Inland Revenue is proposing minimum requirements for SMEs financial statements to support their tax returns. Inland Revenue’s role arises from the removal of the need for SMEs to prepare general purpose financial statements. As a major recipient of financial information, Inland Revenue has an interest in what will be done to replace those statements. Its requirements are likely to form the basis of many special purpose financial statements.
The minimum requirements include:
- Financial statements (i.e. a balance sheet, profit and loss statement, and supporting schedules) based on double entry cost based accrual accounting
- Use of tax values to determine income/expenditure where possible (e.g. fixed assets and depreciation)
- Reconciliations of taxable and accounting income, tax losses and imputation credits carried forward and used
- Disclosures of available subscribed capital, capital gains and related party transactions
Inland Revenue’s primary focus is on the requirements for corporate SMEs (this is proposed to be for income years commencing on or after 1 April next year). The requirements for non-corporates are expected to apply a year later.
In the main, we have few issues with the proposed minimum requirements. However, one change is that Inland Revenue is formalising the need for SMEs to track their available subscribed capital and tax-free capital gains. SMEs that have not tracked these amounts historically will need to recreate these balances. We expect a large impact and recommend an extension in the application date for providing this information and/or the amounts being statute barred.
Further details on the minimum requirements is in the Taxmail.