..

Goods and Services Tax (GST) is a tax on the use of goods and services in New Zealand. It is a crucial source of income for the government, and small business owners play a significant role in collecting and remitting GST. However, many small business owners in New Zealand make common GST mistakes that can lead to penalties, fines, and even legal action. In this blog, we discuss the common pitfalls that small business owners should avoid to ensure complying with the GST regime.

Pitfall #1: Failing to Register for GST When Required

One of the most common GST mistakes made by small business owners in New Zealand is failing to register for GST when required. If your business has a turnover of $60,000 or more in a rolling 12-month period, you are required to register for GST. Failure to register can result in penalties and fines.

It is essential to keep track of your turnover and register for GST when required. If you are unsure whether your business needs to register for GST, you can use the IRD’s online tool to determine your eligibility.  Or, check your turnover (sales) for the previous 12 months.   Once you have registered for GST, you will need to charge GST on your sales and give it to the IRD.

Pitfall #2: Incorrectly Calculating GST on Sales and Purchases

Another common GST mistake made by small business owners in New Zealand is incorrectly calculating GST on sales and purchases. This can happen when you use the wrong GST rate, fail to include GST in your prices, or make errors in your calculations.

To avoid this pitfall, it is essential to understand the GST rates and how they apply to your business. The standard GST rate is 15%, but there are some exceptions, such as zero-rated and exempt supplies. You should also ensure that you charge or include GST in your prices and keep accurate records of your GST transactions.

Pitfall #3: Not Keeping Accurate Records of GST Transactions

Keeping accurate records of your GST transactions is crucial for GST compliance. This includes keeping records of your sales, purchases, and GST payments and receipts. Failure to keep accurate records can result in penalties and fines.

To avoid this pitfall, it is essential to keep detailed records of your GST transactions. You can use accounting software to help you keep track of your GST transactions and generate GST reports. It is also a good idea to keep copies of your invoices and receipts for at least seven years.  Using technology can really help to make this easy and become an overwhelming task.   The sooner you start, the easier it is.

Pitfall #4: Claiming GST on Non-Deductible Expenses

Claiming GST on non-deductible expenses is another common GST mistake made by small business owners in New Zealand. Non-deductible expenses include personal expenses, some entertainment expenses, and expenses that are not actually related to your business.

To avoid this pitfall, it is essential to understand what expenses are deductible and what expenses are not. Deductible expenses include expenses that are directly related to your business, such as rent, utilities, materials and office supplies. Non-deductible expenses should not be included in your GST returns.

Conclusion

GST compliance is essential for small business owners in New Zealand. To avoid common GST mistakes, small business owners should register for GST when required, correctly calculate GST on sales and purchases, keep accurate records of GST transactions, and avoid claiming GST on non-deductible expenses.

By following these tips, small business owners can ensure GST compliance and avoid penalties, fines, and legal action. It is also a good idea to seek professional advice from your tax advisor to ensure that you are meeting your GST obligations. Remember, GST compliance is not only a legal requirement but also a crucial aspect of running a successful and sustainable business in New Zealand.

If you would like to discuss this further, feel free to reach out to us. We are happy to help.