​What is mileage?
 
You’ll find yourself doing many work trips as part of running a business. You can claim every business kilometre you travel as an expense provided you keep accurate records. Mileage is the cost of using your vehicle for business purposes.

Vehicle Log Book
 
You should start a vehicle log book as soon as possible to claim mileage. You can find them here and most stationery stores. There are also several apps available (Vehicle log Book GPS, Vehicle log book pro) that will do the trick.
 
Keeping a log book is straightforward. The tricky part is getting in the habit of doing it after every business trip. Below is an example of what is required for each.
 

 

​Should you forget to log a trip, Google maps is a great way to work out the kilometres travelled. You can put your starting point and destination in here.
 
How to claim
 
Inland Revenue allows three ways to claim mileage:
 

• Mileage Rate
• Log Book
• Actual Costs

 
Mileage Rate
 
Inland Revenue sets out a per kilometre rate that can be applied to the total business kilometres travelled annually. You can claim up to 5,000 kilometres per tax year under this rate.
 
Should you do the odd business trip, then this is good way to claim. If you travel more than the maximum 5,000 you cannot claim the extra kilometres, you’re probably better off using the Log Book method.

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​Log Book
 
You need to keep a log book for 90 consecutive days under this method. After 90 days, you can claim a percent of your vehicle costs (fuel, repairs, registration etc.) based on the business kilometres you’ve done. This percent is applicable for up to three years.
 
We’ve found the advantages of this to be:

• The 5,000 KM maximum doesn’t apply
• Once the initial 90 day period is over, you don’t need to log your trips for three years.

 
However you need to:

• Keep receipts for all vehicle expenses
• Keep the 90 day log to a high standard as per IRD rules here

 
We’d recommend this method if you do a high amount of business kilometres.

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Actual costs
 
You can claim actual costs if you believe your business costs are higher than the above two methods allow.

You need to keep accurate details of private and work-related travel to do this. In this you need reason and distance of journey for every business trip, and every vehicle expense.
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We would only recommend this method if there was something unusually high about your vehicle costs for the year.

Summary

By now you should have a good idea of how is best to claim your mileage costs. As always, you can refer to IRD’s website for the latest updates on mileage.
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Happy travels.

​What is deductibility?
 
You’ll find yourself spending to setup and run your business. Costs related to this is what we refer to as “claimable” or “deductible”. Your business is best to claim/deduct as many expenses as possible.
 
 All about claiming:
 
You’ll find one major reason to claim: tax. Your tax bill will be minimised should you claim everything that you can. You’ll also be able to analyse the costs of your business in your annual accounts. This is handy to look at areas that are chewing into business’ profits.

Tax savings
 
It’s a common misconception that you get everything you claim back. You won’t. What you get back for claiming depends on your effective tax rate.
 
A sole trader will save tax depending on their total income. A company will save tax at the flat rate of 28 cents in the dollar. Below is an example as to how much you’ll will save under each structure.


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What CAN I claim?
 
Costs necessary to run the business can be claimed. Below are examples of the common ones for a small business:

• Accountancy Fees
• Bank Charges
• Depreciation
• Entertainment Expenses
• Home Office expenses
• Interest on business loans
• General Expenses
• Motor Vehicle Expenses
• Printing & Stationery
• Repairs & Maintenance
• Rent
• Travelling Expenses
• Wages / Salaries

​Entertainment expenses can only be claimed under specific circumstances and in some cases only 50% claimed. For the details on what can be claimed, refer to IRD here.
 
What CAN’T I claim?
​
Anything of a purely personal nature cannot be claimed. Below are common examples of spending that has been incorrectly claimed.

• Groceries
• Clothes (non-uniform)
• Tax payments
• Fines and Penalties
  
• Interest for loans used for non-business purposes

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Summary
​
You should now be aware of the importance of deductibility. Refer to the IRD site here for the latest updates. You can contact us if you have any questions – see you in our next blog!

​One of the most important decisions you’ll make for your business will be its structure. Your decision here will affect your level of control and responsibility over your business. You can change the structure later on, but this can be costly and complex. It pays to get it right first time.

​We have three main business structures in NZ:

• Sole Trader
• Partnership
• Company

 
Sole Trader
 
As the name suggests, sole trader is based around one person. As the sole trader you reap all the profits and make all the business decisions.
 
You’ll also have the advantage of lower compliance costs. Your business and you are considered to be the same legal entity, so another one is not needed. Your business taxes will be filed under your personal IRD number.
 
The downside of this structure is you’ll also be personally responsible for all the business debts. Consider the type of industry you’re in and the likelihood of default. Riskier industries (i.e. construction) tend to avoid this structure because of the personal liability for the owner. Be comfortable with this if you want to be a sole trader.

Partnership
 
Partnerships are suitable for two or more people. You’ll find a partnership ideal if you want to pool your resources and share profits.

​Partnerships divide the profits equally amongst owners if there is no deed to the partnership. For added security, you should think about having a deed drawn up and agreeing duties, responsibilities and profit share before becoming a partnership.
Partners in most instances are also personally liable for the debts of the partnership. You should consider the industry you’re in as well as the reliability of your partner before proceeding.
You’ll need a separate IRD number for the partnership.  You’ll pay tax on any share of profits you receive in your personal tax return.

Company

​A company is suitable for any number of people. Most organisations with many owners (shareholders) will setup as a company.

A company is a separate legal entity to the shareholders. Companies have one major advantage:  the liability of the shareholder is limited to the money put into the business. In other words, under normal circumstances, shareholders cannot be held personally liable for debts incurred by the company.

Shareholders need to pay a one-off fee at the Companies office to register. The company will also need to file an annual company return, which incurs a small fee. 

You’ll also need to consider the amount of tax to be paid. Companies are taxed at a flat rate of 28 cents for every dollar of profit they make. A sole trader's effective personal tax rate depends on how much you earn. You can compare the difference between the two here (using your estimated profit).

Quick Summary

You should now have an idea of the type of organisation you want your business to be. For more information refer to the business.govt.nz page here.

We can also help you to weigh up the pros and cons of your business structure – get in touch today. 

We covered last month the first basic steps of setting up your business record keeping. Your new business bank account, e-mail and book-keeping should be capturing a lot of the data you’ll need.
 
Now, it’s time to look at the best way to store all of your incoming documents.
 
Will I need my old documents?
 
Even though documents are usually viewed and claimed within the financial year, there are some important reasons to keep them.  
 
Inland Revenue needs businesses to keep records for seven years. The likelihood of your business being audited is small, but possible. While your accountant will prepare based on the information you give them, it’s your responsibility to have the documents to back it up. If you’re unsure of what documents you need to keep, your accountant can always help.
 
If at any time you want to analyse business revenue and costs, having old documents safely stored and accessible will make this task a lot easier too.


What’s the best way to record and store?
 
At Robinson and Son, we’ve found these steps make safe storage a whole lot easier:

1. Embrace the Cloud

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Cloud storage keeps your data across multiple servers and multiple locations. The chance of losing your data on cloud is slim to none. Your data can be accessed at any computer with an internet connection, much like e-mail. Your digital files can be stored on any of these:

• Microsoft OneDrive – Comes with the highly recommended Office 365. Offers a massive 1TB of storage.
• Box – Free! Up to 10GB of storage - more than enough for small business.
• DropBox – Free up to 2GB. Runs smoothly on all operating systems and compatible with Microsoft Office.

     2. Digitise everything

Companies like to e-mail invoices. Postage is free and customers have a bill that is always handy. This can be easily saved to your chosen cloud storage (above). You can take this a step further by doing this to all your documents using these:

• Home scanner: Lots are available on the market. We recommend getting one that can both colour scan and take big wads of documents. We’ve found the Brother MFD-9140 to be brilliant, but you’ll need to judge what’s best for your business.
• Genius Scan: Little receipts can be tricky and time consuming to scan. This app lets you take a photo from your smartphone, format, categorise, and upload it directly to your chosen cloud storage.

​3. Deal hard copy

The world is trending to digital, but we still need hard copy. Legal documents and original invoices for example, should be kept in hard copy. Until everyone is comfortable with digital, we’ll have to deal with hard copy - and here’s how:

• Filing Cabinet: These can be bulky, but are great for securing and sorting your documents.
• Receipt spike: For tiny stuff that gets easily lost. Place receipts on here before if you haven’t scanned them, and file them if you have
• Shoe box: Acceptable alternative to filing cabinet. It will take a long time to find anything, but things are all in one place.
• Paper shredder. For everything older than seven years, or not needed. Your personal and business data is valuable, so shred an anything sensitive before throwing out.

With these steps, you should now have a system in place for all your important records. We’ll be back next month with more handy tips for your business, and as always get in touch if you have any questions.
 
 
 

We are so excited to launch our monthly blog, and share our top tips for running a successful business with you. 

Each month, we will choose a topic based on questions we are frequently asked - our aim is to help you be the best business you can be by minimising your costs, and maximising your efficiency. 

If you have any questions or any topic that you would like us to post about, please get in touch and we will be happy to help. ​