Business Structure – Whats the difference?

Figuring out what business structure best suits you and your business needs, can be confusing to say the least. Not only are there are many personal factors that you will need to take into account when deciding, but there are also benefits and drawbacks for each.

The three most common structures in New Zealand are Sole Trader, Partnership and Company.

Sole traders are individuals that go into business on their own, and have relatively low start up costs. Being a sole trader is often referred to as being a contractor or being self employed, but whether you have one client or many, a sole trader is responsible for their own taxes and liable to cover any debts that the business my incur. Sole traders do not need to register as a company, nor do they need a separate IRD number from the individual, but they can trade under a trading name and are now able register for a NZ Business Number.

Partnerships are formed when two or more entities come together to run a business. These individuals/groups may enter into a partnership agreement to set out how the profits of the partnership are split, or they may simply choose to divide them evenly between the themselves, but like sole traders each partner is responsible for the debts of the business. Partnerships need a new IRD number and taxes on the profits are apportioned to the partners in the same ratio as the profit share. Partnerships are great for sharing work and knowledge, but partners should be aware that any wrong doing by one of the partners may have an adverse effect on the partnership even if the other partners had no involvement in the wrong doing.

Companies are a bit more complicated – they are legally required to have their business name registered on the Companies Register, they must have a unique IRD numbers. A company is a legal entity, separate from the shareholders that own the company, meaning that a company is independent from the people making the decisions for the company, and the shareholders of the company are liable for any company losses proportionate to the amount of shares they hold. A company has a greater number of compliance responsibilities than a sole trader or partnership. Companies not only have compliance responsibilities with Inland Revenue, but also the Companies Office and will have to file an annual return.

All three structures can be registered for GST and employee staff, and will need to register with Inland Revenue and report accordingly.

Here are some helpful links:

To find out more information on the NZ business number go to www.nzbn.govt.nz

For more helpful info on choosing the right structure www.business.govt.nz/getting-started/choosing-the-right-business-structure/business-structure-overview or go to www.business.govt.nz/choose-business-structure for a great tool to help choose a business structure

Its great to #dreambig, but is your business viable?

Everyone has that one big business idea. Whether it is to open a cat cafe or start a lifestyle blog, your dream business can be deeply personal to you. For this reason it can be hard to look at your idea with a critical eye, and judge whether there are other people out there that will be just as interested in matcha flavoured frosting as you are.

So, before taking that leap and invest all your saving, its always good to ask for advice. This advice can come from friends or family that you trust and value their opinion, from a business adviser, or from a government agency. You can also do some market research to see if there is anyone else doing the same thing in other regions, and taking note of how successful their business is, or you could conduct a survey to find out if there is a demand for your product/service.

Now, once you are satisfied that there is a need for your idea, there are other factors that you need to evaluate:

  • How much money will you need and how will you get it?
  • How will I cover my personal expenses in the early stages of trading?
  • Do I have all the knowledge and skills to sustain my business?
  • Will I need extra support, and do I hire an employee or outsource?

Writing a business plan is great way to evaluate all these factors and assess any risks that may be involved, and here is where that business adviser can come in handy again to give you some tips on how to navigate the next stage in your journey. Your bank manager, is also another person you can approach to give you some realistic financial advice.

Now, don’t get too disheartened if perhaps you are not quite in the right space to achieve your dream today, but maybe you could enroll in a business course, or increase your weekly savings amount, then re-elevate in 6 months or a year. Don’t give up the dream, just find new ways of achieving it!

Here are some useful links to pages on the business.govt.nz website:

For help writing your business plan and some fantastic templates:

http://www.business.govt.nz/getting-started/business-planning-tools-and-tips/how-to-write-a-business-plan

Their viability action assessment tool:

http://www.busines.govt.nz/financial-viability-action-plan/

And realistic financial evaluation advice:

http://www.business.govt.nz/getting-started/funding-your-business/how-much-money-do-you-need-to-start-a-business/

Changes to myIR

On the 17th of April 2018, Inland Revenue made some big changes to the myIR portals. These changes were implemented to make filing your tax simpler.

The most noticeable change would have to be the renaming of the ‘My GST’ section to ‘My Business’. In this section you will be able to:

  • file, pay and amend your GST,
  • file your employer monthly schedules as normal
  • register for and delete account types
  • file, pay and amend fringe benefit tax (FBT), gaming machine duty (GMD), and portfolio investment entity (PIE) returns.
  • you will now also be able to include attachments when you contact IR via secure mail.

IR have also introduced a new PAYE filing system called “Payday Reporting”. Payday Reporting means that all businesses will need to start filing their payroll summary every payday, rather than once a month as per the old EMS (employer monthly schedule) system. The idea behind this is to make filing your return, a standard step in your payroll process.

Payroll Reporting will be voluntary from 1 April 2018, but made compulsory from 1 April 2019. And as of today, Xero have not made any official statement regarding Payroll Reporting, but MYOB have publish the following update on their website:

https://www.myob.com/nz/support/payday-paye

 

So, for now if you are running a manual payroll system, or not using the IR’s electronic system you can go ahead and start making the changes. But, for those using Xero or MYOB may need to hang tight for a bit and wait for their technology to make the changes necessary to interface with IR’s updates.

 

It is also worth noting that your payment dates for PAYE and other payroll deductions will still be the 20th of the following month.