Frequently Asked Questions

We use Xero simply because it is a simple, easy and smart way of managing your accounts. Plus, you can also:

• Share a ‘single ledger’ view with us.
• Manage your cashflow in real-time, schedule bill payments, create and send professional invoices and get paid online automatically.
• Manage payroll, fixed assets, expense claims, and budgets and access complete financial reporting.
• Import your bank feeds automatically and categorise your latest banking, credit card and transactions.
• Login anytime, anywhere on your Mac, Windows, iPhone or Android device.

Additionally, it comes with a huge number of other features you can integrate: bills and expenses, debtor tracking, eCommerce, inventory, invoicing, payments, payroll, reporting, time tracking, etc.

And, it suits all business types: retail, high tech, non-profit, legal, hospitality, cafés, startups, construction, creatives, e-commerce and small businesses.

It depends on the size and nature of your business but, basically, there are four key requirements:

1) Your IRD number

If you operate as a partnership, company or trust, you will need to apply for a separate IRD number. If you are operating as a sole trader, your personal IRD number will also be your business IRD number.

2) Goods and Services Tax (GST) application

If your turnover (sales) is more than $60,000 per annum, or you think it will be more $60,000 in any 12-month period, you must register for GST. And even if it not, you can still voluntarily register.

3) Employer registration

If you have employees, you will need to register as an employer and will have to make PAYE, withholding tax, student loan, child support and Kiwi Saver deductions from your employee's wages. All of which, we can take care of.

4) Fringe Benefit Tax (FBT) registration

FBT is payable on most benefits given to your employees or shareholder-employees, including yourself. The most common reasons for this is when you (the employer) provide a vehicle to an employee, subsidised or free goods and services to staff; or low-interest loans to staff.

While you don’t normally pay any tax in your first year, even if you make a profit, you will incur a tax liability that will be payable in the second year of business. You will need to be very clear about what tax is due, and when. If you’re with Accounting4Me, we will clear it up for you.

You can pick from four basic choices:

1) Sole trader: You are in business on your own, with no formal structure.

PROS
Complete control and flexibility to run the business as you see fit.
Unlimited liability means creditors are more likely to extend credit if needed.
You receive all business profits.
Smaller amounts of capital make for easier organization.
CONS
Personally liable for all business debts, you’re all by yourself.
Banks are reluctant to give loans due to higher turnover rates and usually smaller assets.
Creditors can go after your personal property to satisfy a claim if your business assets aren’t enough.
Since the business relies on one person only, it is harder to raise capital on a long-term basis.

2) Partnership: You are in business with one or more person.

PROS
Flow-through income taxation for all partners.
Less expensive and less paperwork than incorporating or filing to become an LLC.
Partners can pool resources and share the financial obligation rather than facing it alone.
No rigid, obligatory corporate structure.
CONS
Each owner is equally responsible for debt and loss.
Creditors can go after your personal property to satisfy a claim if your business assets aren’t enough.
Liable for debts and actions of your partner.
Limited capacity to raise money and attract investors.

3) Limited liability company: Your business is a separate legal entity and you own shares in it.

PROS
You have the flexibility of being taxed as a sole proprietor, or partnership.
Less paperwork and lower filing costs.
You can form an LLC with just one person, or you can also have an unlimited number of members.
Flow-through income taxation, keeping things simple.
Members can receive revenues that are larger than their individual ownership percentage.
Members are protected from some liability if the company runs into legal issues or debts.
CONS
You cannot pay yourself wages.
High renewal fees or publication requirements can be pricey.
Your tax fee could range from a flat fee to an amount based on the company’s revenue.
Investors may be more likely to put their money into a corporation, making it harder to raise financial capital.
Unless you are running the LLC alone, the ownership of the business is spread across its members.

4) Family trust: A trust owns and runs the business on behalf of the beneficiaries, which could include you and your family.

PROS
Protects assets for beneficiaries from their creditors, relationship property claims, or if they are unable to manage their financial affairs.
Minimise or prevent claims against your estate.
Can be used to protect money set aside for special purposes.
Courts cannot overturn or rewrite provisions in your will.
Your estate continues to benefit your named beneficiaries.
CONS
You lose ownership of the assets you gift to the trust.
If you treat the assets as your own, the trust can be challenged.
Cost of establishing is complex.

View our Guide To Choosing A Business Structure

The basic checkpoints are:

1) Bank accounts: Create a separate business bank account to use for all business transactions.
If you require bank finance when you go into business, you need to show the bank, in detail, what your business involve: what research you have done; what experience you have; how you will market the businesses; what competition you will face; how you intend to finance the venture; and cashflow forecasts showing the projected financial performance of the business. Accounting4Me can help you clients through this process.

2) Insurance: Your business should be insured against any accidents or loss of plant or equipment, cover on your business premises, and your motor vehicle.
The public liability insurance covers you for any accidents you have or cause on or to other people’s properties.

3) Marketing: This can be achieved in many forms, including print (magazines, newspapers, directories), online (search engine ads, websites), radio spots, TV, billboards, flyers, direct mail and others. But before you spend money on advertising, make sure you understand what advertising can – and cannot – do for your business.

Yes! You must keep records of all your business transactions. These can include any or some of the following:

• Receipts and invoices issued by you to customers;
• Receipts and invoices received from suppliers;
• Bank statements;
• Cheque books and deposit books;
• Wage records for employees;
• Details of all returns filed with the IRD;
• Interest and dividend statements; and
• Ideally, a cashbook (manual or electronic) and petty cash book.
• You must keep a receipt or invoice for all purchases you make. For any purchases over $50, you must keep a full tax invoice that clearly states the name and GST number of the supplier, the date the invoice was issued, a description of the goods or service, and the amount payable (including any GST content).

All records must be kept up to 7 years. Inland Revenue requires you to keep all business records, including any records stored in an electronic format, for a minimum of 7 years from the end of the tax year to which they relate.

Yes, but only if your turnover is more than $60,000, or you think it will be so in any 12-month period. But even if your turnover will not be more than $60,000, you can still voluntarily register. Talk to us and we will discuss whether voluntary registration will benefit you.

Learn More About GST

To add GST to an amount, multiply the amount by 1.15.

For example the GST exclusive amount is $100: 100 x 1.15 = $115.

To calculate the GST exclusive value from the GST inclusive amount, multiply the amount by 20 and divide by 23.

For example, if the GST inclusive amount is $115: 115 x 20 ÷ 23 = $100.

Learn More About GST

It is fairly easy for IRD to identify which traders are "in business". These people are required by IRD to keep proper records and prepare business accounts and file income tax and possibly GST returns.

If you're unsure about this, or not already set up, we recommend you drop us a mail about your doubts and questions and we can discuss how best to go forward with an accountant.

The main kinds of charges for failing to meet tax obligations are:

• A shortfall penalty where the correct amount of tax is higher than the amount you paid (eg, because of an understatement of tax, or where the amount of a refund or loss is reduced).
• A late payment penalty if you post or deliver a payment to us after the date it was due.
• A late filing penalty if you do not file a return by the due date.
• Interest on the amount of tax you owe if you have underpaid your tax. The interest rates charged are based on market rates.
• EMS non-payment penalties are where you file an employer monthly schedule but do not pay the full amount payable on that schedule. These penalties are in addition to any of the other penalties that may also then be payable.

Learn more about taxpayer penalties

Any expense which has a direct link between that expense and the generation of business income are generally claimable. For example:

• Day-to-day business expenditure - rent, stationery, power, etc. - will normally be deductible.
• Other expenses - entertainment, legal fees, motor vehicles - are subject to certain rules.
• Expenditure of a capital/asset nature - e.g. purchase of a new equipment - is not fully deductible in the year of purchase, but is subject to depreciation.
• Expenditure of a private or domestic nature is not deductible, except where it forms part of a home office claim.

If you run an office at home, you will be able to claim a portion of your household costs. For example:

• Interest costs on your mortgage (but not the principal repayments);
• Rent;
• Rates;
• House insurance (not personal insurance);
• Repairs and maintenance;
• Electricity and gas; and
• Telephone and internet.

Basically, the proportion of the tax deduction claimed should reflect the area of the house used for the home office. You can determine this based on the floor space area used for the office, divided by the total area of the house. For example, if the office is 16m2 and the house is 160 m2, then 10% of the total costs of the house can be used as an expense of the business.

If you are unhappy with your current accountant, you can certainly always jump to other accountants. There is no point putting up with a service provider who is not performing. If you want, drop us a mail, we are very happy to talk you through how we work and how we might be able to support your business.