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BUSINESS ADVICE •  5 JANUARY 2023 • 4 MIN READ

8 smart ways to spend your tax refund as a small business owner

Female business owner using the company credit card to spend the tax refund

A tax refund is an amount of money that the government pays back to you in order to make up for taxes that were overpaid. You can set yourself up for success in the future by taking advantage of the money you get from tax refunds. 

There are few common reasons you may receive a tax refund from IRD:

  1. You overpaid your provisional tax with IRD
  2. You paid your withholding tax at a higher rate than you should
  3. Your business was not running as well as expected
  4. You don’t have a good budget or forecasting to take into account expenses claims

Here are 8 ways you can spend your tax refund as a small business owner:

1. Hire a professional accountant

If your business tax refund was significant from the previous year, you might need to check if you’ve been overpaying IRD. This means you are losing cashflow throughout the year while you need it for the business.  

If you did your own business taxes, hold onto the tax refund and use it to hire a professional accountant to do it for you next year. This is also a good indication for you to consult a professional to work out why you have been over paying IRD. The accountant will not only be able to help you file tax returns, but also assist you with tax planning and tax minimisation. 

There’s a common misconception that a large tax refund is a nice bonus at the end of the year. This is not right. Especially during the current economy, inflation goes up at 8% per quarter. If you overpaid IRD by $2,000 today, and only get it refunded after 12 months, you’ve lost money. Meanwhile, you could invest this $2,000 in a better website to attract more customers, upgrade your computer system and so on. 

Another obvious benefit of hiring an accountant is that you may be eligible for an extension of time to file your taxes. For example, tax return is due on 7 July, if your balance date is 31 March. However, if you’re registered and linked with an accountant before that date, your deadline could be eligible for an extension to 31st March the following year.

2. Buy or lease new business assets or equipment

When you get a tax refund, it’s always good to invest back into your business. Investing in new equipment or assets can enhance the efficiency of your business. Therefore, getting a new laptop, buying a new business vehicle, and setting up new tools for business may be worthwhile. Even small upgrades such as getting a new printer, new desks and chairs can help to boost employees’ productivity and morale. 

3. Hire a subcontractor or outsource

When you receive a tax refund, you could consider hiring a subcontractor or outsourcing part of your business  in order to expand. By distributing some work to a subcontractor (or by outsourcing it), you could free up yourself to work on more valuable clients. For example, you might be using Excel to track invoices. With the tax refund, it could be a good time to consider getting a subcontractor on Upwork to convert your invoices into Xero files for you. By spending this one-off cost, you could get your system up to date. 

Outsourcers are also generally cheaper to get onboard compared with hiring full-time employees in NZ. If this works well for your business, you can consider outsourcing some of the work in other areas in your business.

Tax refunds may not cover the full costs of hiring new employees; but it’s worthwhile to consider if your business is constantly growing and your revenue repeatedly meets what you’ve planned. Labour cost is considered one of the largest expenses when running a business. If your business is booming and you have a decent amount of money from the tax refund, it’s definitely something to consider. Here is a test to see if you’re ready to hire.

However, be aware of the employment-related law before making a hiring decision. For instance, what the minimum wage you need to pay is, what benefits they’re entitled to, how much you need to contribute to their Kiwisaver and much more.  It’s best advised to consult with a legal professional.

4. Build or upgrade your website

Do you have a website for your business? Even though you’re not running a business online, having a website means you’re more accessible to your prospects and customers digitally. If you have a website already, consider upgrading it. Is your website fast enough? Is your website easy to navigate? Is your website easy to use on a mobile device? Do you want to expand your business and start selling online?

5. Invest in marketing

All businesses need good marketing to succeed.. It's a common misconception that marketing is simply promoting your products and services. Really, it involves a wide range of aspects from establishing a brand for business, getting competitive insights in your industry, setting a pricing strategy, knowing your customers and maintaining relationships with them.

Use the tax refund money for marketing activities such as social media marketing, branding, and search engine optimisation (SEO). If you don’t have the skills needed to implement those marketing strategies, consider hiring a marketing professional from Upwork or Fiverr.

6. Invest in education

Do you want to adopt something in your business but aren't sure how to go about it? Are you thinking of learning something new that you can use to help your business grow? Business is changing rapidly, and you and your employees need to stay current.

Take advantage of your tax refund to pay for your own and your employees' education, whether it's a conference in your field or an online course on digital learning platforms such as Coursea, Udemy, and Skillshare. The investment you make in yourself and your employees is ultimately an investment in your business.

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7. Donations

Donating to a non-profit organisation or a cause is a good way to spend your tax refund. If you already have a relationship with a charity, you can donate to them directly. If you have no idea who to start and where to start, there’re plenty of ideas on The Good Registry.

Make sure you keep the records of the donations to those IRD-approved charities and organisations because you may be eligible for claiming tax credits in the next financial year. You can find more details about charitable giving on IRD’s website. If you donate in the business name, you can also make an expense claim in the next financial year.

8. Share with your team

A small team lunch or bonding activity could be a good way to spend your tax refund. Getting out of the office and taking part in something new and exciting increases your employees’ motivation. It also reminds them that their contributions are appreciated and rewarded. As a result of this motivational boost, they will be more productive and more confident with one another.

Who are Beany? 

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world. ​

We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.

Tori as a dog

Tori Ma

Performance marketer

Performance marketer at Beany, and into true crime documentaries.

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