This is the philosophy of many New Zealanders today. But it is not one that any of us should necessarily agree with. The facts are that someone has to pay for our roads, our children’s education, our welfare system and our law enforcement – and so on.

But paying more than your legal share? …Now that’s a different story.

Tax Avoidance is an “industry” that never stops growing. For many it’s “the game to play”. People and businesses have become so tired of high taxes that they often decide to fight back.

Whatever your views and whatever you do, keep in the area of Avoidance. Keep out of the area of Evasion.

Evasion and Avoidance – what’s the difference?

Evasion has never been an acceptable method of reducing one’s tax bill.

Tax Evasion is tax theft. It is where one wilfully attempts to evade their legal liability for tax by providing false information and records or omitting things that should have been disclosed. To constitute evasion, there must have existed the intention to deceive.

Avoidance is quite different. There is no deceit.

It is the legal and logical arrangement of one’s affairs so that full advantage is taken of all the favourable terms and allowances available under Tax Law and by doing so their final tax to pay is less than it would otherwise be.

Tax Evasion is an old game

The high levels of taxation in any country is usually directly attributable to the high evasion levels in that country.

Evasion has been practised since the first rulers started to levy a head tax. In ancient Greece, tax evasion was a capital offence while the French regard tax evasion as a citizen’s duty. But while in ancient times they evaded head tax by hiding their slaves under a bushel, today’s unscrupulous evaders are able to employ top tax accountants to use every available device to pay less.

There is always the group that regard all taxation as theft and no one is able to convince them otherwise. They view evasion as being smart rather than a crime. They work on the principle of rendering unto Caesar only that which cannot be hidden from him.

Some tactics people use to evade

Evasion comes in many forms. It is far easier for the self-employed and big businesses to evade tax, than it is for the ordinary salary and wage earner.

Here are just a few methods some use:

1. Retailers who “skim” money by taking cash from the till. This “suppresses sales”, reduces taxable profit and lowers tax to pay.
2. Deliberately reducing the true accounts receivables (reduces money owing to the business thus reducing taxable income)
3. The swap of cash for goods or services. This is difficult to trace as it does not show in the bank account so sales are hidden from the Tax Man.
4. Under valuation of the stock figures. Although this reduces the year’s taxable profit, it is only a temporary deferral measure.
5. Charging expenditure to the business that has not been legitimately incurred in producing the income of the business. That is, straight out theft or fraud.

There is more – much more.

What about tax planning?

Any tax plan created for the purpose of minimising taxation must take into account the complex play between law, tax and business. Taxation is a very complex subject. There are many pitfalls. Constant changes in tax law can easily leave many accountants and lawyers far behind in their attempts to keep up with the play.

In tax planning there is no substitute for a team effort between the accountant, lawyer and the client to produce a carefully researched plan that would be acceptable to any scrutiny from the Inland Revenue Department. Where necessary request a ruling from the Tax Man before proceeding.

Any proposal should be examined thoroughly for unforeseen side effects before its final implementation. Remember, the best of plans need to consider the possible effects of the failure of that plan. The Tax Act gives the Commissioner of Inland Revenue wide powers for upsetting schemes and plans which do not meet with the requirements of legislation.

Clients must be forewarned that they may possibly have to fight every inch to hang onto any tax advantages that may occur from a particular plan or scheme.

How to test yourself for Evasion or Avoidance
You can test whether your proposed plan amounts to evasion or avoidance by answering the following questions honestly:

Would you carry out your plan if the tax savings were not likely?

• If yes, – more likely it will be seen as avoidance
• If no – ask the following further questions

What are my reasons for entering into this “plan or scheme”?

• For protection against insolvency or for other sound business reasons – if for these reasons, then it’s more likely that it would be viewed as avoidance
• If your reasons are mixed, ask yourself whether you have 3 good reasons why it makes good commercial sense to enter into the arrangement, aside from tax reduction. If you have 3 you are probably outside the law or at least you will have ammunition for convincing the IRD that you are not trying to evade tax. If you don’t have 3 then you are most likely in the evasion area.

Many mistakes can be made in business and if you are able to avoid some of them by reading and taking note of some of the warnings, then the time taken to put these warnings together will be worth while.

Here are some warnings on business mistakes you should avoid because they are common to many entrepreneurs.

1. No plan.

Many people go into business without any plan at all. The old saying that “if you don’t have a plan you won’t know when you’ve got there” still holds true today. You need to set up a business plan and that plan will contain other subsidiary plans such as a marketing plan, a finance plan, a sales plan, etc.

2. Be flexible.

If you have a business idea and you are looking at developing that into your business, then be prepared to change and be flexible. Sometimes the original idea needs some fine-tuning before it becomes commercially viable and profitable for you. By all means stay with your dreams, vision and ideas, but be flexible and allow yourself the luxury of discussing those ideas with professional advisers, as well as those who have already done it before.

3. Make sure you know your customers.

Every business must have customers. If you don’t have customers you won’t have sales. If you don’t have sales, you won’t have profits. If you don’t have profits you won’t have a business. Make sure you are aware of your customers as well as your competitors. You need to know your customer’s preferences, as to the services you can provide. Unless you know your customers well, it is difficult for you to know what to supply.

You need to know what their requirements are. You need to find a bit more about their buying patterns and you need to be aware of your competitors so they don’t take your customers away from you. Also provide good customer service. The short answer to customers is, work hard to get them and when you’ve got them, keep them by providing quality products, service and good support so they won’t consider going anywhere else.

4. Watch your cash.

Ensure your cash position at all times allows you to make decisions and pay for the requirements of the business. The saying that “cash is king” still holds true today because if you run out of cash your business will come to a “screaming halt”. You always need to maintain sufficient cash in reserve to meet emergencies and to pay staff and to pay for goods and services.

This means that the fact you have a lot of stock in the warehouse or a lot of equipment or other assets, does not guarantee you will not fail. If you don’t have cash you will definitely fail because most people don’t’ look kindly on being paid for their goods and services with your stock or plant or equipment. People want cash.

5. Work with good staff.

Make sure you employ good people. Motivate and train them so they are happy in their work. The result will be increased productivity and work satisfaction. Be patient and persistent, and insist on a high standard of work from your staff. Motivate, encourage and coach if necessary, as well as pat them on the back when that’s needed. Some psychologists go so far as to recommend that the staff need a cuddle now and then, but that is probably going a bit overboard!

Make sure you have good morale in your workplace, because that will result in high productivity and high profits for the business. If the business is doing well, ensure that the staff know about it and praise them for it. The best confirmation of your satisfaction with your staff will be when you share some of that increased profit with them by way of bonuses and other benefits.

6. Always seek advice.

Listen to good advice. The person who thinks they know everything is headed for disaster. Being a lone ranger does not entitle you to a medal and you will find most people are prepared to talk and help you if you ask. Also be aware of the fact that you cannot do everything yourself, based on the knowledge you have. Others also have expertise and something that takes them five minutes to explain could take you a couple of days to figure out on your own.

7. Be realistic.

If you are in business, you need to live in the real world. You need to watch your business performance. Control your expenses. Look at ways of increasing your income. Continually monitor how the business is going and how the staff are performing. Have a reserve of cash in the bank for a rainy day and plan ahead all the time, rather than waiting for disaster to happen.

What does it take to grow a business and run it successfully?

Here are StartRunGrow’s 42 greatest business tips for you to follow:

1. Advisers – Make sure you talk to other successful people who have already done it. There is no sense in reinventing the wheel and learning by trial and error if you don’t need to. Discuss it also with your family, especially your spouse. It’s best to get their backing and support because you will need it.
2. Costs – Watch your spending. It’s very easy for business costs to “run right into the stratosphere”. Even when you start to make money keep an eye on your costs.
3. Capital – Don’t start a business unless you have enough money saved up. You need to have enough to start up your business and to run your operation for a 6 month period (at least) until the business starts generating enough income to “fend for itself” and grow. Under-capitalisation by small businesses is one of the biggest causes of failure.
4. Use others – Know your strengths and weaknesses and fill in the gaps with people (such as your advisers or experienced employees) who have expertise in the areas you don’t.
5. Court – Try and settle out of court if you can. Whatever your dispute going to court will cost you thousands of dollars for your lawyers as well as a huge amount of stress and heartache let alone loss of time and productivity. Avoid any type of court action if you can. Use negotiation, mediation or arbitration rather than litigation.
6. Next level - Don’t depend on your friends and family. They can help you at the start, but they are not usually the people to get you on to the next level because of their lack of experience and skills.
7. Drawings – Try not to draw too much money out for yourself from the business at the beginning. If you take too much pay from your new venture it could impact on your cash reserves and leave the business with cash flow problems. Take out of the business the minimum that you need.
8. Realistic – Keep your feet on the ground. Don’t chase blue-sky potential. Be realistic in all you do. Don’t show off. Use your head at all times.
9. Good Products – Make sure you have good products and services. You can’t have a business unless you are selling something that buyers want.There is no point going into the marketplace if your products and services are not up to scratch as far as quality or function is concerned. There are many competitors out there and it is tough to win, let alone survive.
10. Cash Flow – Watch your cash flow every day. Monitor the cash that comes in and that goes out. Your cash is essential. Once that’s gone – you’re gone.
11. Enjoy – Make sure you enjoy the business you are in. If you enjoy what you are doing, you will do it a lot better and a lot faster. It has to be something worth getting out of bed for.
12. Motivation – Because you no longer have to account to anyone but yourself, you must be self-motivated. Get out of bed early every day just as if you had to beat the traffic to work.
13. Determination – Unless you are serious and determined to succeed in your business you will find that little will be achieved. Be “dogged” determined and persevere.
14. Confidence – Be confident in your own abilities. If you have confidence in your ideas and skills there is no reason why you cannot succeed, even alongside the big operators. Get ongoing help, if you can, from a successful business friend and your confidence will grow.
15. Focus – Be focused. Don’t be distracted. Keep your eye on the ball.
16. Over-deliver – Always under-promise and over-deliver. There’s something about doing more for customers than what you had originally promised. It gives your business and you a good name and reputation.
17. Honesty – Keep your integrity. Don’t do what many others do that involve cutting corners. Don’t hide behind legal agreements. If it’s yes then say YES, If it’s no then say NO. Make sure your word is your bond. Keep honest and open. Nothing gives you a better nights sleep.
18. Customers – Focus on your customers. Looking after your customers and pleasing them should be your number one priority. Without customers you’ve got no business.
19. Skills – Make sure you possess the necessary skills to be able to carry out the type of business that you are contemplating or currently in.
20. Experience – Even though it is not critical, possessing a little experience in accounting or business or finance will be a great help.
21. Work – Work Hard. You will need to put in a few more hours at the beginning and for the first year or two. Tell your family and friends about this so they will understand and help you wherever possible.
22. Pay your bills – Always pay your bills on time. Get a good name for it. Be faithful in this area and your suppliers will be able to trust you when you need more credit at certain times.
23. Discount – If you pay early ask for a discount. In fact always ask for a discount when you buy anything. Most will give you a discount for cash. Discounts add up. No one pays the full retail price nowadays anyway.
24. Tax – There are many things you can do to minimise your tax. See a good tax specialist if your accountant doesn’t specialise in this area. Never delay your tax payments because penalties from the tax department can be pretty heavy.
25. Records – Make sure your records are absolutely fantastic. Keep all your communication and emails. Keep every receipt. Take a copy of all documents. Lose nothing. They will “save your bacon” one day when you have a court case and you just happen to have a copy of that important piece of paper in your files.
26. Hours – Keep to proper hours. If you burn the midnight oil everyone looses out. Your family, your friends, your kids and you. You will not be rested so your performance will suffer the next day.
27. Learn – Get to know a little about business and the principles of finance, sales and profit. Read as much as you can on these subjects. Attend courses. Go to seminars. Learn and learn and learn. You cannot learn enough about business.
28. Staff – Take your time in picking good staff. They will be the biggest asset in your business. Promote only to character. Character is never wrong. Dismiss those who do not work as they will not produce. Reward those who deserve it. Treat staff fairly.
29. Golden Rule – Keep to the golden rule “Do unto others as you would want them to do unto you” – that never fails. And keep a smile on your face. It brightens everyone’s day.
30. Accountant – Get a good accountant. Someone who knows “their stuff”. They must be prepared to “fight” for you if necessary. They must be able to give you attention. They must not be afraid of the Tax Department. Get someone who specialises in small business. Make sure you can get along – that’s critical.
31. Lawyer – Ditto as for Accountant plus they must be aggressive and be able to think on their feet. They must hate to lose. Get someone who can talk in plain language – not in legalese. They have to know all the tricks – legally. And they must be organised and sharp.
32. Partners – Be very careful about who you bring in as partners or shareholders. The wrong people will ruin you. They will betray you and try to take your business from you. Keep control of all situations at all times. Make sure you are the Governing Director in your company and draft a Constitution in your favour before these people come in. Retain majority shareholding and keep directorship within your family or trusted associates. Make no one a director or partner unless they are totally loyal to you.
33. Spouse – Don’t leave your spouse or partner out of things. Men need to know that their wives have a special ability to see the details which they often miss. Woman’s intuition? It’s there and it  works. Ladies, your man is great at seeing the big picture. Best working as a team.
34. Passion – Be passionate about what you do. You have God-given abilities and they’ll show through in your passion. Keep your passion. When nothing else gets you through, passion will.
35. Live – Make sure you make a life and not just a living. Having a business should be long-term. It should be the investment for your retirement and an inheritance for your children and grandchildren. It has to be something that creates a life for you, not just a living.
36. Stress – Watch out for worry and stress. Keep a calm attitude. Try being laid back. Learn how to relax. Take care of yourself. If the business loses you it loses its most valuable asset. Tomorrow’s another day remember.
37. Goals – Don’t ever forget why you went into business in the first place. Now and then check up on yourself. What were your original goals? Are you still on track? Do your goals still excite you? If business no longer does it for you then it may be time for a change.
38. Health - Keep yourself healthy and fit. Lose weight if you need to. Work in an early walk or gym session daily. Don’t diet but develop better eating habits and lifestyle. Shortcuts don’t work. Get to bed before 10 so you can get in at least 7-8 hrs sleep.  Make changes that would be with you forever. “There’s no change if there’s no change”.
    
39. Rise Early – Start the day early. Get up before dawn while the family are still asleep. Wash your face, grab a “cuppa” and enjoy the morning. Have a quiet time for yourself and reflect on things. Be thankful for the new day. Rising early helps you to take control. Your mind is clear in the morning. Before 6 am is good. There’s something about getting up early.
40. Joy – Keep happy inside. Go with the proverb “A merry heart doeth good like a medicine”.
41. Family – Don’t lose your family in your effort to get ahead. When you have become a millionaire it’s not your money that will bring you happiness – it will be your family. Keep close to your kids. Be their rock. They need a secure hideout. Be the one person they know will always stand for them when no one else will give them a prayer. Love and respect your wife (or husband or partner) above all others. He or she is your greatest business ally. Value your family. Make sure they are there for you when you’ve reached the top by making sure you are there for them during your climb. Remember, No Business is worth it.
42. Never Quit – If you fall or have fallen get up again. Don’t stay down. Bounce back. Look up. “Two men looked out of prison bars – one saw mud the other saw stars” It depends where you look, up or down. No matter what you have gone through there will always be hope. Without hope life is hopeless. Never give up – ever.

Why not do it all through the web?    Even better, how about an accounting service that is tailored to the way you want to work?

This new approach to accounting and tax services is the way of the future because of its many benefits:

• The web allows you to check on your businesses financial reports from just about anywhere in the world. Need to see next weeks cash flow projection while traveling? Not a problem if your accounting system is web-based.
• Instead of dropping off your bank statements, cheques and  papers at the end of the year and waiting weeks for the results, your accounting information is entered by us daily so you can see your progress each month (or weekly or even daily)
• By customising our service so that you can do as little or as much of the work as you want can result in obvious cost advantages for you.

How does it work?

• We have full control over how our software operates as we work with software developers as well as accountants.
• Since our software and databases are accessible over the Internet, you (as well as us) both have access to the data the moment it is automatically entered into the system.
• All your ongoing results and reports are available on-line 24/7.

Want to know more about the many benefits of Online for your business?

Contact Us Now at – August Accounting Group