Many of our clients prepare and file their GST returns and payments for their small businesses. As is the case with all taxes, it’s important to calculate your GST correctly – getting it wrong can prove to be an expensive exercise! Here we share some GST mistakes we commonly come across:
- Not registering for GST at the right time. The threshold for registering is when your annual business turnover (excluding GST) exceeds $60,000. You can voluntarily register for GST at any time when you are in business. You must register if your turnover has exceeded $60,000 or if you expect turnover to exceed $60,000, or your prices include GST. If your annual turnover drops below $60,000 you must continue to charge, collect and pay GST up until the date you notify IRD that you are de-registering. For more information on registering for GST please see our previous article “GST Registration: Understanding the Basics”.
- GST and hire purchase agreements. When you buy goods on hire purchase, you can claim a GST deduction up front in the taxable period covering the dates you enter into the agreement.
- Transactions from personal accounts. Small business owners often make purchases for their business from personal bank accounts. In these cases it is easy to forget to reimburse back from the business account, and even easier to forget to account for the GST portion of the purchase.
- Buying and selling second-hand goods. If you buy second-hand goods for use within your business, you can generally claim GST even if the vendor is not GST-registered. However, if the vendor is an associated person then there will be limitations on how much (if any) GST can be claimed. You should talk to your accountant where this situation arises. To do this you must record the name and address of the suppliers, purchase dates, descriptions, quantities and prices paid.
- Including sales within the wrong GST period. If you do need to include a sales invoice from a past GST period, you should discuss this with your accountant so that you can be advised on the correct course of action. Incorrect action or inaction can result in significant shortfall penalties being imposed by Inland Revenue.
- Mis-coding transactions. We often see GST claimed on items which are actually exempt from GST, for example bank fees, life insurance, interest and donations.
Please contact us if you have questions regarding GST mistakes or any aspects of GST for your business.