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Business Tax

Are we heading in the right direction for small businesses?

Tax shouldn't be a minefield for small businesses.  Complying should be easy.  It may be that there is assistance that Inland Revenue could provide specifically for small businesses.  This could include encouraging the use of improved business systems and accounting software that meets specific standards to help ensure the first few years of a business’s life-cycle are successful.

Other forms of assistance could involve ensuring that the right support is available at key events that may result in tax obligations, such as taking on new staff for the first time.  Ensuring that businesses get it right first time will be a real focus.  For example, software would have the ability to help users correctly classify transactions to ensure tax obligations are correctly met right from the start.

Small businesses may also benefit from some tax rules being “simplified”.  This doesn't mean creating specific tax concessions solely to get a “tax break”.  Rather, the focus will be on investigating some changes that result in tax simplification for small businesses.

Is the proposed direction outlined above the correct focus to provide benefits for small businesses or are there other more important ways of helping small businesses?

Are there any areas where you think tax for small businesses can be simplified, without creating specific tax breaks?

A particular focus is to ensure that small businesses achieve higher levels of compliance – what are the most important practical ways of promoting and achieving higher levels of compliance?

Comments

Sean Fitzgerald
Tax simplification has been talked about for many years, but never implemented. Every time there is a new initiative, it tends to add complexity, rather than reduce it. In addition, there are often unintended consequences. For example, Inland Revenue claimed several years ago that they'd surveyed "customers" and said that the "customers had told them they wanted less "contact" with Inland Revenue. So Inland Revenue aligned GST and provisional tax payment dates. The effect was to impact significantly on cash flow, which some clients still struggle with particularly the January provisional tax/GST payment. In addition, the constant tinkering with the tax system is very unhelpful.

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1 year ago
Joy
Tax could be simplified by accounting software being able to send this data off to IRD. One point here though is that the administrator for that company needs to authorise the transfer. Otherwise if there was unfinished workings or an error in the data which was not fixed prior to the software automatically sending the data this would create nightmares for both IRD and the company.

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1 year ago
Rob
yep. Also puts a big burden on small businesses to keep records up to date and accurate all the time. Presumably, based on current experience, a set of late monthly management accounts, or a minor bookkeeping error, would result in IRD penalties.

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1 year ago
carl
Whatever you do, don't rely on computers or computer-to-computer transfer to ensure accuracy or compliance. remember the hassle to change software when the GST rate changed? GST is one of the simpliest taxes to calculate, yet a small change in rate was a massive undertaking. I certain want "less" contact with IRD or accountants, I already have too many demands on my time. However IRD needs to have people available to business and employees; who can have THE last word on a tax question and that is willing to back that up with a letter than stops any overdue/penalties. Tax accountants can be good but if they get it wrong they refuse to be accountable, so how can I as business director or owner supposed to have more expert knowledge about tax than my tax accountant or the IRD? "Tax simplification" is often used as an excuse to get rid of all sorts of client savings and to get "tax" that people didn't actually owe.

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1 year ago
Christina Lotz
When we first started our business here in NZ after immigrating from Europe we thought:"wow, this system is great! We can do it all ourselves, GST, wages etc!!" It was all easy to work out. But then came the KiwiSaver and it all got far too complicated and time-consuming for a small business owner. It got even more complicated over the last years. Why doesn't the IRD administrate the KiwiSaver like it does with ACC? It is such an unfair burden for a SME!!!!

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1 year ago
Kim
Most small businesses I work with (11 of them) struggle to understand Tax, GST and PAYE. Although copious information is supplied by IRD and expensive accountants are available to them they still have no idea what they are doing. They just want to teach dance, or do their home handyman job. They struggle with the compliance issues. So anything IRD can do to simplify the process, especially with regards to understanding what has GST - what does not have GST, how Tax is calculated, how PAYE calculates and how ESCT etc works would be beneficial. These are the things I explain again and again... The dream would be that they merely entered all their transactions into a system at gross value with simple income and expense categories and that system calculated everything for them in relation to GST - with auto prompts that said - this expense does not attract GST. etc .... Most accounting packages are excellent if you have a modicum of accounting understanding but they confuse some users as they have features which are for the "expert". Those features confuse. The messes I have seen when the plumber thought he'd use this feature or that feature as it looked like the right thing to do .... ???!!! A very very simple process that did not cost the earth, was easy to access and universally used, and trusted would be a real benefit. There would need to be a helpdesk and support for this new service. More cost ?

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1 year ago
Wendy
The thing the IRD needs to realise is the nature of Small Businesses. Some may have 10 people working for them and some may be a sole owner, like myself. Im working in a home office. I am solely responsible for everything in my business, from doing all the work, handling the money, advertising, marketing, and the hardest part of all - the books. As a "tiny" business I cant afford to have an accountant do my GST or input my accounts on a monthly basis. Its also not one of my strengths. I have to have accounting software and know how to use it. I have to keep good records and I have to do GST returns. For some of us, this is not easy, and we dont always get it right. Then the end of the financial year comes and its a scramble to get it all together for the accountant. Sometimes I have dragged it on rather late and still I have to wait quite some time for the accountant to do my books. Books which are often done by the Junior. I finally get it all back and try to understand it all, but I dont. Depreciation, fringe benefit tax, claw backs, GST adjustment sheets....... etc. etc. I just have to trust that my accountant is doing things properly. I receive a tax summary of whats owing and when it should be paid, including provisional tax of course. This is usually fairly depressing as I can never pre-determine what this might be. My husband works and is currently paying PAYE but sometimes he works on contract, so from year to year our taxes may be different. I dont agree with provisional tax. I dont see why I should pay tax on money I havent even earned yet, and may not even earn at all. It may be no problem for a large business to handle paying provisional tax, but self employed people like myself shouldnt have to. We really need a break with regard to this. To be honest I dont know the solution. If paying as you go seems like a better option, I still dont think it should be provisional tax for the following year. It should be attributed to that current year and then adjusted once your accountant has done your books. Because if you are making good money one year you can afford to pay the tax out of it as you go, but if you are having a bad year it will be easier on you not having to pay so much tax.

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1 year ago
Jason
I have a concern that the 'approval' of specific online accounting packages will effectively force small businesses to take up certain packages. What is then to stop the providers (e.g. Xero) from increasing their costs and profits, whilst small businesses are left with no choice but to pay additional costs to use a 'compliant' system. Any changes to the proposal for businesses to use electronic systems must not be mandatory to the point they leave small business (particularly startups) with no choice but to pay whatever charges a software provider imposes on them. Accounts can, for many, be perfectly well kept with a good spreadsheet based on the IRD samples in the Business Toolkit. I would like to urge caution in 'mandating' proposals for a move to mandatory technology systems. Perhaps offer an incentive if this is easier, but don't make businesses a prisoner of software providers by creating a de facto monopoly or cartel.

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1 year ago
Prue Scott
I tried as number of accounting packages but all were far too complex for a one-person freelance writer/editor company that might have one client a month, or three, and, sadly, sometimes none. My accountant gave me a fabulous XLS spreadsheet that is so simple. IRD needs to recognise that not everyone uses MYOB or Xero. I agree with Jason - do not penalise those of us who don't use an off-the-shelf product. You will reduce compliance and raise people's ire.

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1 year ago
Jean Forbes
All PAYE should be paid on pay day with all other payments. There should not be a 2-4 week wait before paying. It would make life better for all businesses. With banking the way it is now all wage payments should go out together. It means each business knows exactly where it stands, everyone would be paid on time with an email forwarded to IRD showing deductions.

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1 year ago
Jackie Dempster
Jean I'm unsure as to why you think the payments should be aligned and I think many SME's would not be too thrilled with your suggestion........The fact is many SME's only get paid around the 20th of the month.....you're asking SME's to wear not only the cost of the wages before they have been paid but also the tax PAYE which would include things like Kiwisaver as well. Hardly makes like better for business when you are paying the IRD before the business has received its payments!!

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1 year ago
Ian s
Paying any Tax should be treated the same as any purchase for services or items. I have negotiated with many suppliers of services that I require for my business to pay for my services on a weekly basis - great for my Casflow - hardly any overdues, easier to budget. If I average my nonthly or annual spend with a provider I am able to reduce my automatic payments to them to a monthly or weekly payment in most cases. Easy to change by Internet banking and easy to topup if I need to pay more. Paying Tax in any form should be the same. Small business should be able to pay their taxs in smaller amounts more frequently - everyone wins as i see it.

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1 year ago
Gareth Foster
1) We should be re-reimbursed for collecting GST on the governments behalf (give us a free year of MYOB / Xero for new companies...?!) 2) Losses for new companies could paid out as no percent loans to companies.. to help them get going 3) Give individual companies advice on how to best set-up their tax structure when they are starting out

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1 year ago
Charles
I am a sole trader and I have lived elsewhere and had to deal with tax in 3 different countries. NZ is by far the simplest to work with. But it can always be simpler and better. My income tends to be very lumpy meaning I cannot make any reasonable predictions on income. Some sort of PAYE-like scheme would work pretty well for me. Right now I guess provisional tax then re-estimate as the year progresses. That works, but it does tend to make the guesses look pretty skewed.

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1 year ago
cam
I currently avoid my provisional tax liability in my business by paying myself and my wife wages instead of drawings. . I now pay my PAYE monthly which is effectively monthly provisional tax i suppose and have a little tidyup at the end of the year. I did this after asking my accountant why i couldnt do it this way and he said he couldnt see any reason not to. It was just too difficult and stressful to find the money required to pay the prov tax when it fell due. The major problem I have with SMEs and tax, is that large companies have a person assigned to accountancy and tax compliance. SMEs that have only have one or a few workers do not have accountancy and tax workers and so this is typically done by an accountant and owner. Quite often the accountancy fees and time required to furnish IRD with its information is a significant cost to the business. Along with DOL/worksafe nz & acc, IRD requires high levels of compliance, all of which are increasing costs to the individual owner/s of the SME. Ultimately, and i have seen several over the last few months, people grow tired of the continual nightmares levied upon them by the state and give up their businesses as the costs and time involvement are too much and there becomes little return on business ownership along with high stress due to having to juggle bills to feed provisional tax, gst, paye and acc payments on top of the accountants hefty bill. I think IRD should administer a certain credit to SMEs in a ratio based upon turnover and number employed etc to offset the time and cost involved in furnishing IRD with the money and information it requires. The government needs to recognise that the individual is their tax collector! I actually cannot see how the continually upward spiral of increased governmental compliance + associated cost in this tiny wee country can be borne out by increased good + service prices in the SME sector (more than 65% of businesses). Along with lumpy and variable income (most SMEs would agree here) and declining profitability due to globalisation and cheaper goods available offshore/competition, running a small business is a talented juggling act just to keep going.

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1 year ago
Russell Parry
Technically according to IRD regulations you are not permitted to do this. The extra profit over your PAYE is subject to company tax, and thus potentially UOMI. And of course if you overpay yourself you cannot claim the loss back. Having said that I have never come across a situation where IRD have actually applied the technicality of this ruling

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1 year ago
Marc
I use MYOB - very simple and inexpensive. MYOB is capable of sending an electronic GST response directly to IRD. However, IRD wants us to log in to their website and fill in yet another raft of screens. It's easy enough but a waste of time. It is all to make it easier for IRD, not us, the tax payers. IRD needs to be clear on the rules so accounting software companies can build compliant software capable of submitting directly - not so we have to fill out more forms. This should be easy; IRD just has to get their heads around the fact it is not all about them. Something similar for a PAYE style tax payment system would also be great. We would then only require accountants' specialist knowledge for an end of year wash up and would never have any large lump sum tax payments; Govt would also benefit from a better cash flow all through the year.

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1 year ago
brian whetton
I agree with Marc. The IRD should provide an electronic copy of forms that they wish businesses to complete. When completed, they can then be emailed or downloaded to the IRD website while the tax client is online.

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1 year ago
Michelle
In theory pay as you go provisional tax is the way to go - but, in our cause we distribute money to trusts and partnerships from our business to minimize tax liability at the highest tax rate, this is done at the end of the year when we have all the facts. If we did the pay as you earn we would invariably be paying provisional tax on the income at the company rate -which would mean paying more tax than was necessary. There needs to be some avenue to reassess or redistribute (as you go) money to other entities for provisional tax purposes or retain the ability to opt out and do as we currently do now.

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1 year ago
Jackie Dempster
The tax system is time-consuming, complex, costly, and affects productivity. Do away with the current tax system in its entirety and introduce something like an APT Tax. No transaction would be exempt!! As a SME who has lumpy income I am removed from the State slavery regime of endless compliance and the costs of compliance. I can use my time and my resources far more productively.

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1 year ago
Nigel Harwood
Small business taxes - it would be great if we paid tax on a cash basis - as per GST - none of this high drama of accounts receivable/payable. It would be easy and I could get my accounts to the accountant on 2 April so balancing their workflow. It would also keep my accounting fees down and increase your tax take.

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1 year ago
brian whetton
When I was in business, self employed, I found GST returns a real trial. They were time consuming (no computers then) and record keeping was a problem too. It seems to me that a lot of folk are gathering tax for the Government at their own expense. There must be a simpler way of gathering tax and reducing the cost to businesses, large & small. Computer technology has made it easier but it is still a trial. I would suggest that a TAX REVIEW panel be organised to do this task and be comprised of an equal number of IRD representatives to independent small business owners and corporates (perhaps 10 of each or more) . The panel should then prioritise the type of TAX that will be reviewed 1st. considering that it will be part of a comprehensive review of the whole system. Target review timeframes should be set. Not an easy task but you need to start somewhere, as you have through this medium. And it would appear that a "pay as you earn" system appears to be favoured to replace Provisional Tax. Cheers

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1 year ago
Michael Peters
I'm a self employed small business owner. I find compliance with the current system easy enough already. GST returns are very simple to complete with the new online returns. Nothing wrong with the provisional tax system either. In short, PLEASE DO NOT CHANGE ANYTHING MR IRD MAN! The system aint broke, and any tinkering is bound to create problems.

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1 year ago
Allan Tibble
I run a small business - do not have employees only contractors and the majority of my business happens in three months of the year. I do not need any more simplification than I have. The proposed system would only increase my workload and would only increase compliance costs and errors.

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1 year ago
JT
small business cant afford to use online accounting software, and dont need to

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1 year ago
Colin B
1. Any changes to the NZ Tax system need to be carefully considered by the key players/experts. A). Institute of Chartered Accountants Aust & NZ , IRD & Govt key stake holders. B). The Current income tax system works perfectly good. C). The IRD/ ACC interface, data transfer system is not good. D). The tax agents system needs to be strengthened so all current / future tax agents are bound by code of ethics & are Chartered Accountants not dodgy kitchen table accountants , who are a threat to underpaying income tax & GST & exposing their clients to getting it wrong & getting stung for IRD penalties

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1 year ago
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