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Introduction to Business
Business structures & record keeping
Kia ora, welcome to the Introduction to Business seminar. This is part 1 of our series.
The content we’ll be going over in this series has been put together from our most commonly asked questions that we receive from our small to medium sized business community.
Feel free at any point to pause, to go and view any resources or links we’re referring to, or to simply rewind and relisten to something.
Today's key messages
- Inland Revenue is here to help you
- Good records are key for a successful business
- Planning and budgeting helps you get it right
- There are lots of places you can find useful information
Inland Revenue has a huge variety of resources designed to help you.
Good records are the key to great business.
Not only do these help immensely with completing your tax obligations, they also help if you ever wanted to sell your business, or obtain finance.
Planning and budgeting helps you get it right, and know the position of your business.
Well organised records may also help keep any accountant or bookkeepers fees down.
We will talk about
- Business structures
- Keeping records
In this section we’re going to look at: The 3 most common types of business structures in New Zealand, and what records you need to keep, and how.
How you register your business depends on whether you trade as a:
- Sole Trader
The 3 most common types of business structures in New Zealand are: Sole Trader, company, and partnership.
There's a bit of a difference between each of them, so I’m going to run through the differences from an Inland Revenue point of view.
Again, feel free to pause and go backwards and forwards through this seminar as you need to.
As a Sole trader, yourself and your business are one and the same.
You’ll use your personal IRD number for the business as well.
You keep all the profits, but you are also responsible for the business debt and taxes.
At the end of the year, you’ll complete an Individual Income tax return, which will include all your business income, and any other income you have earnt in the financial year.
This is how we'd work out any tax to pay.
If you choose a company structure, you’ll need to register the company through the Companies Office website.
Part of this process will ask if you want to apply for an IRD number and register for GST.
You can choose to use either of these services.
A Company has its own IRD number, as it's a separate legal entity.
It owns assets, has liabilities, and is responsible for its own debts to a degree.
I suggest having a read of the responsibility that comes along with being a director, and shareholder of a company.
A company will complete its own non-individual income tax return, IR4, and have its own tax liability.
A Partnership is made up of 2 or more entities, whether they be individuals or other non-individual entities like companies, trusts, or even other partnerships.
The partners share debt and profit responsibility.
It's good practice to have a partnership agreement, either written or verbal to outline these.
If it’s written down everyone has the same understanding, and something to refer back to.
All partners are jointly and severally liable for all partnership debt and taxes.
This means that each partner can be called on to pay all of a business debt.
If there’s 3 partners in the business, and 1 of the partners has the means to pay a debt, and no other partners can, then this one partner can be liable for the total bill.
Partnership files its own non-individual tax return, IR7, but it doesn’t pay tax.
The partnership distributes the profits to the partners, who can pay tax on their share.
There are other kinds of structures in New Zealand, these three are simply the most common.
I suggest you talk with your accountant, lawyer, and possibly insurance agent as to what might suit your personal situation best.
Many businesses will change their structures as they grow, or personal situations change.
For example, they may start off as a sole trader and change to a company, or move from a partnership to a sole trader if a partner leaves.
Once you've chosen your business structure, you may wish to apply for a New Zealand Business number.
Checkout nzbn.govt.nz for more info.
Good records are good business
Keep enough records to be able to calculate your income and expenses so you can do your tax returns.
Examples of typical records are:
- receipts and invoices (issued and received)
- bank statements
- travel expense details (logbook)
- worksheets showing tax return calculations.
One thing that we'll talk about lots is good records.
Good records form the basis of good business.
They allow you to know where your business is at, how your income is tracking, and what your expenses are.
These records are not only used for tax purposes, but also help you make really good business decisions as you go through the year.
Just as a side note, the New Zealand financial year runs from the first of April to the thirty-first of March.
The most common record that all businesses need to keep are receipts and invoices, so those are the ones that are issued, and received.
Be very careful that you are in fact keeping the invoices, and that you're not just keeping the EFTPOS docket.
Unfortunately this doesn't contain enough information.
Bank statements form part of your business records.
I'm often asked why you need to keep the receipts or invoices when the bank statement shows the transactions.
Well the bank statement shows me you've bought something, where you bought it, and the total you spent.
It doesn’t show me what you purchased.
Your invoice receipt does.
A common transaction is at a petrol station.
The bank statement doesn’t show me that you've purchased fuel along with your lunch and a magazine in that one transaction.
The invoice does.
The fuel would be a business expense, but lunch and the magazine, generally would not be.
Other common records to keep include logbooks, and any working papers.
These are the workings out you do when you complete your GST or end of year tax return.
Just keep them in your own records.
They're handy if we ever ask for clarification around something.
Having separate business and personal accounts makes this process easier.
Talk with your bank about what’s available.
And remember, if there are any fees associated to the business account, these are a business expense.
How do you want to keep them?
First, identify the records you need, then decide how to keep them.
old school, but sufficient
our website has a cashbook to download
store and manage records on the internet
How do you keep your records?
First and foremost, if you want to, keep it in paper.
[giggle] It's old school.
It is absolutely fine.
It still meets all of our requirements.
You can choose to keep your records on your computer.
Now our website has got a cashbook available to download.
These are an Excel format, and you can tailor the column names to your own situation.
Or there’s always the cloud.
Just be aware with any of these options, you need to keep backups of them, just in case something goes wrong.
You can also photograph, scan or photocopy your receipts.
As any receipts printed on thermal paper, have a habit of fading or going black over time.
You need to keep all your business records for seven years after the end of the financial year they relate to.
We have created a cashbook template, which is available for everyone on our website.
It's in Excel format, and is customisable to your business, so you can change column headings for incoming and outgoing transactions to meet your business needs.
To access the cashbook simply search cashbook on our website ird.govt.nz.
Click on the record book link, and it's found at the bottom of this page.
You simply download it to your computer.
It also has an instructions tab, which outlines how to make any changes.
Tax relief - COVID-19 Coronavirus
- If you've been affected by the downturn in business due to COVID-19 coronavirus, we have a range of ways to help.
- Talk to your tax agent, visit ird.govt.nz/covid19, or phone 0800 473 566 for more information.
Go to ird.govt.nz/covid19 for more information.
The Government has introduced a number of ways to support businesses that have been impacted by COVID-19.
This includes options with respect to tax relief.
For the latest updates please go to our website and view the COVID-19 page.
You can also contact your tax agent, or ring our contact centre to discuss your specific situation.
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