Running a small business in New Zealand comes with many responsibilities, and managing taxes is one of the most crucial tasks. Getting your tax obligations right can save your business time, money, and stress in the long run. Whether you’re a new business owner or you’ve been operating for a while, it’s essential to stay on top of tax requirements. Here are some key tax tips every small business owner should know.
1. Understand Your Tax Obligations
In New Zealand, your business structure—whether it’s a sole trader, partnership, or company—determines your tax obligations. Ensure you are aware of the types of taxes that apply to your business, including:
Income Tax: Paid on the income your business earns.
Goods and Services Tax (GST): Applicable if your business turnover exceeds NZD $60,000 annually.
PAYE (Pay As You Earn): Required if you have employees, deducted from their wages.
2. Register for GST if Necessary
If your annual turnover exceeds NZD $60,000, you must register for GST. This allows you to charge GST on the goods and services you sell. While the current GST rate in New Zealand is 15%, you can also claim back the GST paid on business expenses, making it beneficial for growing businesses.
Even if your business hasn’t reached the threshold yet, you may opt to register voluntarily. This helps establish credibility and allows you to claim GST credits on expenses.
3. Keep Accurate and Up-to-Date Records
Maintaining detailed financial records is vital for both managing your business and meeting tax obligations. Ensure that your records include:
– Sales and income records
– Expense receipts
– GST invoices
– Wage records (if applicable)
Good record-keeping will make filing taxes easier and help you track deductible expenses. Consider using accounting software to streamline the process and avoid manual errors.
4. Claim All Available Deductions
As a business owner, you can deduct many expenses that are incurred while running your business. These can include:
– Office rent
– Vehicle costs (if used for business)
– Marketing and advertising expenses
– Utilities and telecommunications
– Home office expenses (if applicable)
Keep detailed receipts and ensure that any personal use of assets, like a car or home office, is correctly proportioned.
5. Know Important Tax Dates
Missing a tax deadline can lead to penalties and additional stress for your business. Mark your calendar with these important tax dates:
7th July: Income tax return filing deadline for businesses without an extension or a tax agent.
28th of Each Month: GST return due dates for businesses filing GST monthly or two-monthly.
PAYE due dates: These vary depending on whether you’re a small or large employer.
Consider working with a tax professional to ensure that you meet all deadlines and avoid penalties.
6. Consider Using a Tax Agent
A professional tax agent can provide expert advice and help with the complexities of the tax system, allowing you to focus on running your business. They can also extend your tax filing deadline and help you take advantage of deductions you might otherwise miss.
7. Plan for Provisional Tax
If your business earns more than NZD $5,000 in residual income tax (after PAYE or withholding tax), you may be required to pay provisional tax. This is essentially a “pay-as-you-go” system, where you pay tax in installments throughout the year.
To avoid cash flow issues, plan ahead and set aside a portion of your income for provisional tax payments.
8. Separate Business and Personal Finances
Mixing personal and business finances is a common mistake for small business owners. This can complicate your tax filing and make it harder to track deductible business expenses. Open a separate bank account for your business and ensure that all business transactions go through this account.
9. Stay Updated on Tax Changes
Tax laws can change, and it’s important to stay informed about new legislation or amendments that may impact your business. Subscribe to updates from Inland Revenue (IRD) or consult a tax professional who can guide you through any changes.
10. Seek Professional Help Early
If you find tax obligations overwhelming or confusing, it’s always better to seek professional help early. A tax consultant can guide you through the process, help minimize your tax liability, and ensure compliance with New Zealand tax laws.
Conclusion
Effective tax management is essential for the success and longevity of any small business in New Zealand. By understanding your obligations, keeping accurate records, and seeking professional help when needed, you can ensure your business stays compliant and avoids costly mistakes.
At RAKS Consulting Ltd, we specialize in providing tax services tailored to small and medium-sized businesses. Let us help you navigate the complexities of the tax system and keep your business on the right track. Contact us today for more information on how we can assist with your tax needs.