There are a lot of considerations when beginning your new venture, as accountants it’s important we make the finance considerations as seamless as possible. We’ve put together a few notes to help you get going, knowing that things like accounting and tax are taken care of.
You can operate as a sole trader, company, trust or partnership. Here we’re only going to look at company and sole trader.
The benefits of incorporating your venture include building a separate brand, having limited liability and generally separating yourself from your business.
The negatives of this are that you can’t claim losses against your personal income (unless you elect into the LTC regime), you need to file separate tax returns and the registration and ongoing maintenance of the company. If your venture includes partners then you’re likely to need a shareholders agreement.
The Inland Revenue makes it easy to apply for an IRD number for a new company, making it a tick box online when incorporating. Which leads us to...
2. Income Tax
Tax in New Zealand on companies is 28%, while for individuals on the progressive scale can go up to 33% over $70,000. The tax year runs from 1 April to 31 March.
If you’re setting up in business it’s important to keep an eye on how profit is tracking for the year and not fall foul of the provisional tax guidelines. Basically these are set up because as employees pay tax as they earn, businesses must also pay tax in three instalments throughout the year, with a balance after a tax return is completed.
Technically you don’t have to pay provisional tax in your first year, however we ALWAYS recommend a review in August, December and March to see where you are at. The Inland Revenue can charge interest if it calculates you should have paid sooner, or your final instalment is too high.
"Should I register?” is the question we get asked most frequently. Yes.
No seriously, it is hard getting a confident yes or no for most things in the tax world. You don’t have to register until your revenue hits a certain threshold. However if you’re looking to earn over $60,000 in revenue then you need to register and add GST onto your pricing for customers in New Zealand.
As a new business you’ll likely be spending more than you earn in the first few months. Registering can allow you to claim the GST back on those initial purchases, meaning more money to get set up. You can also introduce business assets into the company and claim the GST, if they originally had GST paid on them.
If you are providing business to business services, your customers are able to claim the GST back, so don’t worry about your invoices being higher than expected.
The Inland Revenue makes it easy to register for GST as it can be done through online services. Search for “register for GST online” and you’ll be sipping get-exclusive martini’s in no time. Your IRD number is now also your GST number.
There will be a few options when registering such as Payments or Invoice basis and six-monthly or two-monthly filing. We recommend a payments basis so you aren’t paying GST before you’ve collected on your invoices, and choose a timeframe that suits the flow of your business. If you’re good at putting away an amount for GST then a six monthly filing might be ok, whereas if you think you’ll need to keep on top of it then go for two monthly. You can always request to change the filing frequency later.
You’ll need to provide a tax invoice for your customers. A system like Xero makes this effortless. For invoices over $1,000 you’ll need to include the words “Tax Invoice” in a prominent place, your business name and GST number, the address of the customer, the date the invoice was issued and a description of the goods and or services supplied (including quantity).
There are some types of businesses where GST won’t be applicable. If you’re not sure if you should be registering please get in contact with your accountant.
*Tax rates correct at time of writing. Please check with your accounting professional.