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Frequently Asked Questions

Do I need an accountant?
No – you can prepare your own financial statements and tax returns. However many business owners like to seek the advice of an accountant to ensure that they are doing things right and maximising their profits.

Do I have to file with Inland Revenue by the 7th of July?
No; with us as your tax agent you get an extension of time for filing until 31st March.  You also get an extension on tax payment from 7th February to 7th April.

Why do I have to pay tax?
We believe paying tax is a good thing… It means you are making money and we all want that.  As your tax agent we will effectively reduce your taxes by claiming all expenses.

Will I have to pay ACC?
ACC Levies are based on information shared from Inland Revenue after we file annual tax returns.  We are able to act on your behalf with ACC and make sure you are on the right code and rate.

How do I calculate the GST component?
For GST at 15% the fraction is 3/23 – e.g. to calculate the GST portion at 15% of a $99 purchase multiply by 3 then divide by 23: $99*3/23 = $12.91. To check you have it right multiply the GST exclusive amount you have calculated by 1.15 – you should end up with the original GST inclusive amount.

What is the best structure for my business?
It is simplest and easiest is to operate in your own name as a sole trader. However there are tax benefits from operating as a company and a company and can appear more commercially professional. A company structure also provides opportunities to sell your business by selling the shares in the company and to expand or obtain further investment in the company by selling shares to new investors. Trading trusts are sometimes used but IRD has been known to look carefully at these.

Do I need to pay tax in my first year of business?
You may have heard that you don’t need to pay provisional tax in your first (financial) year of business. This only applies in some cases. If you are a sole trader or shareholder/employee and your tax bill for your first financial year will be less than $50,000 then you don’t need to pay provisional tax during the year. You still need to pay the tax due at the end of the financial year (i.e. it’s deferred tax rather than no tax). If your tax bill will be more than $50,000 OR you are trading as a company or a trust you should pay provisional tax as you go based on your expected income for the year. In either case if your tax bill for the year ends up being more than $50,000 and you haven’t been paying the provisional tax you will be charged penalties by IRD.

What is provisional tax?
Provisional tax is a method of paying tax as you go during the year but without the formalised PAYE system. If you are earning income as a sole trader or as a shareholder employee then you are not required to deduct PAYE from your earnings. Instead you can pay provisional tax during the year with a “wash-up” at year end. The amount of provisional tax you need to pay is the same as the tax you paid on last year’s actual earnings plus 5% if your tax for the year is $50,000 or less. If your tax for the year is likely to be more than $50,000 then you are required to estimate your tax each year and pay it in equal instalments during the year. If at year end your tax was more than you had estimated then you will pay interest on any shortfall. If you paid more tax than was required then IRD will pay you interest as well as refund you any overpayment.

What if I am self employed and pay provisional tax?
If you pay provisional tax then the loss will usually result in a refund at year end and this will reduce the amount of provisional tax you have to pay next year. If you want to have access to the tax benefits of the loss sooner then you can estimate your provisional tax and this will reduce the amount of the provisional tax payments you need to make. Remember though that if you estimate your provisional tax then you will have to pay interest if you end up owing more tax than you had estimated.

Do I need to register for GST?
If you have earned or will earn more than $60,000 in a 12 month period then you need to register for GST. The exception to this is if you are only exceeding this threshold because you are selling capital items to replace existing assets, or selling capital items because you are winding down or ceasing business activity.

Should I register for GST even if I don’t have to?
If you earn less than $60,000 you can still register for GST if you want to. In some cases it may be beneficial to register for GST as this allows you to claim back the GST on your inputs (expenses). If you mainly sell your products/services to people/organisations that are GST registered then they can claim back any GST they pay you, so it makes no difference to them if you charge them $x no GST (not registered) or $x plus GST (registered). However if you are selling products or services to the general public who can’t claim the GST back then it is usually best not to register for GST. If you do register you either have to add GST to your current prices (so it costs them more), or you keep your current prices so you receive less after you have paid over the GST component to IRD.

What entertainment expenses can I claim?
Usually entertainment expenses (meals and drinks consumed off the office premises) are 50% deductible. If you bring food or drinks into your office (e.g. because people are working late) then it is usually fully deductible. If you are travelling for work any of your accommodation and associated costs (meals etc;) are fully deductible. However if while travelling you are paying for meals for work related guests then the cost of the meal is only 50% deductible.

Can I claim motor vehicle expenses?
Yes and you should.  If you are a sole trader and you are using a vehicle that may be used for carrying passengers then you must keep a log book for 3 months to record the percentage of usage that is work related. You can then claim that percentage of the associated vehicle costs e.g. depreciation, petrol, registration, insurance, warrants of fitness, repairs, tyres etc. Your three month log book will last for 3 years but needs to be redone if your usage changes by more than 20%. Therefore you should not do your log book over the Christmas break when your business travel is likely to be low! If you are only doing a small amount of travel you may prefer to keep track of the actual trips completed and the kms travelled and claim these back at IRD rates.

If you are using a company then it depends who owns the vehicle. If you personally own the vehicle you can be reimbursed for the actual costs based on a logbook of private vs business use or you can be reimbursed for the business km’s travelled using IRD mileage rates.

If the company owns the vehicle you can claim 100% of vehicle costs and have unlimited private use if you pay FBT on the value of the fringe benefits provided from the vehicle use – there is more detail about this in the FAQ item here. If the vehicle is not available for private use (100% used for work) then there is no FBT but this is hard to prove and usually only applies to vehicles that are obviously only used for work such as vans and trucks.

Are there any benefits in buying a company car?
Sometimes. With a company car you can claim the GST, depreciation and all running costs. If it’s available for personal use then you will have to pay FBT. We have found that if the car costs less than about $10,000 then this usually works out to your advantage but for cars over $10,000 the cost of the FBT will probably outweigh any savings you get claiming expenses, depreciation etc;