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Farming Update December 2018

Late Spring and early Summer has seen plenty of rain across the country. Good grass growth has kept farmers and contractors busy, and with Christmas just around the corner, there is a lot to think about both on and off the farm.

Pay Day Filing

Our office has been receiving calls from clients on a daily basis regarding the introduction of Pay Day Filing, which is compulsory for every employer from the 1st April 2019. The introduction of Pay Day Filing is one of the biggest shake ups facing employers in recent times. In a nut shell, the main changes are as follows:

  • That instead of filing an employer monthly schedule (IR348) every month, employers will file employment information every pay day, in line with the businesses payroll cycle.
  • Employers will have two main ways to file their payroll information with the Inland Revenue Department. This is through either filing electronically through Inland Revenue’s MyIR online services, or employers can file by filling out paper returns and sending this information in to Inland Revenue.
  • If you file electronically, then payroll information needs to be filed with IRD within 48 hours of paying an employee. If you file by paper, Inland Revenue needs to receive your information within ten working days after pay day.
  • Paper filing is only available if PAYE deductions are under $50,000 per annum, over that amount employers must file electronically.
  • Employees deductions such as PAYE, KiwiSaver, Student Loan, Child Support etc will continue to be paid to the Inland Revenue Department on the 20th of the following month (although some large employers will continue to have to pay twice a month, like they currently do).

Making Payroll Easier

Employers should consider whether they would be better off using a payroll software system to help with the administration and making the book work easier. There is a wide variety of products on the market to choose from. Most of these are web based and therefore do not require downloading onto your computer. One of the benefits of using a payroll software package is the way that annual leave, holiday pay and sick day entitlements and calculations can be done at the press of a button. Currently this sort of thing, for employers using a manual system, is prone to error and can be very difficult to calculate correctly. Record keeping involves a lot less paper, with employee and payroll information uploaded into the ‘cloud’.

Payroll Intermediaries

Another option for employers is to use a payroll intermediary. By using an intermediary, they take care of the IRD filing requirements and administers the payment of PAYE and other deductions to Inland Revenue. When using an intermediary, once employee information (remuneration package, tax code etc) is set up, the actual administration and payment of wages is reasonably straight forward. Most employees on farms are paid on a salary basis, so it is simply a matter of entering in any sick days or days off. Some payroll systems use an app which can be downloaded for employees who are paid on an hourly basis to enter their hours. The employer can then authorise these or they log in and enter the hours themselves. With days off and sick days entered each week, annual leave calculations can be done at any time at the press of a button. Pay slips are generated and can be automatically emailed to the employee. Customer service from the intermediaries that we have dealt with has been on the whole very good, with most intermediaries using a New Zealand based help line to assist with any queries or issues.

Some farmers and business people will prefer to continue dealing with their accountant for their payroll administration. Your accountant understands your business and is able to give payroll advice and a more personal service. Bailey Ingham, like many other firms, have been gearing up over the last few months to assist farmers to deal with the changes that are taking place.

Dairy Farm Values

A talking point that comes to mind as I write this article, is the discussion around the difficulty in selling farms in some areas, particularly in the dairy sector. It appears that the uncertainty facing the agricultural sector in regards to the drop in the dairy payout, environmental issues, Mycoplasma Bovis disease, along with compliance and health and safety issues are having a definite effect on farm prices. Some farmers that were thinking of selling are now deciding to hold off for the time being. Some are considering other farming options such as the option of 16-hour milkings, which can take away a lot of stress for both livestock and farmers alike. There is certainly plenty to think about and there are options to make life on the farm easier. The importance of having a good team around you to discuss options and alternatives is just as crucial as ever.

I would like to take this opportunity to wish all farmers and business people a happy, safe and stress-free Christmas and New Year.

New Zealand’s Top Accounting Firms Ranked

Each year accounting firms in New Zealand are ranked according to their size, along with rankings for revenue, as well as pro bono work. As you will see from the attached link that appears on the stuff.co.nz website, Bailey Ingham Limited rank 19th in New Zealand for size. We also rank 4th in New Zealand for regional firms and 1st in New Zealand for pro bono work. As you will see from the attached article, Bailey Ingham record over 1,500 hours of pro bono work a year, which works out at over 500 hours a year per partner, topping the list for accounting firms in New Zealand.

We note that Bailey Ingham currently have 55 staff on its payroll throughout our three offices, whereas the survey results show total staff of 42.

 

https://www.stuff.co.nz/business/industries/108756695/top-accounting-firms-how-they-rank.html

Anti-Money Laundering and Countering Financing of Terrorism Act

Anti-Money Laundering and Countering Financing of Terrorism Act

 

Phase two of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT) means compliance for most accountants, beginning on the 1st of October 2018. Accountants are obligated under the Act to meet a number of requirements to help combat money laundering and terrorist financing and to help police bring the criminals who do it, to justice. The AML/CFT Act Phase 2 affects accountancy firms like Bailey Ingham Ltd because the services accountancy firms and other professionals offer may be attractive to those involved in criminal activity.

From the 1st of October 2018 Bailey Ingham, along with other accountancy firms, must assess the risk they may face from the actions of money launderers and people who finance terrorism, and must identify and report suspicious activity. To make that assessment Bailey Ingham needs to obtain and verify information from prospective and existing clients about a range of things. This is part of what the AML/CFT Act calls Customer Due Diligence.

Customer Due Diligence Requirements

Customer due diligence requires an accountancy firm to undertake certain background checks before providing services to clients. Accountants must take reasonable steps to make sure the information they receive from clients is correct and so we will need to ask for documents that prove this.

From the start of October, we will need to obtain and verify certain information from clients to meet these legal requirements. This information includes a client’s full name, date of birth and address. To confirm these details documents that we will be asking clients to provide will be:

  1. Drivers licence or birth certificate
  2. Bank statement or utility bill (less than three months old showing a client’s current address)

For companies and trusts we will need to obtain information including these details for all Directors, Shareholders, Trustees and named beneficiaries.

For certain clients or activities, we may also need to ask for further information. This may include information confirming the source of funds for a particular transaction.

How this affects Bailey Ingham clients:

Our engagement letters have been modified to include a section on the Anti Money Laundering and Countering Financing of Terrorism Act and the information that we need to obtain. We will ask all new clients to fill out forms and provide information. We will have forms for clients to fill out in the following situations:

  1. When a new client joins the firm.
  2. Whenever we become the registered office for a company.
  3. Whenever we form a new company.
  4. Whenever we become the independent trustee for a Trust.
  5. When an existing client starts a new business activity or introduces substantial funds into their business.

In addition to this, Bailey Ingham Limited has registered with the Department of Internal Affairs. This is so that we can report suspicious transactions if they occur. All accountancy firms must appoint a Compliance Officer, and for Bailey Ingham Ltd, Cheyne Waldron (one of the firm’s directors) has taken on this role. Bailey Ingham has completed a risk assessment and produced a AML/CFT Programme Manual with policies and procedures to help our staff comply with the Act.

While we understand that the vast majority of our clients and New Zealanders in general are honest, law abiding citizens, New Zealand as a country needs to play its part in tackling this world-wide problem.

Please discuss any issues or queries you may have with one of our friendly staff or partners – we would be pleased to assist and answer any questions you may have regarding the changes taking place.

Introduction of Pay Day Filing for Employers - September 2018

Waitomo News Article September 2018 - Introduction of Pay Day Filing for Employers

 

Over the past month all farmers and other businesses in New Zealand that employ staff would have received information from the Inland Revenue Department about the introduction of pay day filing.

From the 1st April 2019, instead of filing an employer monthly schedule (IR348) once every month, employers will now be required to provide (file) employees’ earnings information every pay day to the Inland Revenue Department.

The Inland Revenue Department are introducing pay day filing to reduce the long delay for some of the earnings information that it receives about wage and salary earners. Currently where an employer files PAYE information on the 20th of the month, some of this payroll information can be over forty days old as it relates to the previous month. The Inland Revenue use peoples’ earnings to calculate Child Support, Working for Families and other entitlements. Pay day filing will mean that the Inland Revenue Department are kept up to date with what people are earning on a weekly basis and therefore Child Support and other information will be calculated in a much more timely and accurate manner.

If an employer’s annual PAYE and ESCT (employer superannuation contribution tax) are greater than $50,000 a year, then the employer will need to file their weekly pay day and monthly information electronically, through MyIR, or by using compatible software. Those employers that have annual PAYE deductions of less than $50,000 still have the option of paper filing. In addition, all employers will now be required to provide new and departing employees address information, as well as their date of birth to the IRD.

Most large businesses already use a software provider (payroll program) to assist with their wage and PAYE requirements. Certainly, since the advent of KiwiSaver, which has increased the complexity of managing payroll, there has been a large increase in the number of farmers and businesses that are using payroll software or a tax agent. Software providers are now getting geared up so that they will be able to file pay day information at a touch of a button and for this reason it is likely that going forward, most businesses will be better off using a software package to assist with their wage and PAYE processing.

One thing that hasn’t changed is that businesses will continue to file employer deductions and pay the PAYE and other deductions over to the Inland Revenue Department on the 20th of the following month.

Payroll can be a very time consuming and tricky aspect of business administration, and many accountants and bookkeeping organisations are well placed to assist employers with the changes that are going on. Talk to your accountant or payroll provider to ensure that you will be ready come the first of April.

Our Taumarunui office is on the move!

As from the 16th July the Taumarunui office will be operating from 29 Hakiaha Street (between Bike Torque and Property Brokers).  The phone number will remain the same 07 895 7312.

The Taumarunui Office hours will be:

            Monday           8:30am to 4:00pm

            Tuesday           Closed

            Wednesday     8:30am to 4:00pm

            Thursday         8:30am to 4:00pm

            Friday              8:30am to 4:00pm

 

Jayne Adams becomes an Associate Director - April 2018

The Directors of Bailey Ingham are proud to announce that Jayne Adams has become an Associate Director of the firm, effective from 1 April 2018.

Jayne Adams works as a Chartered Accountant at Bailey Ingham in Otorohanga and manages their Taumarunui office. She has a rural background working in agriculture both overseas and in Te Kuiti and has worked in different local businesses giving her a diversity of experience.

Jayne is married to Chris and they live at Kopaki where they own a sheep/beef farm. They have four grown up daughters, who they have encouraged to make the most of their opportunities and all have undertaken tertiary education.

While raising her family Jayne went back to tertiary studies, this was challenging at times but she was fortunate to have great support from her family. Her qualifications include a Bachelor of Business majoring in Accountancy, Associate Diploma in Agriculture and a Bachelor of Applied Science majoring in Information Systems and Technology.

Her role at Bailey Ingham can be both challenging and fulfilling. It is a diverse type of work which involves working closely with the clients to assist them with their taxation and general business requirements. It is enjoyable working in communities like Otorohanga, Te Kuiti and Taumarunui as everyone is very friendly and most people know each other. Bailey Ingham provides accounting and business services plus offers great support to the local community.

Dealing with and adjusting to Change - March 2018

Recently in our office we have had a number of discussions with people involved within the agricultural sector, from farmers through to farm consultants, as well as other professionals such as solicitors, bankers and other chartered accountants. These discussions have revolved around the changes taking place that are affecting all aspects of society and the economy, but in particular the agricultural sector.

We have seen in the past ten or so years huge changes in climatic conditions, regulatory and environmental changes and challenges; changes in the economy, including within New Zealand and overseas; international pressures and influences; changes in labour supply and issues affecting that; health and safety; online information and social media; and in addition, personal circumstances have changed with people requiring more flexibility, time off and changes to their working hours.

What all this means for our farmers today is that they require additional flexibility within their farming systems, to adapt to and respond to these changes.

One such discussion I had regarded a dairy farmer in the Waikato who was considering installing an in-shed feeding system. The farmer had been putting off this for over ten years, worried about the cost (which was totally understandable). When the farm had originally been purchased, a decision was made not to install in-shed feeding systems as the farmers type and style of farming did not warrant this. Ten years later the farmer has now made the decision to adjust his farming system due to changes in the availability of labour, the changing climate, health and safety issues and labour costs regarding the use of feed pads etc, and the additional flexibility that it will provide for his farming system.

What this means is the farmer did not necessarily make the wrong decision ten years ago, however circumstances do change and what was right ten years ago is not necessarily right today.

As accountants we see businesses from all areas of the spectrum, needing to develop to move forward in todays world. Business owners today require more visibility of their numbers than they ever did before. Online programs like Xero, Cash Manager, MYOB, just to name a few, are now the way forward for many people, giving them instant access to monitor their results and compare these to the budgets that have been set at the start of the year. The role of the accountant has been changing for a long time from that of a book keeper, to a business advisor. Not only are accounting systems changing, but people are looking at their business structure and utilising more flexible structures such as Trusts, Companies and Limited Partnerships. There are several advantages that these structures give over the traditional farming partnership.

It is normal human nature to resist or be wary of change. Modern business and farm owners should consider that change is not necessarily a bad thing, and that all stake holders in a business need to be carefully considered and their views respected when making decisions going forward. Good advice and assistance from professionals like chartered accountants can certainly help in the decision making process.

Property Transactions and Tax

Much has been written in the media about the recently implemented ‘Bright-Line Test’ which has been introduced by the Government as a tax on residential property purchased on or after 1 October 2015. Under the new Legislation if residential property is sold within two years, then the seller may have to pay tax on any gain made.

This article discusses property transactions in general. Property tax can be a grey area and the tax treatment of different property transactions will depend on their individual circumstances.

Dairy Farmers - Is there light at the end of the Tunnel?

August was not a good month to be a dairy farmer, with Fonterra slashing its forecast milk payout to $3.85 per kilogram of milk solids, down from its previous forecast of $5.25. This followed Open Country Dairy, New Zealand’s second largest milk processor, who reduced their payout forecast to under $4 in July.

The reasons behind the fall in prices are well known, and are mainly to do with supply and demand - too much supply globally and simply not enough demand. International dairy prices had fallen to their lowest level in the 7 year history of the Global Dairy Trade auction, and at a payout of $3.85, dairy farmers are predicting large losses for the current season. Dairy New Zealand is suggesting that the average dairy farm owner will lose up to $250,000 this season, though this won’t be the case for everyone. Every farmer’s situation is unique and financial results will depend on each farmer’s cost of production, debt levels and the actual production that they achieve.

While farmers are very resilient people, this is a very difficult time for those involved in the industry. Particular focus should go on the following:

  • Understanding your current financial position and the areas that need addressing
  • Increasing income (through production) where possible, by better farm and pasture management
  • Decreasing and deferring certain costs without adversely affecting farm and herd values. Focus on what you can control in the farm business.
  • Continuing to pay your accounts on time. Farm servicing businesses are also feeling the pain right now. Remember that they have to pay wages and pay for stock each month.
  • Look after yourself and help others wherever possible. Employees will be feeling the strain during this busy time, while sharemilkers and contract milkers will be the same and in addition will be under financial pressure. Ensure you have good support networks in place and advisors you can talk to.
  • Communicate often with your advisors, employees, your accountant, bank manager, family and other stakeholders. There is nothing wrong with asking for help and advice.
  • Remain positive, but realistic. Don’t be afraid to make hard (but well-informed) decisions, sooner rather than later. Make sure you have a plan.

Many of the farmers that I have talked to are lowering stock rates to reduce feed costs wherever possible. There will be far more focus on per-cow rather than overall production. Most farmers will be taking a targeted approach to fertiliser, which for one season, shouldn’t have too much impact on future production. Capital expenditure and repairs and maintenance will be deferred, and farmers have to be realistic about what personal expenditure they can afford in the next 12 months until cashflow improves. Many sharemilkers will require assistance with the possibility of sharing costs or assisting with cashflow over winter.

Good news may not be too far away, however. Some analysts now believe that the slump in dairy prices might be coming to an end, and this has been backed up with the latest two Global Dairy Trade auctions showing a rebound in prices. The lower kiwi dollar and lower interest rates will also assist New Zealand farmers. Commodity prices are cyclical and indications are that the current season may be one where the final payout ends up higher than what is currently predicted.

Medium and long term the outlook is still positive for agriculture but for those in the dairy industry this season will surely go down as one of the toughest on record. Those that survive (and the majority surely will), will come through this stronger than ever and better prepared for whatever comes at them in the future.

Dairy Farmers

Dairy Farmers – Plan for the Worst & Hope for the Best

Fonterra’s recent payout cut to $4.50 per kilogram for the current season is another kick in the guts for our nation’s dairy farmers. While the $4.50 is a forecast at this stage, it appears that it is unlikely to increase before the final payout is announced later in the year. Most experts are picking that next season’s dairy payout will not be significantly higher and this will cause further cash flow problems for farmers over the next year or so.

When thinking about the current situation facing dairy farmers, my mind went back to an article that I wrote in May 2003 when farmers faced a similar position. What I wrote then and what still applies today is that farmers must have a plan in place in order to get through the next couple of seasons intact.

Bridget Morgan becomes an Associate Director

The Directors of Bailey Ingham are proud to announce that Bridget Morgan has become an Associate Director of the firm, effective from 1 April 2015.

Bridget’s relationship with Bailey Ingham began in 1985 when she completed a week’s work experience while in the 7th form at Te Kuiti High School. She was head girl in her final year. After completing her studies at the University of Waikato, Bridget has worked for Bailey Ingham ever since apart from a two year stint working in the United Kingdom.

Tax not the only consideration for Accountants

As Chartered Accountants in the rural sector we consider a lot of factors when we prepare a set of accounts and file tax returns for our farming clients. One of the things that is very important is viewing the client's entire family situation, not only in the respect of saving tax but also ensuring that other entitlements and savings are considered. We also need to read the market, look at where incomes are going in the future and plan accordingly. Some of the things we look at are discussed below.

Secondary Tax – Are you paying too much?

Our office often receives calls from employees and their employers concerned about the effect of secondary tax when they are getting a second job.  People are generally unhappy about the idea of having to a higher rate of tax just because they have got themselves a new source of income to help pay the bills.

The good news is that it is a common misconception that people pay a higher rate of tax when they get a secondary tax code. New Zealand’s tax and PAYE system is designed so that employees are taxed at the correct rate. We have a progressive tax system so that individuals pay a higher rate of tax as they earn more. Our current tax rates for individuals are as follows:

$0 - $14,000 – 10.5%

$14,001 - $48,000 – 17.5%

$48,001 - $70,000 – 30%

$70,001 + – 33%

2014 - A Year of Contrasting Fortunes

With Christmas just around the corner it is time to reflect on another year which seems to have come and gone very quickly. And how the fortunes have changed for our regions farmers over the past twelve months. The start of the year saw dairy prices at all time highs with Fonterra forecasting an $8.30 payout (which ended up even higher), beef prices remained flat at $4 and lambs were averaging $90.

Since then the demand for sheep and beef, particularly from the United States has resulted in export beef prices hitting their highest levels in twelve years. Lamb prices are around $100 and wool prices have also increased. Sheep and beef farmers are heading into 2015 with renewed optimism. On the downside, the dairy sector has seen a swing of fortunes that no one really predicted. Key economies like China and Russia have stopped buying with the milk payout plummeting to below $5. Volatility continues to plague the dairy sector which makes forecasting and budgeting extremely difficult.

Farming Feature - Oct 2014

Outlook Positive for Sheep & Beef Farmers

Record prices for beef, improved lamb price forecasts and a kind winter and early spring have Waikato and King Country drystock farmers well placed for the season ahead. Beef prices have been rising for five consecutive months and are now at record highs - currently up 41% since April. Beef and Lamb New Zealand's new season outlook is forecasting lamb prices to lift 5% to an average of $103, up from last season's $98, while wool prices have lifted between 50 cents and $1 per kilo in the last twelve months.

Beef prices in particular have been driven by huge demand out of the United States where farmers have come through two droughts and cattle numbers have dropped. Elsewhere in the world the demand for protein continues to increase. In addition the weakening New Zealand dollar is helping our farmers with the US dollar trading at 77 cents, down from 88 cents in July.

North King Country Farmer - Aug 14

Keep a Close Eye on the Finances

The drop in the forecast dairy payout means that farmers are going to need to look at their finances even more closely over the coming season. Cash flow forecasts need to be updated at a milk price of $6 per kilo which is a drop of over $2 from last season. This will have a significant effect on farmers spending and will have a flow on effect for service providers and retailers in rural areas.

2014 Farmers Party

Bailey Ingham organise the annual Farmers party. Photos from the 2014 event:

Waitomo News - Record Keeping - May 2014

Employers: Is Your Record Keeping Up To Scratch?

Many farmers would be aware of the action that has been taking place in the dairy sector focusing on employer maintenance of accurate time and wage records by the Ministry of Business, Innovation and Employment's (MBIE) Labour Inspectorate. Between December 2013 and April 2014 the Labour Inspectorate (previously known as the Department of Labour) visited 44 farms finding that 33 were in breach of employment laws. The Ministry has been taking action against farmers that are not complying with the legal requirements with non-compliance attracting fines of up to $10,000 for an individual and $20,000 for a company. Most of the breaches relate to insufficient record keeping and breaches of the minimum wage. It has become clear that this is an area that many farmers need to improve on and the start of the new season is a good time to make this happen.

North King Country Farmer November 2013

Taxing Times Ahead for Dairy Farmers

The higher dairy payout brought about by an improvement in commodity prices and general economic conditions has been good news for the economy and particularly dairy farmers who will have higher incomes in the current season. While each taxpayer’s position is different, in general most dairy farmers will need to start thinking about provisional tax and acting accordingly to ensure that they don’t end up with a large debt owing to the Inland Revenue Department as well as costly Use of Money Interest charges.

North King Country Farmer January 2014

Make Hay While the Sun Shines

The current farming season may go down as one of the best ever in recent memory with high commodity prices and excellent weather conditions combining in what should be a bumper season for many in the agriculture sector.

When things are going so well it is easy to forget just how quickly things can change. Agricultural commodity prices tend to be very volatile and despite the fact that the products that we produce and export are of excellent quality and that the world population continues to increase (and we all need to eat!), we should always be mindful that dairy and meat prices may suddenly go out of favour almost overnight.

Other risks to the agricultural sector include increasing interest rates, increasing farmworking costs, a continuing higher dollar, environmental and climate issues and increasing overseas production.

Without trying to be too pessimistic this article attempts to reinforce the fact that it is important to build up your financial reserves now or in farming terms, make ‘hay while the sun shines’. Some things to think about:

Waitomo News - Trusts - April 2014

Be Aware of your Responsibilities as a Trustee

As accountants we are often asked to give advice on business structures, including family trusts. Trusts continue to be very popular in New Zealand where it is estimated that there are between 300,000 and 500,000 in existence. The exact number is unknown, because unlike companies, there is no central register of trusts. Many trusts simply exist to own the family home and where they have no taxable income, they do not need to register with the Inland Revenue Department.

While there is no standard definition of a trust the most common way of describing how a trust works is that a trust is a relationship between trustees (in whose name property is held or dealt with) and people called beneficiaries who are intended to enjoy the benefits of that property.

Individuals, business people and farm owners form trusts for various reasons including asset protection, provision for family members, farm succession, ease of management, and the ability to appoint trustees to assist with decision making, to name a few. Trusts may also provide tax advantages but recent changes to tax law have reduced some of these.

In general trusts work very well but it is very important to consider the responsibilities of being a trustee. This article briefly looks at some of these.

Waitomo News - Tax - July 2014

Is Tax Really a Burden for your Farming Business?

Rural accountants across the country will have their hands full over the next six months dealing with their dairy farming clients' high levels of income for the season just completed. There will be some dairy farmers particularly in the Waikato thatsuffered from the drought; however with the record payout level most will still show excellent surpluses. What this generally means for dairy farming businesses is a hefty tax bill.

As accountants, one of the main reasons we are employed is to help our clients minimise their taxation obligations. Generally we do this through structuring our client's affairs carefully and claiming the maximum amount of deductions available.

At the end of the day if your business is making good levels of profit then you will also be paying tax. Unless you have substantial tax losses or have a high amount of off farm income, the only way your business will grow is by making good profits, paying the right amount of tax, reinvesting the after-tax profits and keeping your personal expenses to a reasonable level. From our experience this is one of the keys to a successful farm business.

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