Why do businesses pay GST?
It’s easy to think of GST as an additional tax on your business. In fact, the business acts as a collection agent for Inland Revenue. When a business is registered, it adds GST to its goods and services and pays the GST portion to Inland Revenue. The business can claim GST paid on many costs. The amount collected less the amount claimed results in the net GST to pay Inland Revenue (or receive a refund).
Here’s a mind bender – an expense to you is income to another (GST-registered) business. That other business is also collecting GST on behalf of Inland Revenue.
Therefore, from Inland Revenue’s perspective, the net result of GST on transactions between GST-registered businesses is almost always nil. The other GST-registered business has to pay GST and you can claim it.
It’s only when a GST-registered business sells to a non GST-registered party (including consumers like you and me) that Inland Revenue ultimately collects its tax on goods and services.
Do I have to register?
Only if your income (or expected income) is more than $60k in two consecutive years.
Should I register?
That depends. When starting out, businesses often pay for large assets. Being registered means that you can claim back the GST portion even if your income is less than $60k.
If your business sales are predominantly to overseas customers, it’s also a good idea to register. You don’t need to charge GST on the income, but you can claim GST on expenses incurred in New Zealand.
How do I prepare my GST return?
Your accounting software programme can automatically create and file your GST return. If you don’t have any accounting software, we strongly suggest using one. Traktion clients use Xero – it’s one of the most popular software for small and medium-sized businesses. You can find Xero’s up-to-date pricing here. For a slightly lower price and less functionality, you can pay a reduced amount. However, this is only available through your bookkeeper or accountant.
Xero is extremely user-friendly, so you can do everything yourself, but we do recommend that you obtain training.
You could get your accountant to take care of your whole Xero file. Most accounting firms offer this service and it leaves business owners free to do what they love. Remember – it may take you three hours a week in administration work, but we can probably do it in less than an hour. And…we enjoy doing it!
When do I prepare my GST return?
Most of our clients file every two months, on a payments basis. That means anything which goes through your bank account is captured in the GST return.
Other options are monthly, six-monthly, and on an invoice basis.
How do I pay GST to Inland Revenue?
Banks have made that very easy. They’ll usually have an option to pay Inland Revenue. Just enter the type of tax (GST), IRD number, the month, and the amount.
What about GST refunds?
As long as Inland Revenue has your bank account, there’s usually no further action required. If there are large GST claims (on motor vehicles, plant, equipment), they may request an invoice via secure mail in your myIR account.
Do I need an accountant to prepare my GST return?
It’s not a requirement. However, your accountant is best placed to determine what can and can’t be claimed, and can deal with Inland Revenue if issues arise.
How involved do I need to be?
You can be involved in the GST process as much or as little as you like. Options include:
- Prepare a spreadsheet with your data and file the return manually online
- Reconcile the bank account(s) from your accounting system, then use the software to calculate and file GST
- Have your accountant reconcile your bank account(s), prepare the return and file on your behalf.
- Start with option 3 above, then transition to option 2 once you become more comfortable with the process.
- Start with option 1, then move into option 2 or 3.
Preparing and filing GST returns is straight forward if you have the correct processes in place and communicate with your accountant.
At Traktion, we offer Xero training and can take care of the bookkeeping, reconciling Xero, preparation and filing the GST returns.
We send notifications about the upcoming GST period, reminders if we haven’t received your information, let you know when the GST return is filed, tell you the amount to pay, and the payment due date.
Get in touch – we’d love to hear from you!