Frequently Asked Questions
Working with North Harbour Accounting
How much do you charge?
We prefer to not offer pricing ‘packages’ as we believe that not everyone has the same needs. This allows us to offer you services that provide you with the most value for your specific requirements. However, our pricing is transparent, and once your requirements have been determined, we’ll provide you with a clear indication of what you can expect to pay, month-to-month. This means that there’ll be no surprises when you open your bill. We are a boutique practice, without the overheads of a large firm, so you can trust that you’re paying for real value, and the direct expertise of a qualified Chartered Accountant.
How often will I hear from you?
Many accountants will wait for you to make the first move – and that’s generally around the time when your tax is due or your GST needs filing! We do things a little different around here. Depending on your requirements, we’ll be in touch regularly. You can trust that you’ll receive proactive advice to help you stay ahead of the game.
What software do you use? Do you recommend other apps for managing my finances?
Technology can make a big difference in the efficiency of your systems and processes when it comes to managing your finances. We are certified advisors for both Xero and MYOB and can recommend suitable apps to support your specific business requirements from the add-on ecosystem of software partners.
Working with an Accountant
Why do I need an accountant?
Trying to save money can occasionally backfire for SMEs who aren’t aware of how an accountant can add value to business operations.
Getting a qualified accountant is no luxury. An accountant or bookkeeper should be thought of as a business decision leading to returns in terms of cashflow, peace of mind and professional organisation.
On the contrary, late night DIY bookkeeping and accounting could lead to you missing out on tax breaks, falling behind on invoicing, underestimating your tax bill, fines for late compliance, or working with unreliable information leading to suboptimal business decisions. An accountant should be thought of as a service which cleans everything up so you have documentation backing up accurate records – plus you’ll be guided in how to use the right software to record and streamline everything.
Don’t forget, the responsibilities an accountant can handle are wide-ranging and include:
- Efficient billing so you can get paid quickly
- Filing the right tax to set yourself up for next year
- Understanding benefits, discounts, refunds and obligations
- Making inventory reliable, or showing you how to get Xero to cover inventory
- Helping you give customers multiple payment method options
So, while the IRD does not require that you use an accountant to prepare your statements and returns, the benefits of an accountant far outweigh the cost.
What’s the difference between an accountant, a Chartered Accountant and a bookkeeper?
Chartered Accountants: Chartered Accountants Australia + New Zealand is a professional body; anybody professing to be a Chartered Accountant must be a member. Studying for the Chartered Accountant qualification takes seven years; ongoing professional development is required, as is abiding by a code of ethics. CAANZ also reviews each chartered accountant regularly.
Accountants and Bookkeepers: Far fewer qualifications are required for this role, however, all accountants and bookkeepers will have particular expertise they’ll be able to tell you about, even if they are not a Chartered Accountant.
There are also tax agents out there. These people are registered with the IRD and they prepare and lodge income tax returns. You have 365 days in which to prepare and lodge your income tax return if you are with a tax agent. Taxpayers without tax agents have just 98 days.
How do I change from one accountant to another?
Signing a Letter of Engagement is normally the first step when joining a new, reliable accountant. The letter should set out what it is you’re engaging the accountant for, often will include the cost/pricing, and the letter should describe the services you’re being set up with, plus terms and conditions.
Don’t worry about hurting the feelings of your old accountant! What happens is your new accountant will contact the old accountant and organise the smooth transfer of information.
Switching simply involves you providing your up-to-date accounting files to the new accountant. You may need to get your new accountant to notify Inland Revenue, and possibly your new accountant may need to share access to Xero, MYOB, Sage, QuickBooks, or other programmes you’ve been used to.
Complimentary training on the software your new accountant uses may be part of the transfer, or may be an extra cost.
Tax and IRD
What is provisional tax and why do I have to pay it?
Provisional tax is paid in instalments during the year instead of paying a lump sum at the end of the year, and it’s all about making your income tax less of a hassle.
If you had more than $2,500 tax to pay at the end of the year from your last income tax return, provisional tax will need to be paid the following year. Provisional tax is usually for those who earn income without having tax deducted during the financial year.
Individuals, companies and trusts may all be eligible for provisional tax. It’s often for earners of
- Income earned as a contractor
- Income from a partnership
- Overseas income
- Self-employed income
- Rental income
Residual income tax is the amount of income tax you pay for the year, minus PAYE or other tax credits you may be entitled to (except for Working for Families Tax Credits).
Your provisional tax payment dates will depend on:
- Whether you are GST registered
- What calculation option you have selected
- Your balance date, ie. When is the end of your tax year
Do I need to register for GST?
You need to register for GST if you make excess of $60,000 in annual sales / income. It’s essential to register for GST in the first year in which you estimate sales will exceed $60,000.
A big question is whether you calculate your GST when a sale/purchase is made or when payment is actually received.
Registering to pay GST on a payments basis is common for many SMEs. That’s because payment has actually been received, meaning you actually have the cash to pay your GST to the IRD.
Choosing a return period is important. Paying GST every two months is an option chosen by many SMEs. This allows you to look through your accounts regularly enough to budget well and stay on top of GST you owe.
Larger organisations / businesses which have high transaction volume often opt to pay their GST monthly.
If you carry out a taxable activity, you must register for GST:
- If your prices include GST
- If your turnover was $60,000 or more in the last 12 months or will be $60,000 or more in the next 12 months
You don’t have to register for GST simply because you start a company or because you’re in business or trading.
Your accountant will advise on special types of GST registration for non-profit bodies, separate branches or divisions, groups with group representatives.
What information do you need from me in order to complete my tax return?
To complete your tax return, we’ll be asking you to provide information on whether you personally or your business received income over the past year from any of the following sources:
- Income from ACC payments, superannuation and/or benefit
- Look-through company (LTC) income or loss
- Rental income or loss
- Overseas pensions, wages, interest
- Income from sale of land, buildings, shares and securities
- Income from trusts or estates
- Income or loss from a partnership
- Taxable Maori authority distribution
- New Zealand interest
- Dividends from investments
- Income from portfolio investments
We’ll also ask for information about your personal expenses or your business expenses and losses. This includes:
- Expenses around schedular payments
- ACC costs
- Insurance for business, income protection etc.
- Donations to IRD-approved charitable (donee) organisations, schools etc
There may also be information needed to be collected around tax residency and your citizenship.
What is the advantage of being on an accountant’s tax agents list?
Being on an accountant’s tax agents list firstly means you will get an extension of time for filing tax returns. Along with the extension for filing, your tax agent receives an extension for paying your tax to Inland Revenue.
Dealing with IRD can occasionally seem complicated, so having your accountant serving as your tax agent means your accountant can negotiate with the IRD on your behalf, ease communication and correct payment allocations which are inaccurate. Your accountant has expert knowledge as to your entitlements and will always spot anything unfair, potentially saving you money and hassle.
Why should I pay someone to do my bookkeeping?
Bookkeeping has some subtle distinctions from accounting. What the two disciplines have in common is they ease the burden that comes with operating a business. Bookkeeping is an investment in professionalism.
Bookkeepers have an industry body – the NZ Bookkeepers Association.
Good bookkeeping – taken care of by somebody experienced and efficient – has the following benefits:
- Ensures day to day tax compliance isn’t missed
- Ensures transaction processing at high speed
- Can involve add-ons to increase business success. Examples of add-ons include inventory, POS, CRM systems, job management
- Cash-flow shortages can be spotted by a savvy bookkeeper
Accounting is closely related to bookkeeping. Accounting is about looking over accounts for patterns, consistency, significant changes and or errors; legislative compliance; noting entertainment adjustments, depreciation, fringe benefit tax, equity transactions and adjustments for currency.
Accounting, firstly, is about filing a tax return and also identifying trends and industry norms to get the best for the business. Accountants can negotiate on your behalf around tax and compliance issues (student allowances, Kiwisaver, ACC, trust accounts, business structure, fringe benefit tax and more).
How can cloud accounting software help me with my bookkeeping?
When software is on ‘The Cloud,’ it refers to the software operating remotely from internet-accessible servers. Having your Xero, MYOB and other software provider on ‘The Cloud’ means being able to upload and download your accounting information at the speed of light, so long as there is an internet connection.
Cloud-based accounting software allows you to see:
- Expense claims, balances, bills and invoices in real time
- Feeds which import real time data to and from your PayPal, stripe, credit card, POS and bank
- Having cloud accounting software allows you to see your cash position in real time
- You can collaborate extremely easily with your accountant, providing data which is clear, accessible, portable and accurate.
Do I need accounting software?
Software on ‘the cloud’ operates remotely from internet-accessible servers, and when your Xero, MYOB or other software provider is on ‘The cloud’ it means your accounting information is available at the speed of light, so long as there is an internet connection.
With business protection and encryption, your data should be completely secure even if your computer is lost or stolen, so long as you are using cloud-based software. You would simply need to replace the hardware you have lost and change your password to lock anybody out who should not have access to your accounts.
Do I need a budget?
Budgeting is all about forecasting what your income and expenses will be for the upcoming year. Once the budget is set, comparisons against the actual performance of your sole trader operation or business lets you take action so variances don’t derail your income.
You should plan for your cash commitments with a good budget, because cash is described by most accountants as the lifeblood of your organisation.
Budgeting is essential because sales do not always equal cash. This can make it difficult when it comes time for bills to be paid; meanwhile, getting customers to pay can also be challenging – not to mention paying yourself a salary as a business operator.
Having a cash flow forecast as part of your budgeting is important. A cash flow forecast helps stop shortfalls in cashflow from upsetting the forward progress of your business. For example, various options are available to you to minimise underpayment penalties and interest when tax is due – and your accountant will talk you through those options.
I work from home – what home office costs can I claim?
So many of us work from home these days, Inland Revenue has many provisions offering some benefits in terms of tax discounts, returns and savings.
You do not have to have a “home office” designated area specifically set aside for the business you’re operating from home. Keep a full record of all expenses you wish to claim in your tax return and you’ll be fine – and your accountant can give you advice on how to keep such records.
Unfortunately, there isn’t a deduction permitted for any private or domestic expenditure. But you can claim a portion of:
- Household expenses, such as the rates, insurance, power and mortgage interest.
- You can claim expenses that relate to the area used for business as a percentage of the work area, compared to the total floor area of the house.
- You may claim a proportion of the mortgage interest (not principal) paid during the year.
- You may claim a deduction for telephone and internet used in the conduct of your business.
The square metre home office claim entitlement rate for the 2017-2018 income year was $41.10 per square metre. Check with your accountant for any updates on this.
What about entertainment expenses?
There are two types of expenses: business-related entertainment expenses and private expenses. Business-related entertainment expenses are 50% deductible; some other expenses are 100% deductible.
Inland Revenue says you can claim the cost of entertainment which does the following:
- Builds up business contacts, keeps your employees happy
- Promotes your goods or services as an expense.
An entertainment expense is business-related if you spend the money to help your business earn income. Some common examples:
- Holding events which improve employee engagement
- Entertaining business contacts, whether potential or existing contacts
However, if the expense doesn’t help your business earn gross income, it is considered private: you can’t claim it as a tax deduction.
Entertainment is understood by IRD to mean food and drink, social events, trips, accommodation, privileges, musical, sporting or theatrical events. Freebies and free samples are included.
Also, think about fringe benefits, which are benefits given to employees other than salary or wages. For example, motor vehicles, subsidised or discounted goods and services. Your accountant can clarify how fringe benefit tax (FBT) intersects with entertainment deductions.
What vehicle expenses can I claim?
Vehicle running costs can be claimed according to the following:
- If you use your own vehicle as a sole trader or business partnership, claim the costs for income tax
- If you use the vehicle strictly for business, you can claim all the vehicle running costs, and no adjustments need to be made
- Using the vehicle to travel from home to work or for personal travel? You need to separate the running costs of your vehicle between business and private use because travel between home and work is not classed as business use.
When a company owns a car, no private use adjustment is made. Instead, the company / business claims all the expenses. However, a company/business must pay fringe benefit tax if the vehicle is available for employees’ private use, and the company must calculate GST on the fringe benefit (see our fringe benefit tax (FBT).
Do not forget to use a logbook to record and prove the vehicle operation distances, patterns, dates and costs. You must keep a logbook consistently for at least three months every three years. It’s essential to record the reason for the trip in the logbook, the distance travelled and the date. Record odometer readings, too.
You can use the result of your three months’ recording to claim the business share of your vehicle expenses over the next three years, provided your business use of the vehicle does not change by more than 20%.
Inland Revenue also offers mileage rates to help work out how much you are claiming.
What expenses can be deducted from my rental property income?
The first question asked by many is, Can I deduct private expenses from my residential rental income?
Unfortunately, the answer is no. Such expenses don’t produce taxable income and are for your own benefit.
However, you can deduct the following:
- Fees from agents relating to the rental of the property
- The costs of rates and insurance
- Maintenance and repairs (but not capital improvement)
- When arranging finance to buy the property, legal fees incurred can be claimed for, provided the total legal expenses are no more than NZD $10,000
- Interest paid on the money you have borrowed to finance your property
- Accounting fees
- Expenses around vehicles and travel
What expenses cannot be deducted from rental property income?
You are not able to deduct the following rental property expenses:
- The capital part of any mortgage repayments
- Interest on money borrowed for another purpose which is not related to the property
- You cannot deduct the purchase price of the rental property
- Real estate agent’s fees incurred when buying or selling the property can’t be deducted
- Capital improvement costs (repairs and maintenance) can’t be claimed for if they surpass replacement and ‘improve’ your property