A Quick Guide to GST Invoicing for Small Businesses

Effective record keeping is the foundation of GST compliance. Good records not only help you meet your GST obligations but can also provide valuable insights into your business finances. This article outlines best practices for GST record keeping that will help New Zealand businesses stay compliant and organised.

Why Good GST Record Keeping Matters

Maintaining proper GST records is important for several reasons:

• Legal requirement: The Tax Administration Act requires you to keep sufficient records to enable Inland Revenue to readily ascertain your GST liability.
• Audit protection: Well-organised records make an IRD audit much smoother and help demonstrate your compliance.
• Cash flow management: Tracking GST helps you plan for GST payments and refunds.
• Business insights: Detailed records give you better visibility of your business performance.

What Records to Keep

Sales Records

For all sales transactions, keep records that show:

• All tax invoices issued
• Till receipts, EFTPOS receipts, and other sales documentation
• Records of zero-rated supplies with evidence of export or zero-rating eligibility
• Records of exempt supplies
• Credit notes and debit notes issued
• Sales returns and refunds processed

Purchase Records

For purchases and expenses, maintain:

• Tax invoices received from suppliers
• Receipts for expenses
• Credit notes and debit notes received
• Import documentation showing GST paid at the border
• Records of purchases where you've applied the reverse charge mechanism

GST Adjustment Records

Keep documentation related to any GST adjustments, including:

• Change-of-use calculations and adjustments
• Bad debt write-offs and subsequent recoveries
• Insurance proceeds received
• Private use adjustments
• Asset adjustments (when assets are acquired, disposed of, or their use changes)

GST Return Working Papers

For each GST return period, keep:

• Calculations and working papers used to complete your GST return
• Copies of filed GST returns
• Bank statements showing GST payments or refunds
• Any correspondence with Inland Revenue regarding your GST returns

Legal Record Keeping Requirements

Retention Period

Under New Zealand tax law, you must keep records for at least 7 years from the end of the tax year to which they relate. This applies even if you cease trading or sell your business.

Format Requirements

Records can be kept in:

• Paper format: Original documents stored securely
• Electronic format: Digital records, provided they:
  • Can be readily accessed
  • Are convertible into a readable format
  • Accurately reproduce the original information
  • Can be provided to Inland Revenue if requested

Records in English

Records must be kept in English or te reo M─üori, or be readily convertible into either language. If you use another language, you may need to provide translations at your own expense if Inland Revenue requests them.

Tax Invoice Requirements

Tax invoices are crucial GST documents. Ensure you understand the requirements for both issuing and receiving them.

Issuing Tax Invoices

When issuing tax invoices for supplies over $50, include:

• The words "Tax Invoice" prominently displayed
• Your name and GST number
• The recipient's name and address
• Date of issue
• Description of the goods or services
• Quantity or volume of goods or services supplied
• Price excluding GST, the GST amount, and the total including GST

For supplies under $50, a simplified tax invoice can be issued, which doesn't require the recipient's details.

Recipient-Created Tax Invoices

In some cases, the recipient of goods or services may issue the tax invoice rather than the supplier. This arrangement:

• Must be agreed to in writing by both parties
• Requires the recipient to be registered for GST
• Must be documented with "Recipient-created tax invoice" clearly stated

Keep copies of any agreements allowing recipient-created tax invoices as part of your records.

Digital Record Keeping Solutions

Accounting Software

Modern accounting software simplifies GST record keeping through:

• Automatic calculation of GST on invoices
• Bank feed integration to capture transactions
• GST return preparation tools
• Digital document storage linked to transactions
• Reports to reconcile GST accounts

Popular options in New Zealand include Xero, Moniaro Books, MYOB, and QuickBooks, all of which offer features specifically designed for New Zealand GST requirements.

Document Management Systems

Consider using a document management system to store digital copies of:

• Tax invoices
• Receipts
• Bank statements
• GST workpapers
• IRD correspondence

Many of these systems offer optical character recognition (OCR) to extract key information from scanned documents, making them searchable and easier to organise.

Mobile Apps

Mobile receipt capture apps can help you maintain GST records on the go by:

• Photographing receipts immediately after purchase
• Extracting key information like date, amount, and GST
• Syncing with your accounting software
• Categorising expenses automatically

This approach reduces the risk of lost receipts and the administrative burden of processing them later.

Best Practices for GST Record Organisation

Consistent Filing System

Whether physical or digital, establish a consistent filing system:

• Organise by GST return period
• Separate files for sales invoices, purchase invoices, and GST returns
• Clear naming conventions for digital files
• Regular backups of electronic records

Regular Reconciliation

Reconcile your GST accounts regularly:

• Match sales and purchase records to your GST return figures
• Reconcile GST paid or refunded with your bank statements
• Check GST ledger balances against your GST return calculations

Monthly reconciliation is ideal, but at minimum, reconcile when preparing each GST return.

Separate GST Bank Account

Consider maintaining a separate bank account for GST funds:

• Transfer the GST collected from sales into this account
• Use it to pay your GST obligations to Inland Revenue
• Makes GST funds visible and separate from operating cash

This approach helps with cash flow management and reduces the risk of spending funds that need to be remitted to IRD.

Record Keeping for Special GST Situations

Mixed-Use Assets

For assets used for both business and private purposes:

• Document the initial intended use when purchasing
• Keep logbooks or usage records to track business vs. private use
• Maintain calculations for change-of-use adjustments
• Document the methodology used to determine business percentage

Zero-Rated Supplies

For zero-rated supplies, maintain evidence to support the zero-rating:

• For exports: shipping documents, customs declarations, proof of delivery overseas
• For business-to-business financial services: evidence that the recipient is GST-registered
• For land transactions: relevant agreements and legal documentation

Bad Debts

When claiming a GST adjustment for bad debts:

• Keep evidence that the debt has been written off in your accounts
• Document collection attempts made before writing off the debt
• Maintain the original sales invoices related to the bad debt
• Record any subsequent recoveries and the related GST adjustments

Common Record Keeping Challenges and Solutions

Missing Invoices

If you've lost or never received a tax invoice:

• Request a copy from the supplier as soon as possible
• For small amounts (under $50), a receipt may be sufficient
• For larger amounts, without a valid tax invoice, you generally cannot claim the GST input tax

Cash Transactions

For cash sales and purchases:

• Use a cash register or point-of-sale system that records each transaction
• Issue receipts for all cash sales
• Get receipts for all cash purchases
• Maintain a cash book or digital equivalent to record all cash movements

Vehicle Expenses

For vehicle-related GST claims:

• Keep a logbook for at least a three-month representative period
• Save all fuel receipts and vehicle maintenance invoices
• Document your method for calculating business use percentage
• Track any changes in business use that might require a GST adjustment

GST Audits and Your Records

Preparing for an Audit

Well-organised records make responding to an IRD audit much easier. If you're notified of an audit:

• Review your GST returns and supporting documentation
• Ensure all required records are accessible and complete
• Prepare summaries or schedules that link your GST returns to the underlying records
• Have explanations ready for any unusual items or significant adjustments

Common Audit Focus Areas

IRD auditors typically examine:

• Timing of GST claims (ensuring they're in the correct period)
• Validity of tax invoices supporting input tax claims
• Treatment of zero-rated supplies
• Private use adjustments
• One-off transactions like property sales

Having thorough records in these areas is particularly important.

Record Keeping Checklist

Use this checklist to ensure your GST record keeping is comprehensive:

• Sales system captures all required information for tax invoices
• Process for verifying and storing purchase invoices
• System for tracking zero-rated and exempt supplies
• Method for calculating and documenting GST adjustments
• Regular reconciliation of GST accounts
• Secure storage system (physical or digital) for all GST records
• Backup system for electronic records
• Process for preparing and reviewing GST returns
• Calendar or reminder system for GST filing and payment due dates

Conclusion

Effective GST record keeping is not just about complianceÔÇöit's a business practice that provides clarity about your financial position and GST obligations. By implementing robust record keeping systems, you can ensure your business meets its legal requirements while also gaining valuable insights from your financial data.

Remember that good record keeping habits developed early save significant time and stress later, especially when preparing GST returns or responding to IRD inquiries. The investment in proper systems and processes pays dividends through reduced compliance costs and better business information.