This one is for the Contractors
Have you started your own business and are contracting to someone else? Here are some of the important things to know, and the common kinds of expenses you can claim!
Expenses to claim:
Common expenses that contractors might claim include:
Phone bills
Insurance
Home Office Claim (your accountant does this at the end of each financial year and will let you know the info they need; includes a portion of your home internet, power, insurance, rates, rent or mortgage interest)
Advertising costs - business cards, social media advertising, email handles, websites
Entertainment - food and drink costs incurred for work related purposes (ie with clients or colleagues)
Accounting fees :)
Courses & training costs
Computers or technology costs for running your business
Stationary and any other office costs
Withholding Tax:
Withholding tax is not applicable to companies (except those who are in the business of labour supply - I’m picking that won’t be most of my clients who read this!). If you are contracting as a sole trader, this will be applicable to you. Your employer should deduct withholding tax from your invoice, and pay this to the IRD on your behalf. Withholding tax is generally 20% of your income, but the rate will depend on your industry. If you are a high earner, this may not be enough to cover your full tax bill; you would be best to ask your accountant how much more you may need to save. When paying withholding tax, you will need to complete an IR330C and provide this to your employer.
How to invoice your withholding tax
Below is a screenshot of how you invoice and include withholding tax. Always invoice the full amount as you would - you can still invoice materials, quantities of items or anything in between!
Then for the withholding tax line, the quantity will be your withholding tax rate (ie 20% = 0.2), and the quantity will be your invoice total excluding GST, and a negative amount as your employer will pay this to the IRD on your behalf.
Exemption Certificates
As a sole trader, you can apply to the IRD for an exemption certificate - this means you are exempt from schedular payments (ie your employer paying tax on your behalf), and you become responsible for your own tax obligations. Check out more info on this with the IRD using our link below. To be accepted, you will likely need a history of being good at paying for your taxes.
Disclaimer: this is general information only. Please reach out to Prosper Business for specific advice to your situation.