Common GST errors will impact your business

Common GST errors will impact your business

Most GST errors are unintentional. Even so, they can have a big impact on your business as they may result in you paying too much, or not enough, GST.
Whether you file the GST return yourself or whether you use our services, it’s useful to understand some of the most common errors that can happen. So, here are some tips to help you avoid the most common GST mistakes.

Before filing your GST Return

If you file GST on Payments basis you will be filing GST based on when you have paid or received money, so it’s important that you:

  • make sure that all transactions going through your bank account have been allocated to the correct expense or income account in your accounting software
  • reconcile all bank accounts and credit cards to verify that the actual bank account balance matches the balance in your accounting software. This ensures that you haven’t missed or duplicated any transactions.

If you file GST on Invoice basis you will be filing GST based on the date of your customer invoices and supplier bills, so you need to:

  • make sure that all customer invoicing has been done in your accounting software for the GST period
  • enter all supplier invoices that are dated in the GST period into your accounting software as bills to pay
  • record any cash purchases and income
  • reconcile all your bank accounts (as above) to make sure that you have captured all income and expenditure
  • Enter any expense claims to account for any business expenses paid with personal funds

Preparing your GST return

Prepare your GST with plenty of time to manage cash flow obligations ahead of the GST payment due date. Set aside time to review the GST reports. Have a look through the detail or audit reports to double check their accuracy and to ensure that you haven’t inadvertently claimed GST on something that shouldn’t have GST in it.

Here are some of the most common GST errors we see:

  • Are you GST registered? Sounds obvious but you can’t add GST to your invoices or claim GST on purchases if you are not GST registered. You have to be GST registered if you carry out a taxable activity and your turnover was $60,000 or more in the last 12 months or will be $60,000 or more in the next 12 months, or if your prices include GST.
  • Bank fees, interest and credit card commissions, Stripe and PayPal fees (financial transactions) and donations are not subject to GST
  • Check overseas purchases — many well-known online vendors are now registered for GST in New Zealand, however many of the smaller overseas vendors may not be. Always refer back to the invoice or receipt to verify.
  • Payment gateway services may have GST on their equipment rental fees but not on the commission that they charge on every transaction. Again, refer to their invoice to verify.
  • Business insurance is claimable as a GST expense (but not your own perosnal or life insurance). Check with us if you’re not sure what’s claimable.
  • If you have bought a vehicle or asset you can claim the GST on the purchase but make sure you haven’t double-claimed GST on both the purchase and the repayments. Talk to us when you are purchasing assets such as cars and equipment to ensure they are treated correctly from an accounting perspective.
  • Check the GST registration of any contractors you pay and check that you have not claimed GST if they are not registered.
  • Check that transfers between bank accounts do not have GST included.
  • Although your business may purchase goods and services for private use, you may not claim GST on these.

Remember, you need a valid tax invoice for every business purchase over $50.00 including GST. Depending which accounting software you use, there may be other checks and balances to undertake to ensure the accuracy of your reports.

Once you’re happy with the accuracy of your return, lock the GST period so that any changes to a filed period are restricted or tracked (some software packages will do this as part of their finalising and filing process).

Filing your GST return with Inland Revenue

Filing due dates are usually the 28th of the month following the end of the GST period. The exceptions are at Christmas – November GST returns are due on 15 January – and at the end of the financial year – the March GST return is due on May 5th.

Many accounting software packages now include the option to file direct to IRD through their software which saves a lot of time and duplication of entry and reduces the chance of human error.

In all cases you will need an IR login as paper returns are a thing of the past now and filing needs to be done online.

Paying your GST to Inland Revenue

If you are manually entering your GST information into the IRD’s online form you can also choose to pay your GST by direct debit. If you want to wait until the due date to pay it then remember to select the correct date at the time.

Otherwise you can easily pay GST through your internet banking. Ensure you select the right tax type (GST), enter the correct IRD number, and the correct filing period so that it is applied correctly.

You can also go into a Westpac branch and pay any of your taxes with their tellers.

Most New Zealand businesses have the option to file GST on a monthly, 2-monthly, or 6-monthly basis. Unless you are diligent about putting money aside for GST and keeping your records up-to-date, a monthly or 2-monthly GST cycle may suit best.

In summary

There are many more potential issues with GST, but these are the most common and easily fixed.

If you understand your GST obligations, use accounting software and keep on top of your bookkeeping, you will find that managing your GST can be a relatively simple process.

Ask us for advice, if you are unsure about your GST position.

Maximising your cash reserves

Maximising your cash reserves

The Covid-19 crisis has highlighted the inadequacy of current cash reserves for many businesses. They simply don’t have enough cash to sustain the business in a crisis.

Now is the time to make permanent change to your business processes and cost structure so you can build those reserves. At the same time, business owners need to be part of a world solution, and that means paying our bills on time where possible.

11 strategies to maximise your cash reserves:

  1. Invoice your customers immediately upon supply of products and services. The faster you bill, the faster you’ll be paid.
  2. Shorten your payment terms, e.g. from 20th of the month to within 7 days of invoice. You’ll need to reflect any changes in your Terms of Trade, in key customer contracts, and on your website.
  3. Invoice directly from your accounting software. This can enable faster payment.
  4. Negotiate prompt payment discounts with your suppliers. Don’t be bashful, there is no harm in asking.
  5. Get better at collecting the money you’re owed. Ask nicely to be paid by customers as soon as an invoice is overdue. The fast cash is in the 30-day column, not the 90-day column.
  6. Outsource proactive debtor management to a collection agency. This can be surprisingly cost-effective.
  7. Perform credit checks on new customers and make sure your Terms of Trade give you as much protection as possible if a debt goes bad. For example, put personal guarantees in place.
  8. Develop a personal spending budget and stick to it. This will reduce cashflow pressure on the business.
  9. Take costs out of the business where you can, but only where you should. This is an ideal time to review every line item in your Profit and Loss Statement. The shift to working online may allow you to change spending patterns.
  10. Have clear spending limits for team members who incur expenses on behalf of your business and regularly monitor these.
  11. And finally, prepare a Cashflow Forecast. Know what’s ahead of you and understand how positive changes will improve your cash reserves going forward.

Cash is oxygen for your business. Contact us now so we can help you put a cashflow improvement plan in place.

“The more a business owner knows about their cashflow, the more empowered they become.” – Nick Chandi

Should you register for GST? Questions on GST? We can help

Should you register for GST? Questions on GST? We can help 

Questions on GST for your small business? If your turnover was more than $60,000 over the past 12 months, or you expect it to be in the next 12, you must register for GST.

In New Zealand, goods and services tax (GST) is added to the price of most products and services. If your business is GST registered, you collect GST from customers (by adding 15% to your sale price) and you pay this to the government, less any GST that your business has paid on goods or services purchased.

Not sure whether to register your small business?

If your turnover (sales) was more than $60,000 over the past 12 months, or if you expect your turnover in the next 12 months to be more than $60,000, you must register for GST. When you reach this threshold, you need to register within 21 days.

But if your turnover is under that $60,000 threshold, you can choose whether to register or not.

The exception to this is if your prices include GST, such as taxi drivers. In this case you are required to be registered. If you are part of a company like this, check with them on pricing.

There are a few things to consider when making the decision to register. Get in touch with us if you are unsure whether or not you should register and we’ll help you to understand the pros and cons.

GST registered businesses need to choose how to claim and pay

When you register a business for GST, you have to choose how you’re going to claim and return GST on your sales and purchases. This means how you’re going to report (and pay) your GST transactions to the IRD.

There are three options:

  • Payments Basis – Under the payments (or cash) basis, you file GST based on when payment is made or received. This is the most common system in NZ. It is a good way for small businesses to manage cash-flow because you only pay GST when you have received payment. You also claim GST only for expenses you have actually paid for. You can use this system if your annual turnover is less than $2 million.
  • Invoice basis – The invoice (or accrual) basis is different to payments basis because you file GST based on the dates that customer invoices (or sales receipts) and supplier bills (or receipts) are issued. So you pay GST on an invoice you have issued regardless of whether you have received a payment. And you claim GST for supplier invoices (bills) dated in the GST period but not paid yet. Businesses with a turnover of more than $2 million have to return on Invoice basis.
  • Hybrid basis – The hybrid basis is a combination of the two methods above. GST on sales and income is filed based on invoice basis, and GST on expenses is filed based on payments basis when payment is actually made. This option is less commonly used. Talk to us if you think that this method might apply to your business.

Filing frequency

Finally, you will also choose how often you file your GST return. Larger businesses with a turnover of more than $24 million are required to file monthly. But smaller businesses can choose to file monthly, 2-monthly or 6-monthly. The most common filing method is 2-monthly.

Frequent filing can help stay you on top of GST obligations and give a clear picture of your business progress.

For more questions on tax and advice on how to structure your business, get in touch.

How healthy is your business?

As business owners, we get caught up in the day to day running of our business. Business owners wear many hats including; being the Boss, Leader, Sales Person, Business Development Manager and more. The job description of a business owner is never ending. Being busy servicing clients is good (and necessary) for business success, but what about your business, who services your internal requirements?

It’s like the typical mechanic’s story; they fix everyone else’s cars, but when it comes to their own, it’s last on the list. The same happens to our accounts. Unless you enjoy doing the accounts yourself or you have a trustworthy, qualified Bookkeeper or Accountant maintaining your accounts, how do you know the real state of them? It is often not until a sudden illness, leave of absence or a death in the family occurs that problems in your businesses finances are uncovered. Emergency cover is required, other staff get involved and a “what the..” moment happens, making you wonder what has been going on in your business!

So what can you do to avoid that situation? One way of restoring “peace of mind” in this area is a worksite assessment and review of your ledger by a GoFi8urine. Consider it a “Warrant of Fitness Finance”   in your business’s risk management plan. You review your insurances annually – so why not do the same with your accounts?

What is a Warrant of Finance (WOF)?

Warrant of Fitness checks are a legal requirement. And so they should be. Annual or six monthly inspections are important to ensure road worthiness and safety for motorists. By comparison, business health checks aren’t required by law. Just because we don’t “have to” doesn’t mean that we shouldn’t. In fact, every business owner would be wise to apply the principles of the WOF to their own financial engines and repair and replace parts and processes if they’re not working effectively – or efficiently.

The ultimate question is: Do you want your company to run like a fine-tuned engine, purring along the road to profit?

If you are unsure that you need a WOF and want to further investigate the situation for yourself, then you may to ask yourself the following questions;

Have you asked about old debtors and how they are being chased up or are they left because there is an issue that’s just too hard for a staff member to deal with?

How much money do you really owe to suppliers and are you making payments? This is your reputation here so it pays to check.

Do you know if your GST returns and PAYE returns are being filed and more importantly paid on time? Late payment penalties and interest mount up and staff can try to hide this from you!

Do you know the latest situation for the business’s current assets, debtors, creditors, cash flow, budget variances, and year to date wages, accruals, forecasting and your shareholders current account?

When was the last time the general ledger was checked for its coding and classification? Once a year by the CA is not enough – it needs to be reviewed at least monthly!

Do you know how the income and expenditure is coded and with correct GST etc – you would be surprised how mistakes creep in and if you don’t check it won’t get corrected unless someone like a qualified, certified GoFi8urine comes along and says “Goodness, 3 months of coding and it’s all NT for GST;  lets reconcile this correctly shall we!”

Petty Cash, company credit cards, business mobiles, petrol card, company vehicles – if you are letting staff use these are they being used appropriately? And you are not leaving yourself wide open for misappropriation? Who checks?

If you want to know the true state of your accounts then you need a WOF. One of our mantras is ‘you didn’t go into business to be a Bookkeeper, but we did’. And it’s true. You started your business because you had a great idea and the drive and ambition to make it happen. You didn’t do it because you love working out your tax credits, GST and payroll – unlike our GoFi8urines.