Getting ready for the GST changes

Transcription

1 Getting ready for the GST changes On 1 October 2010, the GST rate is going up to 15 per cent along with other changes such as updated PAYE rates. While the changes might seem fairly simple, they're part of one of the biggest updates of the New Zealand tax system in years. You'll need to make the right business decisions about pricing, stocking levels and customer communications, and you'll need to update your systems to correctly report GST. This guide explains the GST changes and how they can affect your business. We ve included information about fundamental business considerations, how you can manage the change and tasks to consider in the lead up to 1 October. It also outlines the MYOB software update, which can be installed to help make the transition easier. The information in this guide is divided into sections: GETTING READY FOR THE GST CHANGES Section Description See Making the right business decisions This section outlines the decisions you need to make ahead of time. page 2 Managing the change Get ready checklist Other resources This section explains when to use the new rate, the GST return to use and, where applicable, the special GST rate change adjustment. It also explains how the change affects existing and future transactions. This section provides a list of preparation tasks, as well as information about key dates. This section provides links to resources that can help your business stay in control during the change. page 6 page 11 page 13 Disclaimer The information in this guide was correct at the time of publication. Some transitional rules are still under review by the governement, the outcomes of which may impact the accuracy of the information. MYOB cannot be responsible for actions taken based on the information in this document. We recommend you regularly check the IRD website at ird.govt.nz and MYOB s GST information website at myob.co.nz/taxchanges, for up-to-date information. This guide is also not exhaustive, and is not intended to substitute for professional accounting advice. Your business needs may vary and we recommend you seek support from an accounting professional to ensure your business is fully ready for the GST rate increase. 1 MYOB Technology Pty Ltd 2010

2 Making the right business decisions Increasing the GST rate involves more than just updating your software or reporting more tax. There are decisions you need to make in advance (such as how you will reprice items) and actions you can take early (such as getting your books up to date) which will help your business during the transition period. Pricing One of the most important issues for your business, is deciding how and when you are going to increase your prices. For example, do you pass on the full increase, or absorb the change, and what rounding policy will you use for new prices? Once you ve established your pricing policy, you should let your customers know your new prices well in advance, then update your marketing material, such as your website and catalogues. Clearly communicating your price strategy to customers will make the transition easier for them as well. It is also a great opportunity to build strong relations with your customers, and show that your business is professional. Review your item prices, margins and rounding policy Decide ahead of time how and when you are going to increase prices. There are several options to consider: Update your GST inclusive prices to the new rate and maintain a profit margin. When updating your prices, consider the rounding method you want to use. Absorb the extra GST you charge customers (and lessen your profit margin) and then gradually increase item prices to regain profitability. This might help you maintain sales in the short term, but can affect cash flow. Increase the price of some items by part of the increase amount. For example, instead of increasing a $5.99 (inc) item to $6.13 (inc), you might charge $6.10 (inc). Note that regardless of when you choose to increase your prices, you still need to account for the full 15% GST on goods and services from 1 October. Communicate new prices to customers and staff Communicating prices to your customers is essential to helping them decide how they are going to deal with the GST rate increase. It gives them an opportunity to bulk purchase from you in advance, and to update their own prices if they sell-on your goods. Your staff also need to know what the price changes are, so they can help communicate a consistent message to customers as well. Review marketing collateral, websites, etc. Many businesses publish price lists on websites or in other documents. Make sure you review and update any material that might have GST inclusive prices listed and think about the logistics of preparing materials such as new labels and price tags. For example, by ordering extra label sheets, or by contacting your commercial printer to find out job cut-off dates. 2 GETTING READY FOR THE GST CHANGES

3 Book in jobs that require time to update You need to plan in advance for the fact that many businesses will be in the midst of doing the same thing you are. You should try to secure printing time or professional services in advance for updating your marketing and pricing materials. Stock levels You should be prepared for price changes to lead to spikes and slumps in your sales. So you may want to consider your stock levels and buy accordingly. In order to make some of these decisions, you ll need to communicate with your suppliers to get updated prices. This information will help you update your regular orders and decide if you want to increase your stock. Contact your suppliers for updated price lists The more information you can get from your suppliers about new prices, the easier you can decide on your own pricing approach. Perform a stocktake A stocktake will help you establish your stock levels and inventory value, which can help you decide which items you might want to stock up on. For example, you might just want to stock up on your best sellers. You must also consider how much inventory your business can afford to stock during the period. Review orders and quotes Quotes and orders that are converted to sales after 1 October incur 15% GST. Contacting your customers and suppliers to confirm sales or supplies before this date can help ensure that goods are secured at the lower GST rate. Review budgets and plan your cashflow You may want to review and update your budgets to account for spikes and slumps in sales or changes to your stock levels. You may also need to plan your cashflow to make sure you are covered during the period. Contracts You need to review your current business contracts and how they may be impacted by the GST rate change. For example, if a lease contract spans 1 October, consider if you need to update it and agree on new terms post-october. Any new or updated contract will need to be properly documented and communicated (possibly through your lawyer or accountant), and changes may be required to payment schedules, such as automatic payments. Allow time for this. Most standard supply contracts will contain a clause that indicates pricing increases will be effected in line with any rate change. Contracts with this type of clause should not be impacted, but this should be checked on current contracts and considered for future contracts. MAKING THE RIGHT BUSINESS DECISIONS 3

4 Get your books up to date Make time to get your business records and accounting transactions as up to date as possible. For instance, review any outstanding orders and issue outstanding customer credits. The following lists some tasks that might help you prepare. Enter all outstanding invoices & receipts If you report GST using the payments (cash) or hybrid basis, make sure all transactions are entered so that you accurately calculate your GST Rate change adjustment. Write off any bad debts Issue credit notes to customers Collect debit notes from suppliers Review recurring payments If you have bad debts on your books you should consider whether you can write them off prior to the GST increase. If you claim a GST rate change adjustment, and then write off a bad debt that was included in the adjustment calculation, you will need to make another adjustment. So writing bad debts off on your September period return will make it easier. Issue any outstanding credit notes at the 12.5% GST rate before 1 October. It will make it easier for you and your customers to claim these on a pre -October GST return. If entered on a later return, they will need to be entered as adjustments for 12.5% GST. If you have goods that need to be returned to suppliers or suppliers who you wish to claim a credit note from, try and collect these before 1 October. After this date, they may need to be reported as adjustments if they are 12.5% GST. If you make or receive recurring payments, review these to update the GST rate and review pricing. Review outstanding lay-bys Lay-bys are not considered supplied until full payment has been made. This means a lay-by created in September and collected in October is chargeable at 15% GST. You might want to contact your lay-by customers and encourage them to settle their lay-bys before 1 October. This will also minimise the amount of lay-bys you need to update on 1 October, to use the new GST rate. 4 GETTING READY FOR THE GST CHANGES

5 Payroll If you're an employer, changes to PAYE tax rates, ACC and superannuation mean you need to update your payroll systems. You ll need to update your payroll software to ensure that your employees are taxed at the lower rates from 1 October. For more information about the MYOB Payroll software update, visit myob.co.nz/taxchanges Get your software ready The GST rate increase is going to affect your accounting systems, including any business management, payroll or point-of-sale software you use. At MYOB, we believe accounting software should save you time and reduce stress. That's why we've updated our software to ensure that you can quickly, easily and accurately manage the GST change. If you don't update, you'll miss out on all of our latest product innovations and enhancements. You'll also need to spend time doing things manually, for the GST change and beyond. MYOB software updates MYOB has prepared an update to handle the unique features of this tax change. We ve also identified the tasks you need to do on 30 September and developed features, such as the Transitional Assistant, to help make the transition easier. MAKING THE RIGHT BUSINESS DECISIONS 5

6 Managing the change You need to know when to use the new rate, know what GST returns to use and, in some cases, prepare a special GST rate change adjustment. You also need to know how the change affects existing and future transactions. Before you begin The taxable period of your business and your accounting basis affect how you must report GST during the transitional period. Before you begin, you should know: your taxable period Your taxable period refers to the GST return filing frequency you nominated when you registered for GST. Your taxable period might be monthly, two-monthly or six-monthly. You also need to know the month when your financial year ends. If your year-end month is other than March, your taxable period may span 1 October. your accounting basis When you registered for GST, you will have nominated the basis on which you account for GST. Your business will report in one of the following ways: Invoice basis You account for GST when you issue an invoice or make a payment, and when you receive an invoice or receive a payment (whichever comes first). Payments basis You account for GST at the time of payment or receipt of payment during a taxable period. Hybrid basis You report GST on sales (income) using the invoice basis and claim GST on expenses (purchases) using the payments basis. When do I use the new rate? The GST rate you use depends on when your goods or services are supplied. The supply date is considered by the IRD to be the earlier of the date an invoice is issued or a payment received. This is known as the time of supply. If the time of supply is before 1 October use the 12.5% rate; after this date, use the 15% rate. 6 GETTING READY FOR THE GST CHANGES

7 When the time of supply is not clear Special timing rules apply to transactions such as lay-bys, where goods are considered to be supplied when final payment is received. Other examples include progress payments and hire agreements. You need to understand how to handle these transaction types in your business. Information about special timing rules can be found on the IRD website at ird.govt.nz GST return changes You need to use the 15% rate on GST returns starting 1 October, regardless of your accounting basis. If your GST reporting period spans 1 October, you need to file a one-off transitional GST return. This return will include two parts: one for the GST periods up to 30 September and one for the periods after 1 October. MANAGING THE CHANGE 7

8 GST rate change adjustment If you report GST on a payments (cash) or hybrid basis, you may need to include a GST adjustment for unpaid invoices and purchases as at 30 September, on your September return. This adjustment fixes a timing issue that occurs when GST is charged at the old rate, but is reported on GST returns at the new rate. This can happen when invoices are issued before 1 October, but are paid after this date. Example Let's say that in September you invoice a customer $ (GST inclusive) for goods supplied and that your customer pays this invoice in October. As the payment occurred after 1 October, the 15% GST rate is used on your GST return. In this case, you need to pay $14.67, rather than the original $ So that you are no worse off, you are entitled to a GST adjustment of $2.17. This adjustment can be claimed on the GST return that covers the September period. Note that the IRD will be issuing a worksheet to businesses to enable them to complete this adjustment. MYOB AccountRight, AccountEdge and BusinessBasics will provide reports to assist in the calculation of this adjustment. 8 GETTING READY FOR THE GST CHANGES

9 Impact on existing and future transactions Although the new GST rate is used on supplies after 1 October, some transactions may need to be accounted for at the old rate. For example, sales refunds of pre-october sales. Also, you need to consider how the rate change affects your outstanding sales quotes and orders. Sales returns, refunds, bad debts, etc. How you handle the GST on adjustment transactions such as sales refunds, depends on the date of the original transaction. If an original supply occurred before 1 October, the sales adjustment needs to be entered using the old GST rate. You can account for these on your GST return, but you need to report them in a separate adjustments section on the return. MANAGING THE CHANGE 9

10 Sales orders and quotes Quotes and orders are not considered to be supplied until they are invoiced or a payment is received. If a quote or order was raised before 1 October, but supply happened after this date, you will need to use the new GST rate. However, note that the receipt or payment of a deposit is considered as the supply date of a transaction. So if a deposit is paid prior to 1 October, regardless of when the remaining amount is paid, GST on the transaction is calculated at 12.5%. Lay-bys The rate of GST you charge on lay-bys is based on the date the final lay-by payment is made. This is considered the time of supply for lay-bys. For example, if a lay-by is created on 22 August and the final payment is made on 20 October, the GST rate for the GST inclusive component of the lay-by needs to be calculated at 15%. If you have outstanding lay-bys, you may want to contact customers and encourage them to pay the full amount before 1 October. Otherwise, you will need to update all outstanding lay-by transactions in your software on 1 October, to reflect the new GST rate. 10 GETTING READY FOR THE GST CHANGES

11 Get ready checklist This quick reference checklist contains a brief recap of some essential transition tasks, as described earlier in this guide. What you should be doing now Do this Enter all outstanding invoices & receipts Write off any bad debts Issue credit notes to customers & collect debit notes from suppliers Review recurring transactions Review your item prices, margins & rounding policy Review inventory & purchase goods before 1 October Review expenses & budgets Review marketing collateral, websites, etc Communicate your price plan to your customers Review outstanding quotes & orders to make completing the one-off GST adjustment easier (payments and hybrid basis only). avoid having to enter an extra adjustment on a later GST return, if the invoice has already been reported in a pre-october return. claim these amounts on a pre-october return to make it easier to complete post-october returns. update prices and schedules with the new GST rate for any recurring payments or receipts. enable you to communicate your new prices to customers early, and plan your cashflow and inventory. help you decide how much and which stock you want to buy from suppliers before the increase. help you plan your cashflow during the transition period. ensure your pricing material is consistent in all marketing sources. help your customers decide how much they want to buy from you before the rate change. convert these to sales or purchases before 1 October. Any orders or quotes converted to invoices after 1 October need to be charged or paid at 15% GST. GET READY CHECKLIST 11

12 On 30 September Inventory businesses Update prices If you are a retail or wholesale business, you will also need to plan ahead for the physical task of repricing items. For example, this might require extra staff to work after-hours on 30 September, relabelling items in the shop or warehouse with new barcode stickers in readiness for 1 October trading. Depending on your business type and turnover of items, you may be able to do this for some or most of your items ahead of time, and then rotate the stock you have already updated, into use on 1 October. On 1 October Start using the new GST rate and PAYE tax rates From 1 October, you need to start using the new tax rates in all applicable transactions, including in new sales and purchases, and in pay runs. Update your software (accounting, payroll and POS) If you use accounting, payroll or point-of-sale software, you may need to update your software to ensure compliance with new GST and PAYE requirements. Update existing transactions that now need to use the new rate For example, if you have outstanding lay-bys, orders and quotes, you need to update these records and apply the new GST rate. For more information about how current transactions are impacted on the day, see Impact on existing and future transactions on page 9. After 1 October Prepare GST rate change adjustment If you report GST using the payments or hybrid basis, you need to prepare a one-off GST rate change adjustment to account for outstanding invoices and payments as at 30 September. For more information, see GST rate change adjustment on page 8. File a transitional GST return If your GST reporting period spans September and October, you will need to prepare a transitional GST return to report GST at both rates. For more information, see GST return changes on page GETTING READY FOR THE GST CHANGES

13 Other resources and support There s a lot to think about during this transition. We hope our software update will help make the process easier, but we re providing you with access to other resources to help your business stay in control during the change. You can watch our GST overview movie to get a good grasp of some of the changes. The Transition Guide included in the update takes you through all you need to know about the change in detail. And our GST website and support notes will provide you with more information. MYOB GST transition support MYOB BusinesSupport MYOB Product Help Support notes MYOB Approved partners Inland Revenue Department For specific information about how to update your software, links to resources, technical support and other general information about the GST changes and how they impact your business, visit myob.co.nz/taxchanges For technical assistance installing or updating your software, visit myob.co.nz/businessupport Access the help in your software to find out how to perform relevant tasks such as setting up tax codes and printing reports. Access the support note knowledge base at myob.co.nz/supportnotes For on-site support for your business and software, you can consult and MYOB Approved partner. Search for a partner at myob.co.nz/partners For detailed taxation information and more information about your specific needs, visit the IRD website ird.govt.nz OTHER RESOURCES AND SUPPORT 13