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Unavoidable for every business in NZ

On 1 October 2010 the GST rate in New Zealand rises from 12.5% to 15%. Since The Budget  announcement we’ve been doing some more research around what businesses are required to do to accommodate the change. There are some significant and unavoidable system and accounting issues for every NZ business. While at the IRD Software Developers Conference last Thursday, it was clear that the implications of the rate change have a wide ranging  effect on various aspects of GST and the process to complete and file a GST return. The IRD will be releasing some working examples towards the end of June and we’ll post an updated post when these are released.

Upgrading your software

Everyone will need to upgrade their software to accommodate the new rate change. Existing GST returns presume that the GST rate is 12.5% always. New returns will need to be smart enough to cater for 12.5% on pre-October returns and to use the 15% rate for returns run after October. This means all software providers will need to build a new GST return in their software. For those on desktop software this may cost you money if you are not  on a support contract and have to buy an upgrade. Changes will need to be made whenever GST is calculated or assigned including GST rates, chart of accounts, price lists, budgets and contacts. Don’t underestimate the magnitude of the changes – the upgrade will be a major one.If you are an MYOB user, check out the MYOB support page on GST. They only have a few months to make the change, burn it onto a CD, put it in a box (made from trees), put the box on a boat or plane, courier it to the store, where you can drive down to pick it up, then install.

With other changes to business tax coming soon a better carbon/time/money friendly way might be to make this your last software upgrade and hop onto Xero where our customers do not incur any additional costs and we’ll make all the necessary changes for you to comply with the IRD now and in the future.

Talking to a Quickbooks user, they told us they need to pay $800 to Quickbooks for the upgade. That seems like a lot when Xero is just $49 per month and the GST problem is solved.

Timing of inputs and outputs

If you are already filing your GST on an accrual basis then on 1 October there won’t be any special reporting you need to do. However the vast majority of New Zealand businesses are not, they are on Payments (Cash) or Hybrid basis. These businesses will need to make an adjustment for any unpaid invoices at 30 September 2010 in the first return they file after 30 September.

We’ll explain this a little further by way of example:

In September you raise an invoice for $1,000 + GST being $1,125. In October you receive the cash. Under the new GST rate you will pay GST at 15%, being $146.74, so effectively you lose $21.74.  To avoid this problem you will need to have an adjustment in your GST return to accommodate this timing issue.

You are entitled to make an adjustment based on your total sales (outputs) and purchases (inputs) balances at 30 September.  For this you need to know your Accounts Receivable and Payable balances and which invoices have GST on them at 30 September.

If you are a Xero customer and using the invoicing functions but are filing your GST returns on a cash basis, you have nothing to worry about. We will make the adjustment for you because all the information we need is already in Xero.

Spreadsheet and other cashbook users

If you are using a manual paper based system or electronic cashbook the adjustment will be left to you as a manual exercise. BankLink are yet to post guidance but it should be here.

Xero has very easy to use Accounts Receivable and Payable functionality that makes it easy to manage invoices in and out. So maybe now is the time to make the jump into a system that does the hard stuff for you.

Getting advice

The requirement from the IRD is for you have a full and proper audit trail to support your adjustment. With Xero we will have a full audit trail for the adjustment which you can give to the IRD should they come knocking.

This is a rather technical issue and there will be unique and special circumstances for different people.  Our recommendation is talk to your accountant. And if do not have one, contact one of our Accounting Partners.

 

Read more about Accountants, New Zealand

 

20 comments

So glad we already have most of our clients on Xero then!

Vivien
15 June 2010 #

I have a client on MYOB (I know) who pays a monthly support fee but cant upgrade his system as his computer operating system is 2000 which I understand they aren’t supporting, a good reason to go online!!!

Paula Jackson
16 June 2010 #

@Vivien – check out the Xero Partner Marketing Guide in the resource section of Partner Edition later this month – we will be updating it with a letter you might like to send to this customer!

[...] drive down to pick it up, then install.” This is a snippet from a sweet little post on the Xero Blog.These guys have been through two VAT changes in the UK, hiccup [...]

Scott Barrington
30 June 2010 #

I have a friend on MYOB, & i’m pretty sure this is going to be the decider to get him to move across to xero.

[...] For more see Xero Blog [...]

Doug Edwards
30 June 2010 #

Great work Xero – to the front as usual !

Dan Ballard
30 June 2010 #

I am really happy that I am on Xero and that the GST change in the Xero accounting system will be automatic. Another reason to use Xero.

Regards
Dan Ballard
CyberHub

James
30 June 2010 #

“If you are an MYOB user, check out the MYOB support page on GST. They only have a few months to make the change, burn it onto a CD,…..”

But the very link you direct users to look at, the second answer on the page is
“MYOB software allows a user to easily add or edit the GST rate.”

In fact most of that page is about how they expect most of the MYOB products to work with the new rates with just a configuration change, which they intend to issue instructions to do.

Look, I’m no fan of MYOB but to say that this is some major issue where they are going to have to do a rush job to get some new software out to people who will all have to pay for upgrades…. that’s just not true on the face of it.

Its ok to compare your product with another and say it’s easier to manage the GST change with Xero, that’s fine, it’s undoubtedly true, but to spread this kind of thing, is not on at all.

As for adjustments… I think this is really just the IRD pulling hairs, mainly for the people who still use pen and paper accounting and the “I have a big pile of invoices on my spike, add them up and divide by nine” method of doing a GST return.

Any accounting software is going to have the GST content of an invoice recorded at the time the invoice is raised, if you get payments for an invoice raised prior 1 Oct, then the GST which goes into your GST liability account will be the old rate anyway, otherwise it wouldn’t balance.

If you pay an invoice which was issued to you before 1 Oct, then just make sure it is recorded at the old rate and the GST which comes out of your liability will be the old rate. The effect is the same as entering some “preemptive” adjustment.

At this stage personally, I won’t be recording a special “adjustment” – it’s just work for no benefit in fact it clouds the data. If the IRD comes knocking and wants to see an separate adjustment for some reason then no problem it can be calculated, by them and I’ll happily hand them the data, they’d be wasting a bunch of time because the numbers will be the same in the end.

Colleen King
30 June 2010 #

Support Xero but to clarify some of the comments above:

$49 per month is around $600 per year for Xero.

An $800 QuickBooks upgrade will be for Premier and it is a ‘from-any-old-version’ price. An end user may not have upgraded for 4 or 5 years so in reality it is only costing them $150 to $200 a year to upgrade if they upgrade now.

QuickBooks Premier is not comparable to Xero as the functionality is completely different.

Someone on QuickBooks Small Business, will only be paying around $300 to upgrade to the latest version from any old version. If they haven’t upgraded for 4-5 years, an annual cost of $60.

The QuickBooks GST patch will be issued to everyone on their latest versions.

I’ve commented on Cash Basis GST issue on Hamish’s Xero and GST rate increase — Data to Knowledge.

We coped with the change from 10% to 12.5%, we coped with Rest Home mixed rates of 12.5% and 10.25%.

Some products will require an upgrade for GST changes but most will work as they did before with a rewrite of the GST 101 form.

Let’s hope the IRD have learned to do more than mulitply by 9 on the web.

Xero does not yet do some of the things that desktop software does and there are reasons for retaining desktop software, either as a desktop, or on-line hosted option.

I don’t think price should be the argument for using Xero.

I think the last two posts highlight the problems of trying to scare people into using your software and how facts are skewed in a certain direction.

There are problems with all the current software providers Xero included. Xero is not perfect and still has a number of faults.

I terms of the GST changes and how they are going to effect those on Xero, those who are either not using the full Xero system functions (eg cashbook) are likely to suffer the same timing difficulties (which GST rate to account for) as those on other systems.

Rod Drury
1 July 2010 #

Changing GST is much more than just changing the rates in a configuration table. The programming logic of the GST report must change. This requires a software upgrade. Many businesses have not kept their licensing current for their desktop product and therefore have a big investment decision to make. If they re-buy their old desktop product they’ll be locking in for a few years at a time where online alternatives are starting to get pretty good.

Of course this is great opportunity for us. We’d like people to make this their last upgrade and we’ll look after them from here on in.

Keep your comments coming. It’s a good discussion.

Hamish Edwards
1 July 2010 #

Thanks for your thoughts Colleen and Jono. Your comment is certainly fair and price is relative. Some people say that $49 per month just to get daily data feeds is enough to make the cost/benefit decision an easy one. Unlimited users and being able to access the accounting system from different machines without any headaches is other big reason people love Xero. This is clearly hard to do with single user insalled software. Xero is Software as a Service and so the monthly cost includes all upgrades, hosting, backups and customer support. If you decide to go with Xero then it becomes the last upgrade you will ever have to do.

For those customers on Cashbook we will provide the calculation basis to assist with the transition GST return. We are looking at some other options and ways we can help NZ business deal with the GST changes. Xero has unlimited users, so a business can easily ask their Accountant to help with the transition calculation and ensure their return is correct before it is filed.

We will be posting updates on this important subject over the next few months and watch out for the auto updated in the Xero app.

Sean
7 July 2010 #

Rod, changes in the business environment occur frequently and if MYOB and other reputable software developers are having as much trouble now as this post suggests then it is a wonder they have managed to survive this long. When faced with this sort of change, software developers often release a ‘patch’ -not an upgrade – as I imagine will be done in this case which will likely be downloadabe from a company internet site.

“Many businesses have not kept their licensing current for their desktop product and therefore have a big investment decision to make.” To suggest that a large portion of NZ business are using software illegaly is a charge not to be made lightly. If however you are correct then the GST changes also provide an opportunity for desktop software publishers to reign-in this illegal use of their software by compelling illegal users to purchase. I imagine a majority of desktop software users have either free support from developers or will be offered a patch or upgrade for a nominal fee.
It will be interesting to see whether developers attempt to profit from the release of an upgrade, although as you point out the market is getting busier and switching costs are high so it is not a reach to expect that any upgrades will be offered at a reasonable fee to existing users.

So far I like Xero as a product, but please present the facts fairly. MYOB, Quickbooks and the like are well established firms and as a programmer I can’t see the GST change presenting much of a problem for them, nor can I see them passing on exhorbitant costs to their customer base.

Rod Drury
7 July 2010 #

@Sean, I agree that patches can be straight forward. But still there is little guidance for the tens of thousands of NZ businesses that are affected and may not have support contracts and software more than a few versions old.

It isn’t so much to do with the quality of the vendor (though it does seem slack there is still nothing much here: http://myobnz.custhelp.com/cgi-bin/myobnz.cfg/php/enduser/std_adp.php?p_faqid=32361) it’s more about the point you mention that small business just have not kept their software up to date.

For example there are still thousands of users hanging onto NZA Gold and AuroraOne which are well out of support. Good products in their day which many small businesses have just kept trucking on with as the costs to move up to Exonet couldn’t be justified and up until now there have been few low cost alternatives.

The GST issue is therefore a great opportunity for the industry to bring small businesses up to date and get them ready for a lot of new changes we see coming.

There is so much inertia for small businesses to move that the industry needs to work hard when these external drivers present themselves. Yes that’s good for us, but we truly believe it’s good for the many small businesses who just haven’t got around to get on a modern online platform yet.

But I do get what you’re saying.

Rod

Anja
9 July 2010 #

For me it’s it all about being user friendly and so far MYOB and QB have failed me big time. Some reports you can drill down into transactions, some you can’t. Going back into last year is a major restore, roll-back drama. So I don’t expect them to be user friendly when it comes to the GST change, but hey: surprise me! This is just the thought of a little end-user peep.

Steve Manning
13 September 2010 #

Hi everyone – great comments.

I am currently using SoEasy and have done so for at least 5 years.

I have read the discussion between Ian (of SoEasy) and Rod at http://blog.xero.com/2009/01/myob-end-of-an-era/ and I have read http://www.datasouth.co.nz/news/should-you-sweat-the-gst-hike.html where promises were made re companies charging for upgrading software to cope with the change in GST rate.

Sean above mentions that “It will be interesting to see whether developers attempt to profit from the release of an upgrade, although as you point out the market is getting busier and switching costs are high so it is not a reach to expect that any upgrades will be offered at a reasonable fee to existing users”

Well they are attempting to profit … well SoEasy is at least.

I bought the lastest Shrinkwrapped copy of Soeasy in August last year and have been told that if I want it to work with the GST change I would have to buy the lastest version – another $300 +GST or I could sign up to a monthly $50+ support contract which appears to mirror the Xero offering.
I hope that I speak for a number of small, one-man-band, business owners who would complain that $50 a month is too much to pay? Why is it that you software guys are all aiming for a sector of the NZ business community where competition is tough and you are forgetting about the huge number of little business owners who like to use their computer at home to do their own accounts? No wonder that only 20% of new business startups last more than 5 years – the cost of being in business is so high.

Rod Drury
13 September 2010 #

Steve we have a $29 product as well for very small businesses, but still feel comfortable with the savings from no servers, no back ups, unlimited support, and continuous investment in making things easier, world class hosting infrastructure etc. Over the past few months we’ve invested significantly so that our customers can relax through this GST change.

We are attempting to profit by being the best supplier we can, proactively providing the best value, so that others will rave about how we look after them.

Pete
26 November 2010 #

There is no question developers are taking a windfall profit from the gst change. In some cases the percentage change has highlighted a known calculation flaw causing some to rush out a bug fix under the guise of ‘compliance’. I started on Jobal and ended up with Easybooks as it changed owners and dropped the annual update fee after many years as I felt I was not getting value in terms of me seeming to be paying to be a beta tester. Now I discover this software despite having the well publicised capability to easily change gst / vat rates (and it does for most of the program), the output is now erroneous due to an earlier unusual programming method. In other words the program always had a bug (or feature) that was known about the merchants admit, but clients were unaware of. Now I’m a bit grumpy simply due to them wanting dosh to fix something that was always broken. I dont expect to pay for bug fixes, only for genuine feature upgrades and improvements. Like I really want to stay with a company with that attitude.

Rod Drury
26 November 2010 #

Pete, you now know where to come. We didn’t charge more rather we invested a large number of our team to make this change as seamless as possible. We think the GST change really showed the benefits of SaaS.

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