Starting a new business comes with a lot of moving parts, and GST is one of the first big milestones you will come across. It can feel a bit technical at first, but once you understand the basics it becomes much easier to manage.
When you need to register for GST
In New Zealand, you must register for GST if your annual sales turnover is expected to reach $60,000 or more. This is based on your sales/ trading income, not your profit. If you forecast out 12 months and you are expecting your sales turnover to reach or exceed $60,000, then you must register for GST.
You can also choose to register voluntarily if your turnover is under this threshold. Some businesses do this to appear more established or to claim GST back on expenses early on.
If you are getting close to the $60,000 mark, it is important to start planning early so you are not caught out.
Choosing your GST filing frequency
Once you are registered, you need to choose how often you file GST returns. You generally have three options:
Monthly: This is useful for businesses with higher cash flow or lots of transactions.
Bi-monthly: This is the most common option for small to medium businesses.
Every Six Months: This suits very small businesses with simpler activity.
The right option depends on how often you want to keep track of your numbers and how complex your business activity is. There are also requirements when your sales turnover reach certain thresholds within a specific period of time, which require you to be on 2 monthly filing or invoice basis for GST filing, for example, if your sales turnover reaches or exceeds $500,000 in a 67 month period you are required to change to a 2 monthly GST filing frequency of you are on 6 monthly.
What you can claim
GST is not just about what you collect, it is also about what you can claim back.
You can usually claim GST on business related expenses such as tools, software subscriptions, office costs, and professional services. The key rule is that the expense must be for your business, not personal use.
Keeping clean and organised records makes this part much easier when it is time to file.
Invoice basis vs payments basis
When you register for GST, you also choose how you account for it.
The invoice basis means you account for GST when you issue or receive an invoice, even if the payment has not come through yet.
The payments basis means you account for GST when money actually comes in or goes out of your bank account.
Many smaller businesses prefer the payments basis because it matches real cash flow, which can make budgeting simpler.
Avoid the GST trap
One of the biggest mistakes new businesses make is treating GST like extra income.
It is not. The GST you collect belongs to the IRD, not your business. Using it for day to day spending can create a cash flow shock when it is time to file.
A simple way to avoid this is to set up a separate tax savings account. Every time a customer pays you, move the GST portion straight into that account.
Think of it as paying yourself first, just in reverse. When GST return time comes around, the money is already sitting there, ready to go.
Need help getting your GST set up the right way?
At Every Cent Accounts, we make GST simple so you can focus on growing your business.
Get in touch today for a no-pressure chat and let’s make sure you’re set up for success.