BUSINESS ADVICE • 27 OCTOBER 2021 • 15 MIN READ
Our top FAQs on accounting and tax
We try to minimise the use of technical terms but sometimes there’s just no avoiding it. The link below takes you to the most common words and phrases you may hear.
I’m thinking of buying or selling a property – what about Brightline?
Don’t underestimate the level of enquiry needed to provide you with an answer. If we’re asked even the simplest of questions, some of the information* we need is:
- Type of property
- The dates of sale and purchase
- Parties to the transaction
- History of property transactions
If an accountant, solicitor, or tax advisor provides you with a response in 5min or via a quick email without knowing your history, maybe they haven’t asked you the right questions.
* Even if you provide us with these intial answers up-front, we couldn’t provide you with a quick response – these are just the tip of the iceberg. Five years ago, we wouldn’t have needed many questions. Now we do.
Should I purchase a vehicle in my company’s name or my own?
Ideally, in the company’s name if it’s going to be a company vehicle. The insurance and any financing arrangements should also be in the company’s name.
The seller and/or lender may require a personal guarantee from you, if you’re a relatively new business with few other assets or no lending history.
Another option is to have the sale and purchase agreement reflect that you’re purchasing on behalf of the company.
Should I buy or lease?
It depends, and it’s generally something only you can answer with your knowledge of the business.
One of the more important factors is cash flow – if you buy the asset, do you have the cash available, or do need to borrow and pay interest?
Should I pay myself wages?
In the first couple of years, we usually don’t recommend paying yourself wages, especially if you’re the only one on the payroll. The administration just isn’t worth it.
Our blog below gives you alternatives.
How much should I charge customers and clients?
We can’t answer this question. It depends on your expenses, the industry norm, and your required profit level. Our pricing blog provides some guidance.
Do I need to register for GST?
- If you have revenue higher than $60,000 – yes
- If your revenue is less than $60,000, most of your sales are to overseas customers, and expenses are incurred in New Zealand – it's optional but probably yes
- If your revenue is less than $60,000 but you’d like to claim GST on a large asset purchased – it's optional but probably yes
What is provisional tax?
Provisional tax makes life a little easier by having you pay the current year’s tax bill in advance. It’s usually in three instalments – August, January, and May.
At the end of the year, your tax bill is worked out. If you’ve paid more provisional than your actual tax bill, you’ll get a refund. If the provisional tax payments don’t cover your tax, you’ll need to pay the difference (called terminal tax).
What is terminal tax?
Terminal tax is your final tax bill for the year, after deducting any provisional tax payments you’ve made, less any tax deducted at source (such as PAYE or RWT on interest income).
Why is my Beany Tax-iQ different to the IRD’s myIR?
The three most common reasons are:
- Your tax return hasn’t yet been filed
- Inland Revenue hasn’t processed your payment
- You’re on a payment plan with Inland Revenue
What expenses can I claim for my business?
If the expense is necessary and incurred for you to generate revenue, then it’s usually fully deductible – it can be offset against the business revenue for tax purposes.
It’s not as easy as that though. Some expenses can have a personal component and cannot be fully claimed. The costs of a meal and drink with a client, for example, are only 50% deductible. The business benefits from maintaining the relationship with a client, but on the other hand, the business paying for your individual meal won’t improve revenue – you need to eat anyway.
What motor vehicle expenses can I claim for my business?
Similar to expenses, motor vehicle expenses can be claimed, but up to a point. Most of the time, there will be a personal component. There are different ways to calculate the business portion depending on how diligent you are in keeping proper documentation.
Can I claim for meals while travelling?
Based on a recent Interpretation Statement issued by Inland Revenue, the answer will probably be ‘no’. The simple reason is that you need to eat to live. You need to spend money on meals anyway, even if you didn’t have a business.
Sole traders can only claim under very rare circumstances which you’re unlikely to meet.
A company can reimburse an employee for meals, or provide an allowance, if it’s outlined in the employment agreement. This applies to shareholder-employees as well.
How can I increase profit?
There are two main ways to increase profit – increasing your revenue, or decreasing your expenses. It doesn’t happen naturally or overnight – you need to spend time examining the business’ transactions and operations, and then figure out what changes are needed.
Making more money in your business
Business tip – reduce expenses
Business tips – customers
Pricing your product or service
Should I be a sole trader or a company?
Many think that your business is best as a company for tax purposes and to limit personal liability. This isn’t correct though. In many instances, it makes no difference at all and you’d be better off not having to deal with the extra paperwork companies require.
What’s the difference between a company director and a shareholder?
Shareholders are the owners of a company. A director is responsible for ensuring the company meets all legal requirements (and there are a lot of them).
A shareholder doesn’t need to be a director, and a director doesn’t need to be a shareholder.
What accounting software should I use?
Beany uses Xero to prepare your financial statements, so we’d prefer you to use that as your accounting system – your business and Beany will have access to the same financial information. It’s not compulsory though. We have a number of clients who use only spreadsheets or MYOB, or another computerised system – we can work with anything you use.
How Xero accounting software enriches your business
How to set up your accounting system and financial controls
What should I consider when buying or selling a business?
How does ACC work if I’m self-employed?
As an employee, your ACC levies are automatically deducted from your wages and sent off to ACC – similar to the PAYE that is deducted and paid to the IRD. When you’re self-employed, it needs to be paid separately, with your levies based on your profit and the perceived riskiness of your industry.
Once your tax return is filed, the IRD provides certain information to ACC. ACC will then send you a bill for the amount due.
What is a profit and loss account?
A summary of income and expenses for a specific period of time – usually months or years. It will often show a separate column for the income and expenses in the previous period – these are called comparative figures.
What is a balance sheet?
A summary of assets and liabilities of the business. These are usually split between current (expected to convert into cash received or paid within one year) and non-current (longer than one year).
The difference between assets and liabilities is equity. Similar to owning a house and having a mortgage, you’d want the value of your house (assets) to be higher than the mortgage (liability).
What is depreciation?
Depreciation is a non-cash expense and applies to fixed assets. There are two ways to think of this:
- Accounting for the normal wear-and-tear of the fixed asset as a business expense each year – it reduces the value (and future selling price); and
- Claiming the cost of the fixed asset over a number of years (minor assets can be fully claimed in the year it’s purchased)
This spreads the cost of a fixed asset over its useful life. It’s an expense in the Profit and Loss Account which means it reduces your tax bill.
Who are Beany?
We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world.
We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.
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