T… A… X. Three little letters that can strike fear into the heart of any small or medium business. And what about all those other acronyms… FBT, GST, IRD, ACC, and PAYE.
But is tax really all that scary?
Your business tax does not have to be an unsolvable mystery. Let’s have a look at how it works and what you can do to make the whole process easier for your business.
Is Business Tax Really That Scary?
When it comes to tax, you need to be well informed of what is going on in your business and what obligations you need to meet. Unless you are a financial whiz, it is 100% recommended to have an accountant on board to help you meet those obligations.
Here are the benefits of having an accountant when it comes to your tax:
- Accountants deal with tax on a day to day basis so have all the up to date information on changes to regulations
- There are many ways that you can streamline your tax process, an accountant can help you set up systems that will save you time and keep you compliant
- Dates are a fundamental part of your tax obligations, these dates are ingrained in an accountant’s brain so they will always be able to remind you of when milestones are coming up
- An accountant can help you claim on all the expenses that you are entitled to which can save you money
- Accountants can provide advice on the tax advantages for large purchases, leasing equipment, using a private vehicle, or other business queries
Here at Accountants Plus tax does not scare us at all. In fact, we are actually tax experts. So don’t hesitate to get in touch with us if you need help figuring out what you have to pay and when you have to pay it.
What Is Tax?
Let’s cover off the basic question first. What is tax?
Tax is a compulsory financial payment that every New Zealand business must pay to the government to fund various public services and expenses. The amount of tax you have to pay will depend on your earnings and the setup of your business.
The different tax types are:
Income Tax: The main compulsory form of tax. It is calculated on your net profits (your total revenue, less your expenses) and the rate will differ depending on whether you are a sole trader, partnership or a company. To prevent the shock of a large tax bill, you are encouraged to pay in instalments throughout the year called provisional tax payments.
ACC: An annual levy that you must pay to cover the cost of workplace injuries. Even if you work in a low-risk profession or from home, you will still need to pay this levy. It is like an insurance policy in case injury does occur.
GST: Your business must be registered for GST if you have an annual turnover of more than $60,000. GST stands for Goods and Service Tax and applies to any product or service that is sold within New Zealand. The current GST rate is 15%.
PAYE: If you employ staff and pay them a wage or pay yourself a salary, then you will need to pay PAYE (Pay As You Earn) to the IRD on a monthly basis.
ESCT: A tax paid on any contributions to employee superannuation schemes including Kiwisaver.
FBT: This is payable if you provide perks or benefits to your employees as part of their employment.
This does look like a long and scary list of taxes. But, if you manage your business well and get the required help, then none of them should come as a shock when the bill arrives.
Ways To Make Tax Less Scary
There are a few things that you can do in the day to day running of your business to make tax less scary.
Have A Good System
The key thing with tax is having a clear picture of your earnings and expenses. The best way to do this is to have an effective accounting system in place that allows you to see your numbers at a glance. Something like Xero is easy to use and has great reporting that will help at tax time.
Regardless of the system you choose, it is important to stay on top of your financials regularly. So take the time to reconcile your incoming and outgoing funds on a daily or weekly basis.
Put Money Aside Regularly
It can be really difficult to come up with a large sum of money at tax time. If you set aside a portion of your earnings each month then you will never have to worry about being caught short. Have a chat with your accountant to find out how much you should be setting aside to cover all of your tax obligations.
Don’t Try And Muddle Through Or Stick Your Head In The Sand
Paying tax is a part of business. In fact, it is a positive part. If you have a tax bill then you must be turning a profit. So don’t ignore your tax and hope that it will go away because it won’t.
Likewise, don’t be naive about the process. There are some strict and specific regulations when it comes to tax. If you don’t really know what you are doing, seek help. You can end up paying more tax, or have penalties applied if you don’t follow the process correctly. There is information available online for free, but it is generic information. It is far better to get individual advice specific to your business from your accountant.
If you don’t have an accountant in place or you aren’t happy with your current one, then get in touch with us at Accountants Plus. We will be happy to take your scary tax monster and turn it into a very manageable process with no monster spray required!