For most, the end of the financial year can be a stressful and confusing time.
There are many deadlines to keep track of, each one coming with no formal announcement or any particularly helpful guidelines. There are countless forms to fill out, each with a different obscure codename – IR3, IR10, IR3R.
In order to claim business expenses, you will need to gather up all of your receipts and give them to your accountant to review (a service which you will likely be paying them extra to do).
You might just want to outsource all of your obligations to someone else.
And you’re not alone.
After all, it’s true what people say: in life, there’s nothing certain other than death and taxes. And because taxes are a definite aspect of life, the end of the financial year can often seem like an inevitability you’d much rather avoid – much like going to the dentist.
How do you know what tax rate you’re on? How do you calculate how much tax to pay? What tax forms do you need to fill out, and by when? Even if you’re a seasoned tax expert, there’s a lot to keep track of.
What you might need is a kind of tax ‘survival’ guide, a walkthrough of the dates, forms and terms you’ll be encountering over the next few months.
In this guide, we’ll cover the following:
- Getting ahead of your obligations
- Why you should claim business expenses
- Key tax dates to remember
- Tax forms you’ll need to fill out
- Business tax forms
- How Hnry Helps
If all goes to plan, this guide will ensure that you get through the end of the financial year (hopefully) unscathed.
What You’ll Need to Know and Do
As you get dropped into the enigmatic bog of your tax obligations, you might be looking everywhere for a helping hand. But whether you know it or not, there are areas in which you can get some money back and ways in which you can actually pay less tax.
So to start, let’s take a look at a way that you can actually earn some ‘free’ money.
Did you know that the government will match your KiwiSaver contributions, to a certain amount? Now called the ‘Government Contribution’, formerly known as the Member Tax Credit, it goes something like this: if you contribute a maximum of $1,042 to your KiwiSaver per year, between 1 July and 31 June, the government will match you 50% – a ‘Government Contribution’. This means that for every $1 you contribute, the government will match it with a 50c contribution. And if you hit that maximum amount of $1,042, you’re getting an extra $521 contributed into your KiwiSaver. It doesn’t matter who your KiwiSaver scheme is with, but you do need to have one in order to receive the Government Contribution.
You can start collecting additional KiwiSaver funds right away, as long as you’re eligible for the Government Contribution:
- You are over age 18
- You currently reside in New Zealand
- You have yet to withdraw your KiwiSaver funds for retirement.
The KiwiSaver Government Contribution is one of life’s best-kept secrets, but the number of people who are unaware of how much they could be growing their KiwiSaver is staggering. In 2016, 1.1 million KiwiSaver members missed the full contribution. An IRD survey reported that 62% of those who missed out on the full credit would have contributed more to their KiwiSaver, had they known about it.
But even if you don’t get the full amount, you’ll still be able to get a 50% return on your investment. So if you contribute $500, you’ll still get $250 from the government. Either way you look at it, that’s basically free money and millions of people aren’t aware of it!
If you joined KiwiSaver, or turned 18, at some point midway through the KiwiSaver year (July 1 to June 30), the government will make contributions based on the number of days in the period that you were 18 or registered in a KiwiSaver scheme.
The ‘end of financial year’ landscape can be treacherous, but the Government Contribution is your hidden asset in sorting your financial obligations – more or less a first aid kit that will help you smooth over those periods of infrequent income. Or, once the tax bill comes through, you might get stung by penalties and have to pay out quite a bit of money. Therefore, your secret to survival might very well be right under your nose, in the form of KiwiSaver.
However, there is another method for surviving the end of the financial year.
What if you could actually pay less tax? Paying taxes is an obligation, but there are ways to reduce the amount of income you’ve technically earned and therefore pay less tax: claiming tax back on your expenses.
If the KiwiSaver Government Contribution was a sort of first aid kit, then getting your expenses in order will be more of an ‘immune boost’ (both mentally and financially).
Throughout the year, you might have accumulated handfuls of expenses, all related to your line of work, that you can claim for and therefore reduce the amount of tax you’ll have to pay. If you have an accountant, you likely have been told enough about expenses already. You likely have a shoebox or a drawer in your house where you store all of your receipts. Now is the time to get that out.
Whether or not you have a casual filing space for your expense receipts (or if they’re distributed throughout your house) getting your expenses in order can be a real pain.
Tax agents and accountants will know exactly what can be claimed, but the process will likely involve them sorting through the receipts that you’ve been keeping in a shoebox all year. Your accountant will ask for these, maybe they already have.
And unless you have a fixed price agreement with them, you’ll likely be paying your accountant extra time for every receipt they have to review – some of which might go back as far as April, and some might not even be claimable (so in essence you’ve paid your accountant for nothing).
If you use some kind of software to log your expenses, it’s important to keep this all up-to-date before March 31st. One of the major IRD rules to follow is to keep all expense receipts for seven years, in the event that they come knocking for an audit.
Why Claim Expenses?
Claiming expenses reduces the amount of income that you are required to pay Income Tax on. But keep in mind, claiming a business expense does not entitle you to reimbursement from IRD. The way expenses actually work is something as follows:
- Say, for instance, that you earned $50,000 over the course of a financial year. If you had absolutely no business expenses, your income tax rate would be roughly 16%. But say you’ve spent around $10,000 worth of business expenses throughout the year – your income after those expenses would be $40,000. So your taxable ‘total income’ would be $40,000 and would reduce your Income Tax rate to around 14%.
So try your best to avoid drowning in the quicksand of your receipts by getting ahead of them as soon as possible. If you haven’t started digging into the gaps in your couch, the crannies in your kids’ rooms, the kitchen and desk drawers, the overflowing shoebox in your closet, it’s probably best to start doing that now. The bottom line here is to make sure that everything’s uploaded and coded in your system.
Aside from the two above things that you’ll need to be aware of, there are several key dates that you should have circled on your calendar. Depending on how you earn your income, keep an eye out for the following dates and forms:
Key Dates to Remember
Perhaps the most important thing to remember is that your tax obligations aren’t over at the end of April. There is a handful of dates throughout the year, all of which are crucial to ensuring you’re all up-to-date and compliant with your taxes and obligations. So what are some of the big tax dates you need to remember?
- 1st of April. This is the big tax date, the start of the new financial year. This is the date that all tax-related obligations centre around: from this date you can begin applying for your tax refunds for the prior financial year.
As a contractor, freelancer, independent consultant, sole trader, or other self-employed earner, you’ll have to fill in an IR3, declaring your independent income. Depending on whether you currently have a tax agent or accountant, there will be different dates for when you need to complete this form.
- 7th of July. If you don’t have an extension of time, or don’t have an accountant or tax agent, you’ll have until this date to file an IR3 and any other relevant forms.
- 31st of March (of the following year). If you do have a tax agent or accountant, you’ll have until the last day of the following financial year to submit your completed IR3. Note: **once your IR3 is filed you might inevitably have money owing, so don’t delay! Conversely, if you are owed a refund, any delay in filing your return is money you are missing out on.**
For Tax Payments
- 7th of April (of the following year). If you have a tax agent or accountant, you’ll have until this date to pay your tax bill. Your tax agent should inform you of this obligation before this date.
- This is also the last day to make terminal tax payments for any final balances relating to the 2017/18 tax year. In other words, on the 7th of April, you may be making your final tax payment related to the previous financial year.
- 7th of February (of the following year). If you don’t have a tax agent or accountant, you’ll have until this date to pay your tax bill.
- 7th and 28th of each month. If you’re subject to provisional tax payments, keep an eye out for these dates to ensure you don’t fall behind even further and risk gathering additional penalties and interest.
If you’re registered for GST, you will have different periods when GST payments are due. Depending on your period (whether it’s bimonthly or six-monthly), the last due date for GST payments in financial year 2018/19 is the 28th of March.
For Non-Tax Payments
- 31st of March AND 30th of September are the dates when student loan repayments are due for anyone based overseas.
- 30th of April. If you made charitable donations throughout the financial year, you will need to complete an IR526 in order to claim tax credits on that spent income.
All of the Forms!
Of course, it wouldn’t be tax time without plenty of forms and documents:
- IR10 for expense claims
- PTS (personal tax summary for any salaried earnings)
- IR4 if you run a registered business
- IR3R for rental income
- IR3F if you earn income through farming
- IR3NR, for non-resident taxpayers
- IR7, for partnership or look-through company (LTC) tax declaration
- IR8, for filing income tax returns for Maori authorities
IR23BS, for renewing a special tax rate
- IR526, for claiming tax credits on charitable donations
That’s enough paperwork to sink a mid-sized ship. And just too many codes to break down all at once.
As a self-employed earner, you’ll need to fill in, at the very least, an IR3 form. This form tells the IRD what your personal income was during the financial year (across all sources, including salaried work), how much tax you paid on your income (if any), any business expenses you claimed, and whether you’ll get a refund or have a tax bill that you’ll have to pay. You’ll have to fill in this form if you earned income other than salary, wages, interest, significant dividends from investments, and/or taxable Māori authority distributions throughout the financial year.
If you’re in the IRD system as earning self-employed income, you’ll be sent an IR3 form in early April. Even if you worked a one-off job and that client pays you using Schedular Payments (and deducts Withholding Tax), then this instantly obligates you to file an IR3 at the end of tax year.
You’ll have until July 7th to fill in and send in your IR3 (unless you have a tax agent or special dispensation, in which case you’ll have until 31st of March the following year).
So What Tax Forms Do I Need to Complete?
If you’re wondering whether you need to fill in all of the other forms, it really depends on how you earn your taxable income. If you earn through multiple income streams, such as rental properties, or if you’ve claimed a significant number of expenses throughout the year, you’re required to fill in some more paperwork than just an IR3. If you own a rental property and earn an income from that, then you’ll have to fill in an IR3R as well as an IR3 (and an IR10 if you have claimed expenses).
Likewise, if you’re a non-resident of New Zealand then you’ll need to fill in either an IR3 or an IR3NR (depending on your residency status).
The Pain Isn’t Over Yet…
Oh no, it certainly isn’t. Remember that tax time isn’t just a couple of key dates recognised by IRD. Now that you’ve had things calculated, it’s time to open up your wallet. Once you’ve submitted all of the necessary tax forms, you’ll get a bill for Income Tax and Student Loan that you then need to pay.
Not only that but you now also have to pay your accountant (or anyone else who helped you get things sorted out, ie a bookkeeper). Even though you’re still doing a lot of the work, your accountant will send you a bill for a ‘lump sum’.
If you have overpaid on your tax at the end of the financial year, you might be entitled to a tax refund. However, if you underpaid on tax, you’ll be subject to ’provisional tax’ – a scary phrase that means you’ll have to make monthly payments using your previous year’s earnings to estimate your income for the current year - not ideal if your work is inconsistent!
Operating as a Registered Business? The Tax Pain Has Only Just Begun…
If you’re operating as a registered business (ie, filing an IR4 at year-end), the real tax pain sets in shortly after you realise that everything you did for your personal tax obligations must also be done once more for your registered business. This means that you’ll have to file that IR4 and all of the other forms that accompany your business operations.
It’s actually a common misconception that you need to operate as a registered business in order to earn an income as a freelancer, contractor, independent consultant, or sole trader. In most instances, registering as a business is unnecessary and will only add to your workload and admin. If you employ people and therefore need payroll services, or if you’re running inventory for your business, then it’s probably best that you do register – however, for many, this is overdoing it and only proving to make all of the tax deadlines even more stressful.
How Hnry Helps
If you’re self-employed and earning an income through freelancing, contracting, consulting or sole trading, you could put up with all of this tax nonsense: the forms, the key dates, the confusion.
Or you could just let Hnry take care of it all for you.
When you think about your taxes, the question really becomes about how you value your time: do you want to be filling in forms and paying chunks of money to IRD in large lump sums?
Hnry is the easy solution to tax filings, payments and so much more. As your financial sidekick, Hnry will ensure that you’re exactly where you need to be, at all stages during the financial year – not just when a traditional accountant or bookkeeper will step in. Hnry is much more than that. Hnry works behind the scenes to make sure you can focus on what matters most. With Hnry, you no longer have to spend hours and thousands of dollars on systems that are incomplete, outdated, and simply unhelpful – Hnry is the 21st-century, comprehensive solution, offering:
- Income Tax and GST calculations, filings and payments
- ACC and Student Loan Calculations and payments
- Smart invoicing software
- Create automatic payments
- Log business and home office expenses
- Digitally store expense receipts for 7 years
- Registered tax agent support
- Representation to IRD and ACC
You’ll get all of this for just 1% of the self-employed income you process through Hnry, and it’s all calculated on a pay-as-you-go model – meaning you won’t have to pay Hnry until you get paid yourself.