax Management NZ Ltd helped initiate the SME tax proposal project. The process began in 2009 when Kuperus was a member of the Tax Committee, which was concerned it was being too reactive, rather than positive and proactive.
“There was a need for us to use our expertise to make a positive change in New Zealand’s business environment.”
Kuperus says there has been a huge growth in tax legislation over the past 20 years which has increased the complexity of the tax landscape.
“But the same legislation applies to multi-nationals as to the builder who wants to start up his own business,” he says.
The impetus for the initiative was two-fold.
“Firstly, there was concern for the creeping tax compliance burden on SMEs, but also there was a committee with experience and expertise that needed to make a positive contribution to the tax landscape.”
Kuperus says a cornerstone of this proposal is the concept of one tax return a month, one payment a month and one hour a month spent on tax compliance work by business people.
He describes the proposal as a leadership piece with an element of public interest – putting small and medium business first.
“This report is a think piece and provides a platform for CAs to put forward suggestions and ideas and enter into discussion and debate.”
As such, it gives chartered accountants the opportunity to think about their clients, and potential clients, and how they can help them thrive.
Matthew Bellingham, Hayes Knight Director and Chair of NZICA’s Public Practice Advisory Group, supports the proposals but recognises there will be those among his public practice colleagues who take a different view.
“Personally, I am in favour of tax simplification and would like to see changes to the way we tax businesses so that entrepreneurs can spend more time and investment getting their business off the ground and less time worrying about tax compliance,” Bellingham says.
“I am aware of the concerns of some practitioners that NZICA is promoting a document which suggests that a significant portion of their traditional sources of revenue should reduce, or even be eliminated.
“Whilst I accept that reducing compliance may impact on some practitioners, I believe that our landscape is changing anyway, and I doubt that this one document will be the event that causes significant change to our business models.”
Bellingham believes NZICA should stay on the front foot in a changing environment.
“Through producing thought leadership documents such as these we gain credibility with the general market and with government. In any event, we have several competitors in this marketplace that are not members of NZICA and who do not comply with our high standards, hence we hardly have a level playing field anyway.”
Changes that were made after the first round of consultation, including reducing the turnover threshold and introducing the health check, will ensure that there is plenty of work for practitioners to do, he says.
“One thing that is for certain is that business models need to change and evolve with changing environments, and our model is no different. Accountants are uniquely placed to offer advisory services due to our training – we should try to expand our services to assist our clients should we see a reduction in traditional revenue streams.”