There’s an urban myth that’s been around in the NZ business community for as long as I can remember, and, if I’m being honest, I played a small part in it being a thing. I’ll explain what I mean in a minute, but first what is this pervasive urban myth.
The myth is basically that every NZ business should be GST registered. Maybe you’ve heard it. Maybe a customer or business advisor suggested it. Maybe you’re one of the GST evangelicals.
I can confirm that we get the odd enquiry, and they’ll ask about GST. When we tell them we’re not GST registered (as a smaller agency, we’re below the threshold set by the IRD) and that they can save 15% on all our products and services … and we never hear back. While there may be other reasons, it’s possible this is another person who feels like if you’re not GST registered then you are not a legitimate NZ business.
As per the link to the IRD’s website above, not every NZ business needs to be GST registered. Of course, a business that previously was not required to register (due to having a lower annual revenue) may in time, as it grows, find that it now must register for GST.
However, this myth that every business must be registered and have a GST number pervades and, in my opinion, adds an unnecessary burden to the already difficult early years for a new business (more than a third will fail within two years).
Obviously, every business needs to decide for themselves what is best. For some, it may be advantageous, particularly if making a lot of purchases and being able to claim back the GST portion. Or maybe you just know your turnover will exceed the threshold. I’m not a qualified financial advisor so if you’re unsure get in touch with your local accountant for some help in knowing what’s best for your business.
The takeaway is simple – you don’t need to be GST registered to be a legitimate NZ business (you will find us in the NZ companies directory and file an annual return as a limited liability company).
Why aren’t we GST registered?
Having worked for a large accounting software company for many years, I saw firsthand the complication being GST registered added to a business. The extra work involved in setting up a billing and accounting system to allow for GST on all purchases and invoicing. The compulsory IRD reports. It added an extra cost to the business, both in time and the expense of hiring an accountant, as well as accounting software.
For some businesses, this was just a necessary evil. Their annual turnover exceeded the threshold, or the benefit of being able to claim back GST on purchases meant it made sense to register.
But for us, after crunching the numbers and seeing it in the context of our business type, it made sense to not be GST registered, even with the potential downside that you can miss out on business from customers who believe the myth. Overall, it was the right decision for us.
Supporting us supports the local economy
In an effort to save money (something we commend and encourage with our very affordable website packages and hosting services) some businesses will outsource to an overseas contractor.
The only problem is (aside from not being sure you can trust them) is that none of the money you pay them will contribute to the NZ economy.
However, when you purchase a domain, hosting service or website package from us, about a third of what you pay goes back to the NZ government, supporting our schools, healthcare services and national parks. So you can feel good about getting a great deal, and contributing to our local NZ economy.
I was part of the problem
My backstory was I worked for MYOB for about 10 years, with the marketing team and of course our objective was to sell accounting software to small businesses.
And what better way than convince them they needed to register for GST and if they were GST registered well then they couldn’t get by with just a spreadsheet to manage their finances anymore because of all the record keeping and reporting that GST reporting involves. If I inadvertently misled any business owners out there that they needed to be GST registered and buy MYOB accounting software, I’m sorry, I hope everything worked out ok.
I’m not saying it’s bad software, but do you really need it? That’s a good question every business owner should be asking before spending money.
You don’t need to be GST registered but a website is a must-have
While GST registration is optional if your business is below the threshold, a website should be a must-have for any business, no matter the size, type or age. We’re committed to helping all businesses get their own piece of digital real estate with our very affordable website packages.
It’s really easy to get started and we take care of all the technical stuff. As a real business we take care of our clients and help them with everything they need to get online and start promoting their business with digital marketing.
The only thing missing is the extra 15% GST tax on the bottom of the invoice.