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Freelancers and self-employed professionals in New Zealand face unique Goods and Services Tax (GST) considerations. Whether you're a consultant, creative professional, tradesperson, or independent contractor, understanding your GST obligations is essential for compliance and effective business management.

GST Registration Basics for Self-Employed Individuals

Registration Threshold and Requirements

The GST registration rules apply to self-employed individuals just as they do to larger businesses:

• Registration is mandatory if your taxable supplies exceed (or are expected to exceed) NZ$60,000 in any 12-month period
• This threshold includes all your taxable activities, even if you have multiple income streams
• Voluntary registration is possible below this threshold if you want to claim GST on business expenses
• Registration requires completing the IR360 form (or registering online through myIR)

Many freelancers and contractors reach this threshold more quickly than they expect, especially when factoring in the value of all taxable supplies.

Advantages and Disadvantages of Registration

GST registration has both benefits and drawbacks for self-employed individuals:

• Advantages:
  • Ability to claim GST on business expenses and asset purchases
  • Professional appearance to business clients
  • Improved record-keeping and business systems
  • Potential cash flow advantages during investment periods
• Disadvantages:
  • Additional administrative work and compliance costs
  • Need to increase prices to non-GST registered clients
  • More complex accounting requirements
  • Regular filing deadlines and potential penalties for late filing

The decision to register voluntarily should consider both these factors and your specific business circumstances.

Charging and Accounting for GST

Invoicing Requirements

GST-registered freelancers must issue compliant tax invoices for supplies over $50:

• Required elements for supplies over $50 but under $1,000:
  • The words "Tax Invoice" prominently displayed
  • Your name (or trade name) and GST number
  • Date of issue
  • Description of the goods or services provided
  • The amount of GST charged or a statement that GST is included
  • Indication that the amount is GST inclusive or exclusive
• Additional requirements for supplies of $1,000 or more:
  • The client's name and address
  • The quantity or volume of goods or services
  • Either the GST amount separately shown or a statement that the amount includes GST

Many accounting software packages can generate compliant tax invoices automatically.

Determining the GST-Exclusive Price

When setting prices and calculating GST:

• To add GST to a GST-exclusive price, multiply by 1.15 (e.g., $100 becomes $115)
• To find the GST component in a GST-inclusive price, multiply by 3/23 (e.g., the GST in $115 is $15)
• To find the GST-exclusive amount from a GST-inclusive price, multiply by 20/23 (e.g., the GST-exclusive amount in $115 is $100)

Understanding these calculations helps when quoting prices to different types of clients.

Time of Supply Rules

Understanding when GST becomes payable is important:

• Generally, GST must be accounted for at the earlier of:
  • When an invoice is issued
  • When payment is received
• This applies even if you haven't yet been paid (on the invoice basis)
• For regular or periodic supplies (like monthly retainers), each period creates a separate time of supply
• Deposits and progress payments each create a time of supply

The time of supply rules can create cash flow challenges when clients pay late.

GST Accounting Options for Freelancers

Accounting Basis Options

Freelancers can choose from three accounting methods for GST:

• Invoice basis:
  • Account for GST when invoices are issued or received
  • Must pay GST on sales when invoiced, even if not yet received payment
  • Can claim GST on purchases when invoiced, even if not yet paid
  • The default method and mandatory for businesses with turnover over $2 million
• Payments (cash) basis:
  • Account for GST when payments are made or received
  • Only pay GST on sales when clients pay you
  • Only claim GST on purchases when you pay suppliers
  • Available for businesses with turnover under $2 million
  • Often better for freelancers with cash flow concerns or late-paying clients
• Hybrid basis:
  • Account for GST on sales on the invoice basis
  • Account for GST on purchases on the payments basis
  • Less commonly used by freelancers

The payments basis is often advantageous for freelancers and self-employed professionals, particularly those dealing with late-paying clients.

Filing Frequency Options

GST returns can be filed at different intervals:

• Monthly: For businesses claiming frequent refunds or with turnover over $24 million
• Two-monthly: The standard option for most businesses
• Six-monthly: Available for businesses with annual turnover under $500,000

Many freelancers opt for six-monthly filing to reduce administrative burden, though this delays refunds when in a claim position.

Record-Keeping Requirements

Proper records are essential for GST compliance:

• Keep copies of all tax invoices issued to clients
• Maintain tax invoices received from suppliers
• Record all income and expenses, separating the GST component
• Document the basis for zero-rating or exempt supplies
• Maintain bank statements showing GST-inclusive transactions
• Keep adjustment calculations and supporting documentation
• Retain records for at least 7 years

Good record-keeping makes GST return preparation straightforward and supports your position in case of an Inland Revenue review.

Claiming GST on Business Expenses

Eligible Business Expenses

GST-registered freelancers can claim GST on business-related expenses:

• Office supplies and equipment
• Professional services (accounting, legal, etc.)
• Work-related travel and accommodation
• Vehicle expenses (fuel, maintenance, etc.)
• Utilities and telecommunications
• Advertising and marketing
• Business insurance
• Professional development and training
• Software subscriptions and digital tools

To claim GST, you need a valid tax invoice for purchases over $50.

Mixed-Use Assets and Expenses

For assets and expenses used for both business and private purposes:

• GST can only be claimed on the business portion
• Common examples include:
  • Home office expenses
  • Vehicles used for both business and private travel
  • Mobile phones and internet
  • Computers and other equipment
• You must have a reasonable basis for your apportionment (e.g., floor area for home office, mileage records for vehicles)
• Keep records to support your business-use percentage

Adjustments may be required if usage patterns change significantly over time.

Capital Assets and GST

When purchasing significant business assets:

• GST can generally be claimed on the full purchase price in the period of acquisition
• This applies to items like computers, vehicles, and equipment
• For mixed-use assets, GST is claimed only on the business portion
• If the business use percentage changes over time, adjustment may be required
• When selling business assets, GST must typically be charged on the sale price

The ability to claim GST on major purchases can create significant cash flow advantages.

Special GST Situations for Freelancers

Working with Overseas Clients

When providing services to overseas clients:

• Services may qualify for zero-rating (0% GST) if they meet these criteria:
  • The client is not resident in New Zealand and not present in New Zealand when the services are performed
  • The services are not directly in connection with land or movable property in New Zealand
  • The services are not physically performed in New Zealand to a person who is in New Zealand at the time
• Zero-rated supplies still count toward the GST registration threshold
• Zero-rated supplies must still be reported on GST returns
• You can still claim GST on expenses related to making zero-rated supplies

Keep documentation to support zero-rating, including evidence of client location and the nature of services provided.

Reimbursed Expenses

When clients reimburse you for expenses:

• If you incur expenses as principal (on your own behalf), then recharge them to clients:
  • The reimbursement is a taxable supply subject to GST
  • You can claim GST on the original expense
• If you incur expenses as agent (on behalf of the client):
  • The reimbursement is not a taxable supply if it meets specific criteria
  • You don't claim GST on the original expense
  • You must maintain clear records showing you acted as agent

The contract and invoicing should clearly establish whether you're acting as principal or agent.

Bad Debts

When clients don't pay your invoices:

• On the invoice basis, you can claim a GST credit for bad debts that are written off
• You must have already accounted for GST on the sale
• You must have taken reasonable steps to recover the debt
• The debt must be actually written off in your accounts
• If the debt is later recovered, you must account for GST again

This relief helps mitigate the cash flow impact of non-paying clients when using the invoice basis.

GST for Specific Types of Freelancers

Consultants and Professional Service Providers

For consultants, coaches, and professional advisors:

• Services to New Zealand clients are generally subject to GST at 15%
• Services to overseas clients may qualify for zero-rating
• Retainer arrangements typically create periodic supplies for GST purposes
• Professional indemnity insurance and professional body memberships generally include GST that can be claimed

Creative Professionals

For designers, writers, photographers, and other creatives:

• Services and digital deliverables are generally subject to GST
• Physical products (like printed materials) are subject to GST
• Licensing of intellectual property to New Zealand clients attracts GST
• Selling through platforms or agencies may have specific GST implications
• Royalty income may create periodic supplies for GST purposes

Tradespeople and Service Providers

For tradespeople and on-site service providers:

• Services and materials provided are generally subject to GST
• Vehicle and tool expenses typically include GST that can be claimed
• Materials purchased for specific jobs attract GST that can be claimed
• Consider the payments basis if clients typically pay after job completion
• Special rules may apply for building and construction services

Practical GST Management for Freelancers

Accounting Software Options

Modern accounting software simplifies GST compliance:

• Popular options for New Zealand freelancers include:
  • Xero
  • MYOB
  • QuickBooks
  • Moniaro Books
  • Reckon
• Benefits of using accounting software:
  • Automated GST calculations and tracking
  • GST-compliant invoice generation
  • Easy preparation of GST returns
  • Bank feed integration to capture all transactions
  • Reports showing GST position at any time

Even basic accounting software packages can significantly simplify GST compliance for freelancers.

Setting Aside GST

Managing cash flow to meet GST obligations:

• Consider setting up a separate bank account for GST
• Transfer the GST component of payments received to this account
• Deduct the GST component of business expenses paid
• This ensures funds are available when GST returns are due
• Prevents GST collected from clients being spent on other expenses

This approach helps avoid cash flow surprises when GST payments are due.

Pricing Strategies

Incorporating GST into your pricing approach:

• For business clients (who can claim GST):
  • Often preferable to quote GST-exclusive prices with GST added
  • Makes your pricing directly comparable with other GST-registered providers
• For non-business clients (who can't claim GST):
  • Often better to quote GST-inclusive prices
  • Provides clarity on the total amount they'll pay
• Consider different pricing approaches for different client segments
• Be clear in quotes and contracts whether prices include or exclude GST

Your pricing strategy should account for the GST status of your typical clients.

Common GST Pitfalls for Freelancers

Registration Timing Issues

Be aware of these common registration timing problems:

• Failing to register when exceeding the threshold
• Not accounting for GST from the effective date of registration
• Charging GST before being registered
• Not updating contracts and invoices after registration
• Claiming GST on pre-registration purchases incorrectly

If you expect to exceed the threshold, register early to avoid compliance issues.

Mixing Business and Personal Expenses

Maintaining clear separation is important:

• Use separate bank accounts for business and personal transactions
• Clearly document the business purpose of expenses
• Apply consistent methods for apportioning mixed-use expenses
• Don't claim GST on purely personal expenses
• Maintain mileage logs or other records for mixed-use assets

Poor separation can lead to incorrect GST claims and potential issues during an Inland Revenue review.

Invoice and Record-Keeping Errors

Common documentation mistakes include:

• Missing elements on tax invoices issued to clients
• Claiming GST without valid tax invoices from suppliers
• Failing to maintain adequate records of zero-rated supplies
• Not keeping evidence of business use for mixed-use assets
• Insufficient documentation of unusual transactions

Regular review of your invoicing and record-keeping processes helps prevent these issues.

GST and Other Tax Obligations

GST and Income Tax

Understanding the interaction between GST and income tax:

• Income is reported GST-exclusive for income tax purposes
• Expenses are claimed GST-exclusive for income tax purposes
• GST refunds are not taxable income
• GST payments are not tax-deductible expenses
• Different rules may apply for depreciation and capital assets

Accounting software typically handles these distinctions automatically.

GST and Provisional Tax

For freelancers paying provisional tax:

• GST and provisional tax due dates may align depending on your filing frequency
• The ratio method for provisional tax uses GST-inclusive sales as its base
• GST refunds can be offset against provisional tax liabilities (and vice versa) if you choose
• Cash flow planning should consider both obligations

Coordinating these tax payments helps with overall financial management.

GST and ACC Levies

Accident Compensation Corporation levies and GST:

• ACC levies are calculated on GST-exclusive self-employed income
• ACC invoices include GST that can be claimed if the levies relate to your taxable activity
• The business portion of ACC levies is generally tax-deductible (GST-exclusive amount)

Getting Help with GST

Professional Assistance

Consider professional support for GST compliance:

• Bookkeepers can help with day-to-day GST record-keeping and return preparation
• Accountants can provide strategic advice and review your GST systems
• Tax agents can file GST returns on your behalf and liaise with Inland Revenue
• Software trainers can help set up accounting systems for GST

The cost of professional assistance is generally tax-deductible and can prevent costly errors.

Inland Revenue Resources

Free resources available from Inland Revenue:

• GST guides and fact sheets on the Inland Revenue website
• Business tax information officers for in-person assistance
• 0800 377 774 tax information line for GST queries
• Online services through myIR for filing and payment
• Workshops and webinars on GST compliance

These resources can help you understand your basic GST obligations.

Conclusion

GST compliance for freelancers and self-employed professionals requires attention to detail and good systems, but doesn't need to be overwhelming. By understanding the registration requirements, implementing effective invoicing and record-keeping practices, and choosing the right accounting basis and filing frequency, you can manage GST efficiently as part of your overall business operations.

The key to successful GST management is integrating it into your regular business processes rather than treating it as a separate compliance burden. With the right approach, GST becomes a routine aspect of business administration rather than a source of stress or uncertainty.

Remember that GST is ultimately a pass-through taxÔÇöyou collect it from clients and pass it on to Inland Revenue. With proper systems and possibly some professional support, you can ensure you meet your GST obligations while focusing on what you do best: providing valuable services to your clients.