Understanding Your Basic Tax Responsibilities
Some of the basic tax responsibilities most businesses will have.
You must complete financial accounts and tax returns each year
If you are GST registered you must complete and file GST returns
As an employer, you must make PAYE, student loan, child support and KiwiSaver deductions
and file and pay them to the IRD
You may have to pay provisional tax during the year
If you have a student loan, you must pay your student loan repayments directly to the IRD
If you contribute to KiwiSaver, you pay your KiwiSaver directly to your KiwiSaver provider
If you contribute to KiwiSaver, you pay your KiwiSaver directly to your KiwiSaver provider
The IRD tax system relies on people meeting their tax responsibilities voluntarily, and there are penalties if you do not comply. It is important to pay your taxes by the due date to avoid penalties and interest being charged.
Business income is earned from goods and services you sell (including invoices you’ve issued in March but have not yet received payment for). You can claim expenses against your income to arrive at the net profit. You must complete a set of financial accounts and tax returns with an IR10 each year and submit this to the IRD.
If your balance date is 31 March, you must file your income tax by 7 July and if you have a Tax Agent with extension of time by 31 March the following year.
Your first year in business is NOT tax-free
If you make a profit at the end of your first year in business you will have to pay terminal tax. You’ll pay this tax by 7 February the following year, or if you have a Tax Agent with extension of time by 7 April. If you do not want a big tax bill in your first year of business you can make voluntary payments at any time. You can do the following:
Make payments to the IRD on or before the due date.
Arrange an automatic payment for the whole amount or regular payments before the due date.
Put money aside in your bank account for tax and paying a lump sum on or before the due date
Understanding Provisional Tax Within Your Business
Provisional tax helps you manage your income tax. You pay it in instalments during the year instead of a lump sum at the end of year.
You do not pay provisional tax in the first year of business but you will pay in your second year of business if your tax is more than $5,000.
Provision tax is payable the following year after your income tax return is filed at IRD. It is a good idea in your first year of business to put money aside in your tax bank account. This will ease the cash flow in the second year of business and help make a good habit of putting tax money aside each year. Budgeting for provisional tax is an important part of running your business. It's important to know what tax you’ll need to pay, when they are due and how much they will be. It is a good idea to use a separate bank account to put aside money to cover your tax payments. If you have not budgeted for your tax and put money aside you will be in for a big tax payment due and this may have an impact on your business cash-flow.
Provision tax instalments
P1 due 28 Aug
P2 due 15 Jan
P3 due 07 May
Provisional tax helps you manage your income tax, you pay by instalments during the year instead of a lump sum at the end of the year. You'll pay provisional tax if you had to pay more than $5,000 tax from your last tax return.
If your tax returns are filed after 7 May, your provisional tax is based on your last tax return RIP plus 5% filed with IRD. Depending on when your tax return is filed and your GST returns filing dates you will need to pay two or three instalments. Normally provisional tax will be evenly split over three instalments.
So talk with your accountant and make plans to budget for your tax
For more information check-out this provision tax guide that IRD provides.