Dear friends
GST Increase here we come.................
With just over 3 months to go until “D” day when GST rises to 15% is your business prepared? Even if your business is not GST registered, the cost of doing business will rise from 1 October 2010. Many businesses are already looking at their prices and advising customers of price increases before the new GST rate takes effect. It is an opportune time for you to look at all your printed brochures and price lists. Talk to your printer as they may be very busy in the coming months. Do you have prices on your websites? These will also need to be updated. Normally business to business services and quotations are stated GST exclusive. However, if you are dealing with the public the amount that comes out of their bank account is what is important to them. To avoid any disputes ensure that all your customers know that additional GST may be added to their bill if invoiced after 1 October.
The New Fraction:
No longer will GST be 1/9 th of the price. The new fraction from 1 st October is 3/23rds.
How did we work this one out!!
GST Exclusive Price is $100.00
GST Inclusive Price (after 1 October) is $115.00
How do I work out the GST portion on $115.00?
$115.00 x 3/23 = $15.00 or
$115.00 / 7.66666.................... = $15.00
Nice and simple (Yeah right!)
Changing your Prices:
Thursday 30 th September may be a long working night for everyone as they rush to change the price tickets on all their stock. It is a good idea to start thinking about this now. For a little while you may wish to run with two prices - one may be green and the other may be blue, one being the price before 1 October and the other is the price for 1 October onwards. To avoid confusing your customers have a sign on your counter explaining this. Alternatively on 1 October have a sign informing your customers that an additional 2.2% will be added to the price on the ticket to account for the increase in GST. Both of these suggestions are only temporary solutions and all stock will need to be re-priced eventually.
Price 30 th September including GST (12.5%) $112.50
1 October onwards add 2.2% or ($112.50*1.0222) $115.00
GST Returns:
If you prepare your own GST returns on an invoice basis, please ensure that any invoice dated after 1 October contains GST @ 15%.
If you prepare your own GST return on a payments basis then a one off adjustment is required for the GST return ending 30 th September 2010. An adjustment sheet will be sent to you by the Inland Revenue Department. This adjustment is required in regards to pre October Debtors ( people who owe you money) and Creditors (people you owe money to) as they have GST invoiced at 12.5%. The money for these pre October Debtors/Creditors will be received/paid after October and they will be included in your next GST return using the new fraction of 3/23rds (15%) as shown in the example above.
The purpose of this adjustment is to ensure that you pay or receive GST using the correct rate at the time of invoice and not when it hits your bank account.
As this is a one off adjustment in the September return you need to ensure all your debtors/creditors are included.
For GST returns that cover a period which straddles 1 October a special return will be needed for the period ending 30 th September and another GST return for the periods after 1 October. Please ensure that your accounting systems and software programs are upgraded or can account for the two different rates of GST.
For many businesses this will be the first GST increase you may have experienced. Much confusion may arise around the transitional arrangements. Please do not hesitate to ring us should you require any assistance.
New Website:
The government has set up a GST Advisory Panel to help businesses and the Government implement the GST rate increase. The Panel will consider your submissions and act as a conduit between businesses and the Government. It will monitor how businesses are dealing with the changes so that the Government is aware of particular issues that businesses may face in recording and charging GST at the new rate. The Panel will also advise the Government on any general concerns for particular industries, activities or types of transactions related to the GST rate increase. You can place a submission on their website www.gstadvisory.govt.nz .
An increase in the rate of GST means that mistakes could cost you more. Please ensure that you receive VALID GST invoices from your suppliers. If the IRD do a GST audit and deny your GST claim it could be very costly.
If you are unsure or need some help please give us a call.
The Team at Acura Accounting
