Tax bill


15th March, 2022

How to pay less tax as a business owner

While there may be no way to avoid taxes, understanding how to manage your tax affairs as a business owner will help keep payments to a bare minimum.

After many years in public practice accounting, I regularly get asked by business owners how they can pay less to the Inland Revenue Department (IRD). Unfortunately, while there’s no simple magic answer, I do have a few tips.

Some business owners take the most amazing risks to avoid paying anything to the IRD. But if you’re looking to avoid the stress of IRD scrutiny and accumulate wealth for retirement, then the only reasonable option is to manage your business’s taxes by the books.

8 items that will help any business owner minimise tax

Here’s a list of items you can address ahead of EOFY now to avoid unnecessary bill shock later.

1. Update your details with the IRD

Keeping the IRD up to date with your business affairs and submitting all necessary forms and returns on time will help you avoid a lot of trouble later on.

The exact types of documents and details you need to provide to the IRD will differ based on your business structure, but it all starts with the creation of a myIR account for yourself and your business.

Not only does keeping these files and filings current help you avoid penalties, it will also make processing tax much faster when it comes time to do it, while also reducing your risk of additional scrutiny from the IRD afterwards.

2. Pay your taxes on time or catch up quickly

People who do anything to avoid paying money to the IRD, usually end up
voluntarily paying much more than they need to in late payment penalties and use of money interest.

If you do find yourself caught out over a short-term basis for whatever reason, the IRD is offering arrangements whereby you can pay back the shortfall over an extended period.

Nowadays, the IRD accept such instalment arrangement requests online. They’re easy to do and will save you heaps of money by not having to pay exorbitant penalties.

3. Consider all deductions and claim expenses carefully

Because businesses are taxed on their profit (which is income less expenses), expenses help reduce your tax bill.

And as many of the costs of running a business can be claimed as expenses, business operators rarely overlook this element of tax planning.

Fundamentally, claiming expenses and other types of deductions will rely on an accurate record of all receipts and invoices, which need to be retained for seven years.

But making sure you’re able to claim all deductions accurately can get complicated without the assistance of a tax expert.

That’s because different rules will apply according to your business structure, as well as what type of expense you’re looking at. For example, the tax-deductible portion and method for recording vehicle expenses is very different from, say, entertainment expenses.

You should also retain all receipts for any charitable donations made, as these can also be claimed.

Making sure you claim as much as you can is straightforward if you engage a tax accountant as early as possible.

4. Separate business and personal when it comes to bank accounts

The additional $8-10 per month bank fees will be well worth paying, as you’ll find it pays dividends when it comes to managing expenses.

Business owners who try and avoid a business bank account end up losing out on deductions when they pay business outgoings from all sorts of different bank accounts or with cash or credit cards.

5. Automate recordkeeping with modern solutions

Keeping good business records on a regular basis in order to capture all your business outgoings doesn’t have to be a time suck.

Nowadays, with simple online, affordable solutions like MYOB, there’s no excuse for using a third-hand, corrupted spreadsheet, or even worse, manual books and ledgers.

6. Keep an eye on your GST obligations

If you’re a small business or sole trader, think carefully about GST registration.

Registering for GST at the wrong time can be very expensive, as can registering unnecessarily.

Similarly, choosing when to deregister is also an important decision that’s easy to get wrong, and therefore best achieved with the guidance of a qualified tax professional.

7. And don’t forget other tax types

Don’t get caught by less well-known but potentially more expensive tax types like Fringe Benefits Tax, Schedular Tax or Withholding Tax.

There may be specific approaches you can take to minimise these obligations, particularly FBT, which can be especially onerous. Seek tax advice to make sure you’re taking the right approach under the law.

8. At worst, it is possible to write off tax debts

There are cases whereby a client manages to get behind on taxes and doesn’t have any assets or cash to offer by way of payment. The good news is that, so long as you’re up to date with all your tax returns, it’s possible to apply to the IRD to have your tax debts written off.

I’ve had clients in this situation have debts written off anywhere between $100 and $200,000. So, while it’s not a scenario you should ever plan to be in, it’s handy to know there are potential solutions nevertheless.

Avoid bill shock this EOFY

As with most areas of life, to achieve success in paying less to the IRD, you need to be organised, take advice where necessary, ask around, do some research and operate good systems and procedures.

Try hanging out with successful entrepreneurs and legitimate business owners who have ‘made it’ and see what they do come end of financial year.

But most of all, don’t ignore the problem. Your tax time processes can not only save you money when done correctly, they’ll put you in a much better position for the next financial year and beyond.

Don’t ghost your taxes this EOFY. MYOB accounting software for small and medium businesses makes staying on top of GST easy. Try it FREE for 30 days.

The information provided in this article is general in nature and only applies in New Zealand. MYOB recommends engaging a qualified tax professional for advice specific to your situation. Find an advisor here.