As a small business owner in New Zealand, one important decision you'll have to make is whether or not to register for Goods and Services Tax (GST). GST is a consumption tax levied on the supply of goods and services in New Zealand.

It’s important to remember that you MUST be GST registered if you earn over $64,000.

But even if you don’t there can be some benefits to registering. 

In this blog post, we'll explore the pros and cons of registering for GST as a small business, helping you make an informed decision based on your specific circumstances.

Pros of Registering for GST:

1.  Credibility and Professionalism:
2.  Registering for GST can enhance your business's credibility and professionalism. It signals that your business has reached a certain level of turnover and is operating as a legitimate entity. This can be especially beneficial if you deal with other businesses or if you're seeking contracts or partnerships.
3.  Input Tax Credit (ITC) Recovery:
4.  One significant advantage of GST registration is the ability to claim Input Tax Credits (ITCs). When you purchase goods or services for your business, the GST component can be claimed back from the tax authority. This reduces the overall cost of your business expenses and can help improve your cash flow.
5.  Threshold Benefits:
6.  If your business has a turnover of more than NZD $60,000 in a 12-month period, registration for GST is mandatory. However, even if your turnover is below this threshold, voluntary registration can still be advantageous. Voluntary registration allows you to claim ITCs while also presenting the opportunity to reclaim GST paid on eligible business expenses incurred before registration.
7.  Perception of Larger Business:
8.  Being registered for GST may make your small business appear larger than it actually is. This perception can have a positive impact on potential customers and clients, especially if they are accustomed to dealing with GST-registered businesses. It can instil confidence and attract more significant opportunities.

Cons of Registering for GST:

1.  Administrative Burden:
2.  GST registration comes with additional administrative responsibilities. You will be required to maintain proper records, file regular GST returns, and remit the collected GST to the tax authority. For small businesses with limited resources or those that lack the necessary accounting expertise, these additional tasks can be time-consuming and burdensome.
3.  Cash Flow Implications:
4.  Collecting GST from your customers means they will pay more for your goods or services. This can potentially impact your sales, especially if your competitors are not GST-registered and can offer lower prices. Additionally, you'll need to be mindful of managing your cash flow, as you'll need to set aside the collected GST for payment to the tax authority.
5.  Increased Complexity:
6.  GST has its own set of rules and regulations, and compliance can be complex. The tax authority expects accurate reporting and adherence to specific guidelines. If you're not familiar with the intricacies of GST, it may be necessary to seek professional advice or invest in accounting software to ensure compliance. This additional complexity may add to your business costs.
7.  Quarterly Filing Obligations:
8.  Once registered for GST, you'll be required to file GST returns on a regular basis, usually every three months. This increases your reporting obligations and can be particularly challenging if you already have a busy schedule. Failing to meet filing deadlines or inaccurately reporting GST can result in penalties and additional stress.

Conclusion:

Registering for GST as a small business in New Zealand has its advantages and disadvantages. It's essential to carefully weigh the pros and cons, considering factors such as your business size, industry, customer base, and available resources. While GST registration can enhance credibility, provide tax benefits, and offer opportunities for growth, it also entails additional administrative burdens and potential cash flow implications. Consulting with a professional accountant or tax advisor can help you make an informed decision based on your unique circumstances. 

But remember if you earn over $64,000 you do not have a choice, you MUST register for GST to be compliant. 

Keywords: GST registration, New Zealand small business, Credibility, Input Tax Credits (ITCs), Accountant kerikeri