For most self-employed contractors and freelancers, the end of the financial year can be a stressful and confusing time.
There are lots of deadlines to keep track of, each one coming without any formal announcement or particularly helpful guideline. There are countless forms to fill out, each with an obscure codename – IR3, IR10, IR3R.
The checklist is extensive, the tasks can be complicated. You might just want to outsource all of your obligations to someone else, and you’re not alone.
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 track. What you need is a tax admin “survival” guide, complete with some helpful tips and a walkthrough of the dates, forms and terms you’ll be encountering.
In this guide, we’ll cover the following:
- Claiming business expenses
- Key tax dates to remember
- Tax forms you’ll need to fill out
- How Hnry Helps
If all goes to plan, this guide will ensure that you get through all of the financial admin (hopefully) unscathed. And if the following Guide leaves you feeling, even more, overwhelmed than when you started out, don’t worry - you can just leave all of your financial admin to Hnry.
What You’ll Need to Know
As you get dropped into the enigmatic bog of your tax obligations, you might be looking everywhere for a helping hand. There are some areas where you can actually get money back, and some 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, up to a certain amount? Now called the ‘Government Contribution’, and formerly known as the ‘Member Tax Credit’, it works like this: if you contribute up to $1,043 towards your KiwiSaver per year, between 1 July and 30 June, you’re eligible for the ‘Government Contribution’ and the government will match every $1 you contribute with a 50c contribution from them. And if you hit that maximum amount that’s eligible to be matched ($1,043), 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. To be eligible for the full Contribution, you must:
- be over 18 and under 65 y/o
- currently reside in New Zealand
- have been in some KiwiSaver scheme for the past 12 months
- have not yet withdrawn your KiwiSaver funds for retirement
- have paid at least $1,043 into your KiwiSaver account between July 1st and June 30th.
The KiwiSaver Government Contribution is one of life’s best-kept secrets, and many people are unaware of how much they could be growing their KiwiSaver funds. In 2016, 1.1 million KiwiSaver members missed the full contribution. A recent IRD survey reported that 62% of those who had missed out on the full credit would have contributed more to their KiwiSaver, had they known about such a credit.
Here are some helpful things to know about the ‘Government Contribution’:
- You’re still able to get a 50% return on your investment, even if you don’t reach the maximum of $1,043. 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 were registered in a KiwiSaver scheme.
- These additional contributions from the government are not taxed.
- For more information about KiwiSaver, the Government Contribution, and how you can get more out of your contributions, check out these articles from Simplicity and Sorted.
The ‘end of financial year’ landscape can be treacherous, but the Government Contribution is your hidden annual asset – a kind of latent ‘investment’ that you won’t actually feel the full significance of until you’re able to withdraw funds from your KiwiSaver in the future.
So each year, amidst the other obligations you need to keep on top of, be sure to keep an eye on that annual KiwiSaver balance to make sure you’re getting the most out of the programme.
But KiwiSaver isn’t the only helping hand. There’s 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 on which you’re required to pay tax. The way this works is through claiming tax back through your expenses.
If the KiwiSaver Government Contribution is a kind of retirement nest-egg, then getting your expenses in order is more of a boost (both mentally and financially) against the other obstacles at the end of the financial year.
Throughout the year, you might have accumulated handfuls of expenses, all related to your line of work, which you can use to claim the tax back. Any expenses you claim will reduce the amount of tax you’ll have to pay. If you’re a Hnry customer, you can find out more about what can be claimed as a business expense here.
Getting your expenses in order can be a real pain, especially if you have a “casual” filing space for your expense receipts, like a shoebox or a drawer at home - or if they’re randomly strewn throughout your house!
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 accumulating in a shoebox all year. 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 1, and some might not even be claimable (so, in essence, you’ve paid your accountant for no additional tax relief).
If you use some kind of software to log your expenses, it’s important to keep this all up-to-date before March 31st. Then you have to work out how you’re going to store the receipts long-term; 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 upon which you are required to pay Income Tax. Keep in mind, however, that claiming a business expense does not entitle you to reimbursement from IRD. The way expenses actually work is something as follows:
- Say 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 claimable business expenses throughout the year. Your income after those expenses would be $40,000.
- Therefore, your taxable ‘total income’ would be $40,000 and would reduce your Income Tax rate to around 14%.
If you’re following along with a calculator, you’ll see two benefits here. The first is reducing your taxable income by $10,000; the second is lowering your tax rate by about 2%.
In the scenario above, before claiming the expenses your total tax owing was about $8,000; after claiming the expenses it dropped to $5,600!
To avoid drowning in the quicksand of your receipts, it’s best practice to get ahead of them as soon as possible – well before the March 31st deadline. The bottom line here is to make sure that everything’s uploaded and coded, in whichever system you use, before the time to file even comes.
Aside from the two above things that you’ll need to be aware of, there are several key dates that you’ll need to 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?
- 1 April: the big tax date, the start of the new financial year. This is the date that all tax-related obligations are centred: from this date you can begin applying for your tax refunds for the previous financial year.
- 7 July: deadline to file an IR3 and any other relevant forms (if you don’t have an extension of time through an accountant or tax agent). An IR3 form declares your independent income as a contractor, freelancer, independent consultant, sole trader, or other self-employed earner.
- 31 March (the following calendar year): deadline to submit your completed IR3, if you **do **have a tax agent or accountant.
- 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’re missing.
For Tax Payments
- 7 April: deadline to pay your tax bill from the pervious Financial Year, if you do have a tax agent or accountant. Your tax agent should inform you of this obligation ahead of this date.
- This is also the last day to make terminal tax payments for any final balances relating to the previous tax year – in other words, this is the date that you may be making your final tax payment for the previous financial year.
- 7 February (the following calendar year): you’ll have until this date to pay your tax bill, if you don’t have a tax agent or accountant.
- 28 August: deadline for the first provisional tax payment of the financial year. There are Provisional Tax due dates all throughout the year, so 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 due dates for GST payments, depending on your period (whether it’s monthly, bimonthly, or six-monthly). The last due date for GST payments each financial year is the 30th of March.
For Non-Tax Payments
- 28 August**, **15 January**, and **7 May are the dates when student loan repayments are due for most people who have interim payments.
- 30 April is the deadline to submit a completed IR526 in order to claim tax credits on income spent on charitable donations throughout the financial year.
Key IRD Forms
Of course, it wouldn’t be tax time without plenty of forms and documents. A few of these have been mentioned already, but there are plenty of others that might apply to you:
- IR10 for expense claims
- 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
- IR526, for claiming tax credits on charitable donations
- IR23BS, for renewing a special tax rate
- Summary of income (personal tax summary for any salaried earnings)
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, at the very least you’ll need to fill in an IR3 form. The IR3 form tells the IRD:
- what your personal income was during the financial year (across all sources, including salaried work)
- how much tax, if any, you have already paid on your income
- any business expenses you have claimed
- whether you’ll get a refund or have a tax bill that you’ll have to pay
Not sure if the IR3 applies to you? 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 – these also fall under the purview of the other IR forms.
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 7 July to complete and send in your IR3 (unless you have a tax agent or special dispensation, in which case you’ll have until 31 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 investment dividends, or if you’ve claimed a significant number of expenses throughout the year, you’re required to complete additional paperwork than just an IR3. If you earn income through a rental property, you’ll have to fill in an IR3R as well as an IR3 (and an IR10 if you have claimed expenses on that property).
As you can see, the more complex your earning situation, the more forms you’ll need to complete.
Note: 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…
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 and completed, 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 bookkeeper (or anyone else who helped you get things sorted out). Even though you’re still doing the bulk of the leg work, your accountant will still 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; if you underpaid on your tax, then you’ll owe that amount to the IRD.
If you underpaid by $5,000 or more (this number was increased in March 2020 in response to the COVID-19 outbreak), then you’ll be subject to ’provisional tax’ in the next tax year. This means you’ll have to make 3 provisional tax payments throughout the next year so that you don’t fall too far behind on your tax owing. The amounts you pay for provisional tax are calculated based on your previous year’s earnings.
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 and registered with Companies Office), the real tax pain sets in shortly after you realise that everything you did for your personal tax obligations must also be done again 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.
For self-employed contractors, freelancers, and sole traders, this pain is often unnecessary. It’s a common misconception that you need to operate as a registered business in order to earn self-employed income. In most instances, registering as a business isn’t required and will only add to your workload, costs, 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 operate as a registered business; however, for many people, this can only prove 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.
Hnry automatically pays and files taxes for self-employed contractors and freelancers, so they never have to think about tax again!
Hnry is the easy solution to tax filings, payments and so much more. Hnry will ensure that you’re exactly where you need to be, at ALL stages of the financial year (not just at the end of the tax year). Hnry means no more provisional tax, no more manual returns, no more hassle or uncertainty – Hnry works behind the scenes to make sure you can focus on what matters most.
Here are all the things that Hnry can help you with:
- Income Tax and GST calculations, filings and payments
- ACC and Student Loan Calculations and payments
- Quoting and invoicing your clients
- Paying into savings, investments, and Kiwisaver
- Logging business and home office expenses
- Digitally storing expense receipts for 7 years
- Unlimited support from expert accountants
You’ll get all of this for just 1% of your self-employed income. Hnry fees are pay-as-you-earn, meaning you won’t have to pay Hnry until you get paid yourself.
With Hnry, you no longer have to spend hours and thousands of dollars on systems that are incomplete, outdated, and simply unhelpful.
Join Hnry today and never think about tax again!