Ask the Experts

PwC Partner Chris Leatham – June 2015

I’m a self-employed consultant in my first year of business and use a cloud-based accounting system. What are my key tax and bookkeeping obligations?

When you are busy doing your day job, it can be easy to forget that you don’t have an accounts team doing the compliance work for you behind the scenes and this responsibility can be daunting.

You’ll need to file an income tax return with Inland Revenue by 7 July for the previous financial year or if you have an accountant you would normally get an extension of time to 31 March of the following year.

If your income tax to pay is over $2,500 then you have a requirement to pay provisional tax. This is a mechanism for smoothing your total income tax payments over three instalments throughout the year. When your income tax to pay is calculated the provisional tax you have paid is taken into account. This results in either a refund or further tax to pay.

A common misconception is that you don’t pay tax in your first year of business. While you are not required to pay provisional tax throughout the year you still need to pay income tax on any profits made. At the same time, you may have provisional tax due for the following year which can result in a strain on your cash flow. Inland Revenue offer a 6.7% discount on your tax if you pay income tax prior to the end of first financial year which encourages people new to self-employment to voluntarily pay provisional tax.

You will be required to register for GST to collect tax from your clients on behalf of the Government if you are going to turnover more than $60,000 in a 12 month period. Usually a return will be filed every two months.

Inland Revenue have an interest regime where underpaid taxes incur an interest charge (currently at 9.21%) while overpaid taxes earn interest income (currently at 2.63%). If you are late in paying your tax or filing any returns, penalties may apply.

You have an obligation to maintain financial records for at least seven years. Examples include invoices issued and received, bank statements, a list of business assets and liabilities and details of any loans. While this may seem time consuming your cloud-based system maintains a lot of this information for you.

As published by Fairfax in June 2015.

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