Tax essentials for small businesses

Income Tax, Goods and Services Tax (GST), Pay As You Earn (PAYE) and Fringe Benefit Tax (FBT) might be new to you. If so, our quick guide on the small business tax essentials can help you understand these terms and whether they may apply to your business.

Introduction to taxes

Whether you are just starting out, or have been running a small business for years, it's essential to know details about your taxation requirements.

Find out how to register your business and what records you need to keep, as well as your obligations in relation to other tax types, with Inland Revenue's Toolkit for businesses

Registering for an IRD Number

All businesses need an IRD number. If you're a sole trader or a partner in a partnership you can use your individual (personal) IRD number. If you're running a company or trust-based business, you'll need to get a separate business IRD number.

Types of business taxes

Business Income Tax

As soon as you start operating as a business, it is important to keep track of the business' income tax obligations.

  • Once the first tax year is over (for most businesses this is 31 March), the business will need to file a tax return to declare all gross income the business received during that year.
  • You may also be able to deduct business expenses from the business' income, provided those expenses meet specific criteria. You may have provisional tax obligations too, as income tax may be due in instalments throughout the tax year. For that reason, it’s a good idea to save part of your income for your tax. You will then have all the money ready when the tax bill arrives, and maybe even some left over.
  • For more information on your business income tax obligations, please refer to Inland Revenue guidelines, and/or talk to your accountant or tax advisor

Goods and Services Tax (GST)

You need to register for GST if your turnover is expected to be more than $60,000 in a 12-month period. Even if you expect your business to make less than the threshold, you may want to register anyway. 

After you register:

  • You need to charge GST on your sales and pay this to Inland Revenue.  But depending on your business, you can generally claim back GST paid on your business expenses and purchases.
  • You can apply to register for 1-month, 2-month or 6-month GST periods subject to some restrictions.  You need to complete GST returns each period.
  • You can consider using an accounting software package such as Xero or MYOB, as this may make it much easier to file GST returns. 
  • You can find out more about GST on the Inland Revenue website.

Remember to set aside your tax as you earn it. Don't make the mistake of spending your GST, or you'll be caught short when you have to pay it. Set up a savings account and put aside the GST until you have to pay it.

Pay As You Earn (PAYE)

  • If you employ staff, you need to register with Inland Revenue as an employer.
  • You need to deduct PAYE and other payments like student loans, child support, ACC and KiwiSaver from their pay, and return it to Inland Revenue.
  • For more information, please refer to Inland Revenue guidelines, and/or talk to your accountant or tax advisor.

Fringe Benefits Tax (FBT)

  • If your business provides non-cash benefits to your employees on top of their salary or wages, then your business may be liable for FBT.
  • Benefits provided to staff such as gifts and vouchers, use of a company vehicle for personal use and medical insurance may all attract FBT.
  • You can find out more about FBT on the Inland Revenue website.

Keeping records

You are legally required to keep all your business records (including those in electronic form) for at least seven years. Business records must be in English and must be kept in New Zealand, unless prior approval has been obtained from Inland Revenue.

Some of the documents you should keep include:

  • Cash and non-cash sales and expenses
  • Asset purchase records
  • Details of any gifts, donations or contributions that may be tax deductible
  • Employee and contractor records, such as payments, KiwiSaver contributions, copies of Inland Revenue declarations and any contracts

For a detailed list of the types of records you are required to keep please refer to Inland Revenue.

Getting help

Tax is a complex topic and the choices you make about your business structure and funding may impact on the tax treatment of your business. Make sure you get professional advice from an accountant or qualified tax expert.

If you need help with your business online accounting packages, like Xero or MYOB, talk to your accountant or bookkeeper. 

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