Start-up must do

What you must do when starting a business
 

New Zealand is one of the easiest places in the world to start a business, however, there are several rules you’ll need to comply with.
 

Follow our checklist of the several things you must do to follow best practice and check out the tasks you should do.

Please be aware that every business will be different, so we strongly recommend you seek professional advice from an accountant, lawyer, or business adviser to discuss your personal circumstances before you start your business.

You must have a business structure
 

Often one of the first decisions you will make is the ‘structure’ of your business regarding ownership, tax status and the limit of liability.
 

In New Zealand, there are three common business structures:

•  A ‘sole trader’, describing a business run by one person, common with self-employed tradespeople or consultants. You don’t need to ‘register’ as a sole trader in New Zealand, it’s as simple as making a start, then once you end your financial year, calculate your net profit, and pay Inland Revenue using your personal IRD number.
• A ‘partnership’, where there are two or more of you work in the same business. Again, you don’t need to formally register the partnership however for GST/Payroll purposes you should apply for a ‘partnership’ IRD number that you trade under. Profits and losses are allocated to your partners which may be even or some other split, usually agreed previously in a Partnership agreement. Each partner will pay income tax on the income allocated to them using their personal IRD number. Note, you should draw up a partnership agreement amongst your partners, outlining responsibilities and share of partnership profits and losses.
• A ‘company’, which is a separate legal entity, where you or others have shares. To form a company, you must register (incorporate) the company with the Companies Office. This process requires reserving a company name, filling out an application and paying various fees. The company pays its own tax separately from you as the owner. Find out what to do before you start a company from the Companies Office.
   

There are other business structures like Trusts, Co-operatives and Look Through Companies. For a list, visit the Business.govt.nz page on other business structures.

You must inform the IRD
 

Regardless of what structure you choose, Inland Revenue need to know you’ve started a business, so they know which IRD number to use when taxing your profit (or loss). The good news is that you may already have one. If you’re a sole trader or a simple partnership, simply use your personal IRD number when filing your taxes, or if you have formed a Partnership entity file an IR7 that outlines the business activity. As a company you can apply for a company IRD number which will also be your GST number at the same time you incorporate.
 

You can apply for an IRD number online through the IRD website, or request a business advisory meeting with the IRD.

You must file a tax return
 

Every business must pay income tax on ‘assessable income’ or ‘net profit’, which is adding up income (sales, interest) and then subtracting business expenses involved in obtaining that income (rent, supplies, wages, power, travel, phone, advertising, internet and the cost of any materials or products you’ve sold). This leaves net profit. And is what Inland Revenue will tax your business on. Getting advice from an accountant is important if you’re new to business, as there may be some expenses that you can’t claim for, or you can’t claim 100% of the cost (such as food and drink).
 

Depending on whether you’re a sole trader, a partnership or a company, tax rates vary. You can find out more about this on the Business income tax section of the IRD website.

You must keep business records for at least 7 years
 

Business records prove what came in (sales) and went out (expenses) of your bank account, which is the main evidence Inland Revenue will use if they want to investigate your business. Records include invoices you’ve sent to clients or received as expenses, cashbook, petty cashbook and wage book.
 

It’s easy to track all your expenses and revenue if you use accounting software. Common examples include Xero, MYOB and Wave. Check out their features and select the one that suits your business best (ask other small business owners and your accountant what they recommend).
 

Find out more from Inland Revenue about keeping business records.

You must choose a business name
 

Customers and suppliers need to know who they are dealing with, so you’ll need a business name.
 

Sole traders often use their personal name. You can search the Companies Office register to see if your intended business name is already taken or use ONE Check from Business.govt.nz that searches company name, domain name, and trademark for availability.

You must register for Goods and Sales Tax (GST) if sales exceed $60,000 each year
 

If your business income exceeds $5,000/month ($60,000 in any 12 month period) you must register for GST, as soon as you are aware that you have gone over the threshold. GST is a 15% tax you collect and pay on behalf of Inland Revenue, calculated on difference between what came into your business as revenue, minus all your costs, in a particular period. GST is charged on almost everything (common exceptions include salaries or wages, interest, exports).

You must register as an employer
 

If you’re thinking of employing someone, or decide to employ yourself and pay wages or a salary, then as a business you must register as an employer on the Inland Revenue website.

You must deduct employee tax and forward to Inland Revenue
 

Employees (or you as the owner) earning a wage or salary are taxed directly from their pay, known as PAYE (Pay As You Earn). As an employer, you're responsible for deducting and paying this PAYE income tax to Inland Revenue, on your employees' behalf. The amount of PAYE you deduct depends on the employee’s tax code and how much they earn. Find out more from Inland Revenue on deductions from salary and wages.

You must set up your banking
 

It will be impossible to be in business without somewhere to bank your revenue and a way to pay expenses. Keep your personal bank account separate from your business banking is a SHOULD, but we’d suggest it’s a must. Find out more here about ASB’s Small Business Banking options.

You must deduct KiwiSaver
 

KiwiSaver is a retirement savings scheme set up by the New Zealand Government. You are responsible for deducting employee KiwiSaver contributions from wages or salaries, as well as making an additional employer contribution, which must be paid to Inland Revenue. With new employees, you must ask them if they want to opt out of KiwiSaver, as it’s not compulsory for first time employees, however if they have already registered for Kiwisaver previously, they cannot ‘opt out’ later.

You must pay ACC levies
 

Businesses must pay an annual levy to ACC to cover any workplace injuries. Even if you are self-employed and have no staff, you will need to pay self-employed ACC levies in case of injury. Think of it like an insurance cost to cover you if you suffer an accident and cannot work in your business. The amount you’ll pay is a percentage of your wages and salary total for the year, the percentage depends on the kind of work as some industries contain a higher risk of workplace injuries. Find out more from the ACC website for business.

You must pay Fringe Benefit Tax (FBT)
 

If you or your employees receive fringe benefits (or perks), they might be liable for FBT. Examples include the private use of a work vehicle, discounts on goods or services, low or no interest rate loans and contributions to insurance or superannuation schemes. As an employer, you must register for FBT when you first start giving your employees, shareholders, or other people associated with your business, a fringe benefit. Find out more on FBT from Inland Revenue.

You must comply with local business licenses, permits or qualifications
 

Your business will need to comply with the legal aspects of operating your business such as health and safety, standards, noise control, permits and licenses. Almost every industry will have some control or restrictions on where you can locate, what you can do and how you can do it. You’ll also need the industry qualifications or certification required to operate. A good start is to use the Compliance Matters Tool from Business.govt.nz which will help identify your compliance tasks.

You must arrange business insurance
 

Some businesses will need business insurance to operate, for example to be able to contract or work in an industry, or there may be a requirement from customers to have professional indemnity, third-party, cyber, property or general liability insurance. Some insurances will fall in should. Find out more about ASB’s business insurance.

Next steps
 

Make a list if the things you must do that are relevant to your business and seek professional help to uncover any other musts that apply to your business, especially any industry specific requirements. Knowing what you must do to trade legally, is your responsibility.

This content is for general information only. It does not contain financial, tax or legal advice, nor should it be relied upon as or replace financial, tax or legal advice. ASB recommends you seek advice from a qualified advisor before making any decision that could affect your business. ASB makes no warranty or representation and accepts no responsibility or liability for this contents suitability (for any person or purpose) or the adequacy or completeness of its content. ASB reserve the right to amend, update or withdraw this content at anytime without notice.