Frequently Asked Questions
Company vs Sole Trader
A company is formed and registered with the Companies Office and will consist of at least one Shareholder and one Director (can be the same person). When a Company is formed it becomes an Entity, which, for the purposes of business and taxation, is treated as a person, separate from its owners i.e. it can be taken to court, it has to pay taxes, it has to abide by the laws of the land etc.
A sole trader is one person who can call themselves whatever they like, for example, Joe Bloggs is an inventor so he calls himself ‘J Bloggs t/a The New Einstein’.
When do I register for GST?
There are many misconceptions surrounding GST, and we’ve heard them all. Some of our favourites are ‘GST is way of increasing your income’, ‘I’ve seen others write plus GST so I do too because I thought I had to’ and ‘Isn’t my Companies GST number the same as my own IRD number?’ These statements are all incorrect and can lead to issues with IRD.
You are required to register for GST if your total annual sales (not sales less expenses) is more than $60,000, and are treated as a GST collection agency for IRD. In our experience, most companies struggle to meet their GST liability unless they are very diligent at setting aside the funds.
Do I need accounting software?
Our philosophy is that software needs to make both your life and end of year completion easier. Business owners may need to weigh up saving time versus the additional cost factor. SavIng some money each month by not using software could be costing you time that would be better spent making, selling and promoting your business. Feel free to talk to us so we can help you make a decision.
Do I need to keep all receipts?
Yes! There is a general opinion that receipts under $50 do not need to be kept, however this is only for GST purposes. For income tax purposes, all receipts must be kept for seven years. There are two very important points to know about receipts:
- Thermal receipts fade very quickly when kept in the sun or warm places like a car.
- An EFTPOS printout is not a receipt, it is an acknowledgement from the supplier’s bank that the transaction has been approved.
How do I claim for my motor vehicle expenses?
If your vehicle is not owned by a business, but you use it to carry our business activities, then you are able to claim a portion of its costs (repairs, WOF, Registration, petrol, insurance etc).
You can either keep a log book of all the trips and kilometres you do, recording whether each trip is personal or for business (note, home to work is not business), or you could record the kilometres for work trips only.
Keeping a log book is preferable as you only need to do this for three months and there is no limit on the kilometres you can claim. Recording business trips only is easier, but you can only claim a maximum of 5,000 kms per year.
What can I claim for my home office?
If you have an office based at home, you are entitled to claim a portion of the space it occupies within the house. IRD defines office space as an amount of time in a specific area used for generating income-earning activities. Some examples of what you can claim are insurance, interest (not principal) on your mortgage, rates, water, power and gas. Home phone and broadband is apportioned on usage. Your bathroom or kitchen is not considered an office space, even though you may use these areas during your workday.
What about entertainment and food?
Many owners and book keepers struggle with this complex area. We have outlined some of the rules below, feel free to ask for further help if you need it.
Entertainment out of work and away from the office
Entertainment on boats with clients or staff
Food and drink at work for a social event with staff or clients
Coffees purchased for staff meeting or client meeting at the office
Meal provided for staff whilst traveling out of town on business
Meal provided for staff whilst traveling out of town on business with a client
Meal provided for staff whilst at a conference for more than 4 consecutive hours
A light meal provided on site for managers whilst working
Entertainment provided to the public at a public stand for promotion of business
Giveaways to clients of a promotional nature
Giveaways given to your staff of a promotional nature
How long will my accounts take to complete?
We generally deal with clients in the order that their work arrives. However, if your work is urgent, please let us know so that we can try to accommodate your request. As with all accountants, our work tends to increase substantially from February as the end of the financial year approaches.