Whether you’ve just started a company with a couple of employees or you’re going it alone as a sole trader, here are the must-dos to help you build a healthy relationship with the IRD. 

Get an IRD number for your company or partnership

If your self-employment is only about you – i.e. you’re a contractor, freelancer or sole trader – you can use your personal IRD number for all things tax related. See Afirmo’s guide to registering as a sole trader in New Zealand.. 

However, if you’re setting up a company – which means registering with the Companies Office – your business will need its own IRD number. See our guide to setting up a company in New Zealand. 

If you’re going into partnership with someone else, the partnership needs its own IRD number. Additionally, each partner needs a personal IRD number. 

Be  very particular about recording and claiming business expenses

When you pay for something that’s used for your work, keep the receipt or a record of the payment. There’s a good chance you can claim it as a business expense, which will reduce your taxable income. Inland Revenue lets you claim these work-related things:

  • Vehicle expenses
  • Rent paid on business premises
  • Business-related insurance premiums
  • Mobile and landline phones
  • Stationery and printing
  • Work uniforms
  • Travel and accommodation
  • Reference material – magazines, books, subscriptions
  • Memberships – professional associations etc
  • Some entertainment expenses (this is a tricky area for claiming, so check out the Inland Revenue guidelines for clarity)
  • Home office expenses

Do your tax return on time

When the end-of-financial-year (31 March) rolls around for the first time, getting your tax return filed before 7 July is important. The tax you owe for your first year of trading will be due on 7 February of the following year..  

If the return shows you owe more than $5,000 worth of income tax, you’ll need to start paying provisional tax in three equal installments to cover your second year in business. You’ll pay your first installment of provisional tax on 28 August, the second on 15 January and the third on 7 May.  More about provisional tax. 

Remember that assets are different to business expenses

Keep records for the purchase of business assets worth more than $500. These might include office furniture, computers, vehicles and work-related equipment. Assets suffer wear and tear over time, so you’re allowed to claim depreciation for them. Inland Revenue sets the depreciation rate based on the initial cost and the expected lifespan of the asset. 

Don’t forget your GST returns

As soon as it becomes apparent that your business will earn more than $60,000 a year, you need to register for GST. Even if you don’t think you’ll go over the $60k threshold, it might still be worthwhile registering for GST so that you can claim GST back on materials and suppliers you use. 

During the registration process you need to choose whether to file GST returns two-monthly or six-monthly. You also need to choose your accounting method – cash or accrual. For simplicity, most small businesses choose cash accounting because it’s more straightforward. Read more about cash accounting vs accrual accounting. 

Register as an employer if you have employees

If you’re going to hire people to help with your business and they’re going to be employees, rather than freelancers who will invoice you, you need to register as an employer through myIR. To do this you will need your business IRD number, contact details, BIC (business industry classification) code and the date you start employing staff. 

Once you’re registered as an employer it’s your responsibility to deduct PAYE (pay as you earn) tax from each employee’s pay. Employees will need to complete a tax code declaration (IR33), so that you know how much tax to deduct. Tax codes are based on primary income, secondary income, student loan, Working for Families Tax Credits and income-tested benefits. 

Get sorted with KiwiSaver for your employees

If you have employees you have to get organised with KiwiSaver, meaning checking if new employees are eligible to be automatically enrolled, enrolling them if they are, and making KiwiSaver deductions and contributions. Inland Revenue has a complete guide to KiwiSaver for employers. We recommend you read it. 

Take care of essential financial reporting

If you’re a company, you need to provide a financial report at the end of each financial year. Minimum requirements are: 

  • a balance sheet setting out the assets, liabilities and net assets of your company at the end of the financial year
  • a profit and loss statement showing income derived and expenditure incurred for the year
  • a statement of accounting policies describing the basis on which the accounts have been prepared, and a description of any changes in accounting policies used since the previous income year

Remember to pay your ACC levies

All New Zealanders pay ACC levies, including small businesses. As a business owner you’re required to pay an ACC Work levy every year – this covers you and your employees. You also need to deduct the ACC Earner’s levy from employees’ salary or wages. 

If you’re a contractor, freelancer or sole trader, ACC will get information from Inland Revenue after you’ve filed your annual tax return. There are two types of cover available – CoverPlus, the default option; and CoverPlus Extra. Find out about ACC payments on the ACC site. 

Keep your records for at least seven years

Tidying up is okay, but be very careful about what you throw out. Inland Revenue requires you to keep records and receipts for seven years – both electronic and hard copy. In particular, keep invoices, receipts, wage books, petty cash records, banking records, vehicle log books, asset registers, depreciation schedules and emails that back-up expense claims for travel. 

Ask for help if you need it

The whole income tax, GST, ACC, KiwiSaver challenge is so much easier if you have an expert to help. That’s where joining Afirmo comes in. Created for the self-employed market – freelancers, contractors, sole traders and small businesses – Afirmo is an online toolkit that helps with all the important tasks, so that you do the right things at the right time. 

Check out Afirmo’s suite of Smarten Up tools:

  • Sales Tool: A professional sales invoice shows you mean business. Add your logo and get that professional image in an instant.
  • Marketing Toolkit: The Marketing Tools allows you to create a new brand, get a logo and cool domain name and get online in an instant.
  • Money Tools: Securely link your bank accounts to Afirmo and see your business performance and insights presented. When you categorise your transactions and match them to your business expenses and sales invoices with Afirmo you well get a complete picture of your business.
  • Tax Software Tool: Afirmo’s Tax Tool makes calculating your GST and Income tax bills a breeze. Afirmo’s tax tool is suitable for sole traders, Partnerships and Limited Liability Companies.

Keeping on top of your tax and deductions obligations, as a business owner, is your responsibility, but these responsibilities do not need to keep you up at night with worry. You do not need to go it alone taking care of these obligations. There is help out there and Afirmo is designed as a one stop shop for supporting you in meeting these obligations. If you are a sole trader, in a partnership, or if your business is set up as a limited liability company, Afirmo’s automated tax software tool will ensure your tax is sorted. But Afirmo offers more than just tax support, we are an online toolkit that will streamline your insurance, marketing, quotations and invoicing too.