Right. So you’ve started your own business after most likely being an employee in the past?

One of your many obligations as a business owner is pay tax and my goodness, there are a lot!

We’re focusing on tax that most small and medium business physically pays to Inland Revenue. We’re not including taxes which are deducted at source (eg, schedular payments, interest income), because those taxes have already been paid to Inland Revenue on your behalf.

GST

It’s hard to remember that this isn’t actually a business tax! Businesses act as collection agents for Inland Revenue. After charging GST on your income and being able to claim GST on many expenses, the net amount is paid to Inland Revenue.

Registration is compulsory if turnover is more than $60,000 for two years, but voluntary otherwise. 

Once you determine your selling price, GST of 15% must be added on the invoice, and your client pays the total amount to you.

Filing and payment dates

For most small and medium size businesses, GST returns can be prepared monthly, two-monthly or six-monthly.

Payment is usually on the 28th of the month after filing.

Which is best?

We recommend at least every two months. This ensures you get into the habit of regularly recording account transactions.

Leaving it for six months can be a burden if there are many transactions to enter. 

How is GST calculated?

Your accounting system should be set up to recognise which income and expenses are subject to GST. Once that’s done, the process is almost automatic.

Transactions are recorded (via your accounting system) in your GST return when:

•  Transactions go through your bank account (Payments basis), or –
• You issue an invoice to clients and receive an invoice from suppliers (Invoice basis)

Which is best?

For small and medium businesses, we advise using the payments basis. The problem with using the invoice basis is that you end up paying GST on income that you may not have physically received in the bank account.

Income tax

Income tax is calculated yearly for all companies, individuals, trusts and partnerships.

For individuals who received only PAYE-paid wages, government benefits, interest, and dividends, Inland Revenue usually automatically calculates your tax. It’s up to you to check it though!

Filing and payment dates

Tax filing and payment dates can vary. If Inland Revenue has granted you an extension of time (EOT), the return is due to be filed by 31 March the following year, and paid by 7 April the following year.

If you haven’t been granted an extension, tax returns must be filed by 7 July in the current year, and payment must be made before 7 February the following year. 

For taxpayers with tax agents (like an accountant), you’ll almost always be granted this extension of time automatically. Inland Revenue reserves the right to cancel the extension if tax returns aren’t filed on time.

Provisional tax

Provisional tax is not an additional tax to the business. It applies only to taxpayers who have Residual Income Tax more than $5,000. Instead of paying your income tax in one lump sum at the end of the year, the tax payments are spread throughout the year (in advance). 

Filing and payment dates

There is no separate filing requirement for provisional tax. The yearly income tax return is all that’s needed.

Payments are due 7 August, 15 January, and 7 May.

PAYE

PAYE is usually associated with individuals receiving salaries and wages. To make life easier for most, Inland Revenue requires that their tax be paid before reaching the bank account. Inland Revenue benefits – it receives tax payments in advance of the final tax charge being calculated. Individuals benefit – I think we can agree that paying PAYE each pay period is so much easier when it’s deducted before you receive the money!

As with GST, PAYE isn’t actually a tax on businesses. Again, you’re working as a tax collection agent on behalf of Inland Revenue.

Filing and payment dates

Every pay period (weekly, fortnightly, monthly), the information from the payrun must be filed with Inland Revenue. Your payroll system should have the ability to automatically upload these details.

Even though you may have submitted multiple payruns during a month, you only need to pay Inland Revenue once – on the 20th of the following month.

Fringe Benefit Tax (FBT)

FBT is a tax the company pays when it provides employees (including shareholder-employees) with non-cash benefits. The most common example is the use of a company vehicle. Other non-cash benefits include gifts, and contributing towards the employee’s health insurance or gym membership. 

To cut down on administration, non-cash benefits of less than $300 per quarter, per employee can be ignored for FBT purposes.

Filing and payment dates

FBT returns can be prepared and filed quarterly or yearly. Plan on making the tax payments on the 20th of the following month.

Dividend Withholding Tax (DWT)

DWT is only payable when your company distributes a dividend to its shareholders. This can become quite complex in its calculation, so we suggest you discuss this with your accountant.

Conclusion

As you can see, there are a myriad of tax types with different filing and payment dates. It can all become quite overwhelming.

Ignorance of tax law isn’t a valid excuse for non-filing, incorrect tax calculations, or non-payment of taxes, according to Inland Revenue.

In the most emphatic way possible, we strongly suggest you use an accountant who knows the relevant tax rules, the filing and payment dates, and can prepare the necessary documents accurately.

Don’t be fooled with the “she’ll be right” attitude. Falling behind in filings and payments will cost you dearly, both in time and money (including penalties), when trying to sort it all out. Traktion can navigate all of the above for you (and more). Get in touch with us and find out how we can make your life easier.