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.
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.