GST is a normal part of life here in NZ.
We all know that we pay GST as part of the price of things we buy. But when it comes to sorting out GST as a business owner, it might be a tad more confusing.
You have a responsibility to the IRD to ensure your GST returns are a correct reflection of what’s happening in your business.
And, they aren’t exactly someone you want to get offside!
So, let’s look into GST in a little more detail and how you can conduct an end-of-period GST review to ensure your records are correct.
How to Conduct an End-of-Period GST Review
How GST Works
GST stands for Goods and Services Tax. It is charged on most services and products that you purchase within NZ. As a business or sole trader, you can register for GST at any time. But when your revenue exceeds $60,000 in a year, you no longer have a choice. At this point, you must register for GST.
Once registered, you can add GST to the price of any goods or services you sell. You also pay GST on purchases you make, which you can claim back. What you pay to IRD is the difference between the two for the required period.
GST returns can be filed monthly, two-monthly or six-monthly. There are three ways to account for your GST requirements – a payments basis, an invoice basis, or a hybrid. Which of these you choose may depend on your business and your turnover. However, many small businesses file GST returns every two months and use the payment basis. That means accounting for GST at the end of the taxable period you make or receive a payment.
Why you Should Review your GST
You should conduct a GST review at the end of each filing period to ensure everything is accounted for correctly. If you have not correctly reflected the GST you have spent and collected, you could end up with incorrect payment amounts lodged with the IRD.
Before submitting your final GST return, you’ll need to reconcile to your balance sheet and review your transactions to ensure that GST has been handled correctly for each one. This is important because it means you can catch any errors or adjustments needed early rather than waiting until the end of the tax year.
Things to Look Out for During your End of Period Review
When conducting your GST review, there are some things to be mindful of. There are some common errors that people tend to make.
These are things to look out for to ensure you have recorded the right amounts.
Drawings
You can pay yourself using drawings as the business owner or shareholder. If you draw money from the business for personal use, you cannot claim GST on it.
Payments to individuals
Some people that you work with may not be registered for GST. These are commonly individuals, such as freelancers or subcontractors. If the individual you are paying is not registered for GST, you cannot claim a GST expense for their invoiced amount.
Entertainment
Business entertainment transitions can be tricky to navigate on your GST return. You can only claim 50% of the GST back for some business entertainment expenses. Check out our recent blog for more info and what you can claim.
There are a couple of ways you can handle this on your GST return. You can claim the whole amount each period and then adjust it at the end of the financial year. Or, some business owners find it easier to split the amounts as they go throughout the year.
GST on International Transactions
This category is perhaps the most confusing of all! As a rule, if a product or service is offered fully within NZ, then GST needs to be part of the equation.
However, there has been a lot of confusion around whether you must pay customs duty and GST on goods bought overseas. While you won’t be charged GST at the point of sale by an overseas supplier, you might be charged by Customs when the goods arrive in New Zealand. But if the items you are buying are solely to make items or provide services as part of your business, you can claim back the GST.
GST is often charged at 0% if you offer services to customers or export products overseas. You need sufficient evidence to prove that the customer is overseas and that the goods or services have been exported.
If you are unsure how to categorise international GST transactions, check in with your bookkeeper.
Getting your GST Right
Many rules apply to GST and filing GST returns. They can be confusing for business owners unless they understand the nitty gritty. So we don’t blame you if you find it difficult to reconcile your GST correctly each time.
Luckily, you don’t have to worry about it.
At Admin Army, we have experienced bookkeepers who can confidently navigate the GST system and ensure you pay the correct amount. We can prepare your GST returns for filing and then reconcile everything to keep things in order.
GST is always more straightforward when you have a system in place. So, we can also help you get set up with an online system like Xero so that you can track all your financial records in one palace. We’ll even take that one step further and show you all the hacks that can make your life easier, such as setting up codes for GST and non-GST payments.
For expert help marshalling your GST returns, get in touch today.