Business compliance is the act of complying with the rules and regulations for your business, its associated industry, and government/IRD rules and regulations.
The reason it’s so critical that businesses be concerned with complying is that any negligence of business requirements can lead to a raft of issues. These will commonly impact employees, customers/clients, and overall business success. However, for business owners, there is also the risk of fines and jail time in areas of non-compliance or mismanagement.
With this in mind, let’s begin setting up your business compliance.
Before acquainting yourself with the many compliance considerations, you need to define what type of business you’re running.
If you find it difficult to pin your business type from the options below, it’s always smart to seek advice from an accountant. But to get you started, here’s a list of the most common structures.
This business type was created for individuals who trade under their own name or a business name without becoming a formal legal entity such as a company.
A partnership is where two or more people/entities share ownership of a business, its resources, and each other's skills.
A company is a separate entity. To be a company in New Zealand, you must be registered with the Companies Office.
A trust is a legally binding arrangement to deal with and administer trust property. The parties involved are a settlor, trustee(s), and beneficiaries.
Note: before involving yourself with a trust, it’s worth chatting with a solicitor about whether using a trust for asset protection is right for you.
This structure is a special type of company. Though it’s a separate legal entity, when it comes to income tax purposes it’s treated like a partnership. This means profits are distributed to shareholders each year.
Once you know what type of business you’re running, it’s time to make sure you’re set up for all of its requirements. Here’s what you’ll need to look at.
No matter what structure you’ve chosen for your business, you should apply for an NZBN.
Your NZBN is a unique number for your business that will allow you to connect with other businesses and share information such as contact details and GST registration details.
Check out the NZBN website for more information and how to apply.
To effectively manage your business and lodge returns when required, you need to register your business for a myIR account.
When it comes to IRD numbers, what you need varies depending on your business structure. Sole traders, for example, will use their personal IRD number as their business IRD number. However, if registering as a partnership, company, or trust, you will need to apply for a separate IRD number.
To get a business IRD number you firstly need a myIR account for your personal IRD number. The registration process is simple and the same for both personal and business accounts. To register, head over to the IRD website.
If your business is going to have a company structure, you must register your company with the Companies Office. You can either do this yourself or have an accountant do it for you.
The process follows a few steps:
Fortunately, this registration process also gives you the chance to complete other business registration processes such as applying for the company’s IRD number, registering for GST, registering as an employer, or nominating your tax agent.
Here’s what you’ll need when registering:
Note: if you intend to only hire contractors (who will invoice you), you may still need to register as an employer. This is because certain industries require you to withhold tax from contractor payments and pay it to the IRD as you would for an employee. The list of industries/jobs this applies to can be found on the last page of the IR330C form.
Not all business entities need to register for GST. However, sometimes it’s worth registering anyway to reap the benefits of tax claims.
You must register for GST if...
Should you register for GST, you will also need to choose your accounting basis and filing frequency. Here are your options for each.
Note: if your turnover is likely to be more than $2 million you can only choose an invoice basis.
Note: the most common choice is 2-monthly. This timing is additionally beneficial as it works nicely with AIM returns should you choose to enrol.
Provisional tax is a payment method where, instead of paying a lump sum of tax at the end of a year, you pay in several instalments that anticipate your annual profit and tax liability. It’s compulsory to use this method if your previous year’s tax return was $5,000 or more.
Luckily for new businesses, the IRD won’t ask you to pay provisional tax during your first year of operation as neither of you know your annual earnings. But, that doesn’t mean you don’t have to pay tax...
Instead, you’ll have to pay a lump sum at the end of your first year and will possibly be met with a provisional tax payment early in the next year. For new business owners who are unprepared for tax, this can come as a double whammy.
This is why tax management is essential. It’s good practice to put aside money for tax payments from day one. Here are two ways you can do this:
We particularly enjoy using AIM not only because it’s the best way to avoid the double-blow tax bill at the end of your first year. It also aligns closer to your cash flow and gives you peace of mind that you are on top of your tax management.
There are, however, rules around who can use AIM and cases where it’s not the best option. So, if you’re considering registering, it’s definitely worth discussing the idea with a professional first.
The easiest way to handle cash flow is to have separate bank accounts for separate payment needs - instead of storing it collectively in one place.
You could, for example, have the following accounts:
Moving cash to these accounts on a weekly or fortnightly basis is ideal and best timed with your payroll so that you can establish a finance routine.
If you’re running a business where your customers pay at the time you provide your goods/service, this finance system/routine will be particularly useful for ensuring you have enough money set aside to pay your outgoings.
However, if you’re offering credit terms to customers, you’ll need to determine how much working capital is needed until customer payments are received.
The penalties for lack of health and safety compliance can be huge and, in severe cases, include jail time. For this reason and for the sake of maintaining happy staff, customers, and a thriving business, all owners should ensure their business is complying to its health and safety requirements.
To begin, you will need a health and safety policy. But that’s not all. You’ll also require processes for staff induction and training, managing hazards, reporting incidents, and dealing with any pain or discomfort of your team.
Whilst you can find templates online or plagiarise another company’s policy, it’s best you have your own created. Why? Too often we see businesses miss regulations and ongoing requirement changes due to taking shortcuts in their creation of H&S measures.
If it’s the time-consuming nature of creating H&S measures that’s keeping you from getting started, it’s well worth having a specialist develop and implement your policy. Choosing this option is smart as the good ones will also keep you updated/compliant when changes are introduced.
Managing staff these days is a complex process. There are countless rules and regulations in place to protect both your business and your team. For this reason, providing specialist human resources support is essential for avoiding penalties and personal grievance cases.
Additionally, what you gain from employing this support is having someone to provide you with advice on handling situations. For owners, this can be comforting and give you confidence that you’re doing the right thing in the right way.
When looking at insurance, a good place to start is by speaking with an insurance broker. These guys are specialists at giving you guidance and invaluable insight into the differences between policies and insurers.
Types of insurance you may need:
So you’ve read through our guide for setting up business compliance. Great work! But there’s a chance you still have unanswered questions - or perhaps new ones of your own. Where now?
Chat with someone who can help. Here at No Fuss Business, we specialise in business development and helping new ventures stand up and start walking. No matter how big or small the question, get in touch with us today for help on your business journey.