Top 10 Tips for Small Business Owners on GST Compliance

Keeping up with GST can feel overwhelming for small business owners. Here are the top 10 tips to help you stay compliant with GST requirements in New Zealand.

1. Register at the Right Time

If your business earns over NZD 60,000 annually, make sure to register for GST promptly.

The $60,000 threshold applies to any consecutive 12-month period, not just the financial year. Monitor your turnover regularly to ensure you register when required. There are penalties for late registration, so it's important to stay on top of this obligation.

Even if you're below the threshold, consider whether voluntary registration might benefit your business. This could be advantageous if:

• You have significant business expenses with GST that you could claim back
• Your customers are mainly GST-registered businesses who can claim back the GST you charge
• You want your business to appear more established

Remember that once registered, you'll need to charge GST on your goods and services and file regular GST returns, so weigh the administrative requirements against the potential benefits.

2. Keep Organized Records

Maintaining accurate and up-to-date records of sales, purchases, and expenses is essential for GST filing.

Effective record-keeping practices include:

• Using accounting software that properly tracks GST
• Keeping all tax invoices and receipts in an organized system
• Regularly backing up electronic records
• Maintaining a consistent method for recording transactions
• Separating business and personal expenses
• Documenting the business-use percentage for mixed-use assets

Good records not only make GST filing easier but also provide protection in case of an audit. Inland Revenue requires businesses to keep records for at least 7 years, so establish a reliable archiving system for older documents.

Consider setting aside a specific time each week to update your records, rather than leaving everything until the end of your GST period. This regular attention prevents backlogs and helps identify any issues early.

3. Set Aside GST Funds

Regularly set aside the GST portion from your income to avoid scrambling when it's time to pay.

One effective approach is to open a separate bank account specifically for GST. Each time you receive a payment, transfer the GST portion to this account. This ensures the funds are available when your GST payment is due and prevents you from inadvertently spending money that belongs to Inland Revenue.

For example, if you invoice a client for $1,150 (including $150 GST), transfer $150 to your GST account when you receive payment. Over time, this account will accumulate the funds needed for your GST payment.

This practice is especially important for businesses with irregular cash flow or seasonal income patterns. During high-income periods, disciplined setting aside of GST funds helps ensure you're prepared for payment during leaner times.

4. File on Time

Mark your calendar with GST filing dates to avoid late fees or penalties.

Standard filing due dates are:

• The 28th of the month following your GST period
• For the period ending November 30th, the due date is January 15th

Late filing penalties can be substantial:

• $250 for monthly or two-monthly filers
• $50 for six-monthly filers

Additionally, late payment can result in penalties and interest charges on the unpaid amount.

To avoid missing deadlines:

• Set up calendar reminders at least a week before the due date
• Consider filing early, even if you'll pay closer to the due date
• Use accounting software that sends automatic reminders
• Consider setting up direct debit arrangements with Inland Revenue

If you know you'll have difficulty meeting a deadline, contact Inland Revenue before the due date. They may be able to work with you to minimize penalties.

5. Use Accounting Software

Consider using accounting software to help track and manage GST more easily.

Modern accounting software specifically designed for New Zealand businesses can:

• Automatically calculate GST on sales and purchases
• Generate GST-compliant invoices
• Track GST collected and paid
• Prepare GST return information
• Provide reports to help you understand your GST position
• In some cases, integrate directly with Inland Revenue systems

Popular options in New Zealand include Xero, Moniaro Books, MYOB, and QuickBooks, all of which offer features tailored to New Zealand's GST requirements. While there is a cost associated with these services, the time saved and reduction in errors typically outweigh the expense, even for very small businesses.

Many accounting software providers offer training resources to help you get the most out of their GST features. Taking advantage of these resources can further streamline your GST compliance.

6. Double-Check Your Calculations

Errors can be costly, so make sure your GST calculations are accurate.

Before submitting your GST return, take time to review:

• That all sales for the period are included
• That all eligible purchases with GST have been accounted for
• That the correct GST rates have been applied
• That any adjustments are correctly calculated
• That the final GST amount to pay or be refunded seems reasonable compared to previous periods

Common calculation errors include:

• Using the wrong formula to calculate GST from GST-inclusive amounts
• Forgetting to apply the correct business-use percentage for mixed-use assets
• Double-counting transactions
• Claiming GST on exempt purchases
• Miscategorizing zero-rated supplies

Even if you use accounting software, a manual review can help catch errors. Look for unusual transactions or amounts that seem out of place compared to your typical pattern.

7. Claim Input Tax Credits

Keep invoices for business expenses to claim input tax credits when filing.

Input tax credits allow you to reclaim the GST paid on business purchases, reducing your overall GST liability. To maximize legitimate claims:

• Ensure you have valid tax invoices for all purchases over $50
• Keep receipts for smaller purchases
• Understand which expenses qualify for input tax credits
• Correctly calculate business-use percentages for mixed-use assets
• Remember the 50% limitation on entertainment expenses
• Recognize which expenses don't qualify (like fines, penalties, or private expenditure)

Regularly review your expenses to ensure you're not missing potential claims. Many small businesses leave money on the table by failing to claim all eligible input tax credits.

Remember that timing matters too├ö├ç├Âwhen you can claim depends on your accounting basis (payments, invoice, or hybrid). Ensure you're claiming in the correct GST period based on your chosen method.

8. Know What's Exempt

Understand which goods and services are zero-rated or exempt from GST.

Zero-rated supplies (taxed at 0%) include:

• Exports of goods and services
• Sale of going concerns (businesses sold as operating entities)
• Certain supplies to registered non-residents

With zero-rated supplies, you don't charge GST, but you can still claim input tax credits on related expenses.

Exempt supplies (outside the GST system) include:

• Financial services (interest, insurance, etc.)
• Residential rental accommodation
• Donated goods and services by non-profit bodies

With exempt supplies, you don't charge GST, and generally cannot claim input tax credits on related expenses.

Understanding these distinctions ensures you apply the correct GST treatment to your sales and make appropriate input tax credit claims on your purchases.

9. Regularly Review GST Processes

Periodically review your GST practices to stay compliant as your business grows.

Set aside time at least annually to:

• Confirm your GST registration details are correct
• Assess whether your filing frequency still suits your business
• Evaluate if your accounting basis (payments, invoice, or hybrid) remains appropriate
• Review how you're handling special transactions or adjustments
• Check that your record-keeping systems are functioning effectively
• Verify that staff understand current GST requirements

As your business evolves, your GST obligations and optimal practices may change too. What works for a startup might not be ideal for a growing business with more complex transactions.

Stay informed about any changes to GST rules or rates by subscribing to Inland Revenue updates or following tax news sources.

10. Seek Professional Advice

When in doubt, consult a tax professional to ensure your GST compliance is on track.

Professional advice is particularly valuable when:

• You're just starting with GST registration
• Your business is growing or changing significantly
• You're dealing with complex transactions (like property sales or international trade)
• You're unsure about the correct GST treatment for certain transactions
• You're considering changing your GST accounting basis or filing frequency
• You've discovered errors in previous returns

While there's a cost associated with professional advice, it can often save money in the long run by:

• Preventing costly mistakes and potential penalties
• Identifying legitimate input tax credits you might have missed
• Providing peace of mind that your GST compliance is in order
• Freeing up your time to focus on running your business

Many accountants offer specific GST review services that can help ensure your systems are optimal without the ongoing cost of full accounting services.

Bonus Tip: Develop a GST Routine

Establish a regular routine for managing your GST obligations:

• Weekly: Update your accounting records and set aside GST on payments received
• Monthly: Reconcile your accounts and check for any unusual transactions
• Before filing: Prepare your return, review for accuracy, and ensure funds are available for payment
• After filing: Update your records to mark the return as filed and note the payment date

Consistency is key to GST compliance. By developing good habits and following these tips, you can manage your GST obligations efficiently and avoid the stress and potential penalties that come with non-compliance.

Conclusion

GST compliance doesn't have to be overwhelming. By implementing these ten tips, small business owners can streamline their GST processes, reduce the risk of errors or penalties, and ensure they're meeting their obligations to Inland Revenue.

Remember that good GST management is part of good business practice. The systems you put in place not only help with tax compliance but often contribute to better overall financial management and decision-making.