The Goods and Services Tax – known to kiwis as GST – has been in action in New Zealand since 1986.
As a consumer, we are used to paying it as part of the purchase price for just about everything. But as a business owner, it’s important to give it a little more attention.
Businesses that meet specific criteria must register for GST by law. And even those that aren’t required to can still opt involuntarily.
So, when should you do it?
Is it a case of choosing to register from the very start of your business or waiting until you are legally required to?
Let’s explore the answer to that question now. Check out our overview of how to know whether or not your business should register for GST.
How To Know When To Register For GST
What Is GST?
Goods and Services Tax is a nationwide tax added to most products and services.
Almost every time you pay for something – from food and medication to getting a haircut or buying a car – you are paying an extra 15 per cent. This money is collected by businesses but passed on to the government, who use it to keep our country clean, green, and in good nick!
Why Register For GST?
Long story short – it’s the law! If your business meets the stated criteria, you must register or face penalties. Having said that, it’s not all about the government. There are benefits to registering your business for GST too.
Once you are registered, you will no longer pay GST on your business expenses. Although you will still pay the full price (GST included) at time of purchase, you can now claim that money back when you file your GST returns.
The amount of GST you spend is offset against the amount of GST you earn on behalf of the government. At GST return time, it will determine whether you pay a bill or get a refund.
Who Must Register For GST?
If you have a business that sells goods or services, you may have to charge your customers GST, which means you will need to register with the IRD.
If your business turnover is $60,000 or more per year, you must register (unless you are one of the few exceptions selling GST-exempt goods and services). If you don’t turn-over more than $60,000 per year but still charge GST, you must register.
Some businesses elect to register for GST before they are legally obliged to. This can be a good decision if your business will face a lot of set up costs or it is standard practice in your industry. Your accountant will be able to advise further on the pros and cons of registering for GST early.
How To Register My Business For GST?
The process of registration is straightforward. Make sure you have your IRD number at hand when calling the IRD, or you can use your myIR online account to complete the process. You will also need your business industry classification code and business bank account details to complete the setup.
Accounting And Filing GST
While registering is easy, the rest of it requires ongoing work on the bookkeeping and accounting side.
During registration, you will need to determine how often you will be filing a GST return and how you will account for GST in your books.
You can choose to file GST monthly, two-monthly, or six-monthly (these options may not be available to every business). Generally, most small businesses opt for two-monthly filings, and this is the default choice given by the IRD.
As for accounting, you can choose to use a payments basis, an invoice basis, or a hybrid. The option you select dictates when you will owe GST on your sales and will impact your bookkeeping and accounting practices.
As you can see, it’s pretty straightforward to know whether you need to register for GST and how to start the process. However, keeping tabs on your business finances and making sure you are doing it right long term will take a lot of time and focus, particularly if you are new to the process. There are many things about GST you need to be aware of once you are registered.
To get your head around GST and what it means for your business, chat to an experienced professional today and save yourself some headaches!