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For businesses and employers Ngā pakihi me ngā kaiwhakawhiwhi mahi

Starting a business - budgeting for tax payments

When you start out in business, it is essential that you budget for the tax payments you will pay in future. These payments may include:

  • income tax
  • goods and services tax
  • PAYE and other deductions from employees' wages

If your business's income will be taxed at the company rate note that this rate reduces from 33% to 30% from the start of the 2008/09 income year. This change affects how companies' income tax payments are calculated. Some other rates connected to the company tax rate (CTR) automatically change as well. See Key messages about the change of company tax rate for more information.

Your first year in business is not tax free

Usually you are not required to make any income tax payments to Inland Revenue during your first tax year in business.  However, during your second year of business you must pay tax on the profit you made in the first year and you may also need to pay provisional tax for your second year.

You may choose to make voluntary tax payments during your first year of business, which helps to spread the cost. Some individuals in business, who make voluntary income tax payments during their first year of business, may be entitled to claim an early payment discount.

For specific advice on what percentage of your income to put aside for tax purposes, contact your accountant or financial adviser, or a Business Tax Information Officer or a Kaitakawaenga Maori at Inland Revenue.

Early payment discount

From the income year beginning 1 April 2005, a 6.7% discount of tax has been introduced to encourage individuals who begin receiving self-employed or partnership income to pay tax voluntarily in the year before they begin paying provisional tax.

To qualify, individuals have to:

  • Be either self employed or a partner in a partnership;
  • Derive gross income predominantly from a business (not being interest, dividends, royalties, rents or beneficiary income);
  • Not be required to pay provisional tax in the income year;
  • Make a voluntary payment of income tax before the end of the income year (31 March for a March balance date taxpayer);
  • Elect to receive the discount within the timeframe for filing a return of income for that income year (there will be a tick box on the IR3 income tax return from the 2006 year onwards);
  • Have not been liable to pay provisional tax in the prior four years;
  • Have never received an early payment discount (note however that there is a concession to enable taxpayers to claim the discount again where they have ceased to receive self-employed or partnership income for a period of four years and then begin a new business).

The discount is calculated at the rate of 6.7% on the lesser of the amount paid during the year or 105% of the end-of-year residual income tax liability.

To find out whether you might qualify for the discount, please contact Inland Revenue.