Be in the know.
Be in the know.
- Sole Trader
- As a sole trader you are the business and the business is you. Most people start out this way because it offers low-cost, easy entry, but the disadvantage is that you are totally responsible for the debts and liabilities of your business.
- Partnerships are usually formed when two or more people, perhaps with different or complementary skills and resources, get together to run a business.
- When you form a company, you create a legal entity quite separate from yourself. The company can continue long after you’ve departed, because your shareholding in the company can pass to someone else. The ‘Limited’ part of a company’s name stands for Limited Liability.
- Not unless your business turnover is likely to exceed $60,000 in the next 12-month period. But our advice is YES, go ahead and register – you do want to turn over more than $60,000 a year, don’t you?
- Secondly, you’ll be able to claim back the GST back on all your business expenses that have a GST component, such as equipment, supplies, etc. Of course, you have to add GST to all your invoices and pay this to Inland Revenue (less the GST you’re claiming back on expenses).
- Thirdly, the discipline of doing a GST return every two months (you can choose a six-monthly return if your turnover is low, but we recommend you choose the two-month option for the discipline reason) will let you know how your business is doing. It’s like generating a quick Profit and Loss report every two months.
- If you’re not paying any GST to Inland Revenue at the end of every two months, then you’ve probably made a loss (unless perhaps there was a large equipment purchase or some other one-off factor during this particular two-month period). So the two-monthly return also offers you a quick check on the health of your business and a regular chance to correct things before a minor problem becomes a major problem.
- If you form a company, then various formal steps are required. But even if you start as a sole trader, you should notify Inland Revenue so that they can record you are self-employed. There are three good reasons for this:
- Firstly, to register for accident cover. IRD will in turn notify ACC to provide you with the appropriate cover.
- Secondly, so that IRD can correctly code the computer to send you the appropriate Business Tax forms at the end of the financial year. These forms will help to remind you of your obligations.
- Thirdly, to help you with your claims for business expenses.
- Yes, this will make life much easier for you and for your accountant, because this step allows you to separate clearly your business income and expenses from your private income and expenses – and bank statements are usually the prime source of information for your accountant.
- Make life even easier for yourself by getting a cash card from the bank in your trading name, so all transactions will be neatly listed on your business bank statements and you can match receipts with bank statements
- It’s a good idea to start a separate bank account for tax (still under your trading name) and channel sufficient funds – as per your accountant’s advice – into the account to meet your various tax obligations. This way you’ll sleep much better at nights.
- We certainly recommend you complete a Business Plan. Three good reasons: firstly, the research and thought you’ll have to put into writing the business plan will help you to sharpen and/or adjust your ideas.
- Secondly, any lending institution that you might approach for funds, such as a bank, will want evidence that you’re done your homework and properly thought through your business concept.
- Thirdly, the business plan provides a road map for your business.
- This depends on what your Net Profit is for the year. Income – Expenses. You will pay no tax the first year of business unless you voluntarily do so. Once you have completed your first year of business tax will be payable by the 7th April the following year if you are registered through a tax agent or 7th February if you do it yourself. Tax to pay at the end of the year is called residual income tax (RIT) less any PAYE and other tax credits you may be entitled to, except for Working for Families Tax Credits.
- Tax brackets are as follows:
0-14000 – 10.5%
14,000-48000 – 17.5%
48,000-70000 – 30%
Over 70,000 – 33%
- • Provisional tax helps you manage your income tax by paying it in instalments during the year instead of paying a big amount at the end of the year. If you had more than $2,500 of tax to pay at the end of the year from your last income tax return, you’ll have to pay provisional tax the following year. This usually happens when you earn income without having tax deducted during the year. Provisional tax is based on your previous year’s earnings. If your Residual Income Tax was over $2,500 your provisional tax will be that amount of tax x 105% ($2,500*105%=$2625).
- Every business should have a budget. You should have an idea of what you want to make from your completed business plan.
- You will then be able to see how you are tracking each month compared to budget and see if you are on track or if adjustments need to be made to meet budget.
The failure rate of small business start-ups is high. One major reason is lack of business skills. Therefore yes, you should systematically set about improving your business skills. Perhaps the most important ingredient you need to succeed is enthusiasm and drive, backed by persistence and a determination to achieve your goals no matter how much hard work is involved.