Business Obligations

As a New Zealand business owner you have obligations driven by the law; a significant part of these are tax and employment obligations. These are two of the areas that scare a lot of business owners - but they don’t have to, if you take a little time to understand the requirements.

My key advice:

• be aware of your obligations and educate yourself

• have a good tax advisor to manage your overall tax position

• invest in a robust accounting system, for example Xero or MYOB

• Run an accrual accounting system (which I will explain in a future blog)

• Forecast with cash to plan out when tax payments are due, especially for GST and PAYE

GST & PAYE

These two taxes are the most significant of the business obligations that most business owners need to meet. It is important to ensure they are recorded correctly and paid on time.

Disclaimer: The following is not meant to be specific tax advice but rather a simple overview of what these taxes are and how your business may be affected by them. Please ensure you discuss any detailed requirements with your tax advisor.

PAYE: Pay As You Earn (relevant if you have staff)

This is your employees’ tax that under NZ law you are required to deduct at source, i.e. when you pay them. At this time, you hold back the prescribed income tax that you are then required to pay to the IRD. This is not your money but your employees. Choosing not to pay this money to the IRD can lead to a prison sentence for the directors of the company.

If you run your own payroll, PAYE is usually due on the 20th of the month following the payment. This means you need to ensure each payday that you put aside these funds to ensure you can pay when due. If you struggle with cash management, or wish to reduce the risk around PAYE, the best idea is to engage a payroll company to manage your wages. Each payday they will take the full amount of the wages and ensure PAYE is paid on the due date.

GST: Goods & Services Tax

If your annual Gross sales (which is sometime interchanged with revenue) is expected to exceed $60,000 then you must collect GST. This is a sales tax you usually add on top of your sales. For example, if you sell a product to a customer for $1000 your invoice will say $1000 plus GST 15% equals $1150. The GST, which will be $150 in this case, needs to be paid to the government. Essentially, you are a tax collector for the government in this regard.  After adjusting for any GST you have paid for expenses, you usually* file a GST return every two months  and pay the amount due on the 28th of the month. Again this is not your money, so it is recommended that you set up a separate bank account into which you transfer 10 to 15% of all your receipts from clients and customers. This helps ensure you have enough funds when GST becomes due. With a good accounting system it is easy to track GST and file it, though you can also use a bookkeeper to help you.

Key takeaways

• understand that you have tax obligations that are essential to manage well for business success

• consider using a payroll company to remove administration and risk around PAYE

• understand your accounting system with regards to GST and ensure it is up to date

• cash plan: make sure you know in advance how much money you need to pay and transfer this to a separate bank account until you need it. This saves a lot of stress and helps protect your business.

*GST returns may for other terms including 6 months or 1 month – this is the option you choose as a business owner when you registered for GST