GST increase – how to ensure a smooth transition

There is much more for small businesses to know about the approaching GST increase taking effect on October 1, than just the new calculation - divide by 7.66 (recurring).

Lisa Martin, director of mobile bookkeeping company Go Fi8ure, says there are many areas of business that will be affected by the GST increase and preparation is the key to ensuring a smooth transition.

“If you haven't started preparing for the change, start right now. One thing is certain; it's going to be an absolute nightmare if you aren't prepared.”
However, the increase in GST shouldn't be seen as a negative change. In fact, it's possible to make the change a positive step for your business – a good time to review your processes and systems.

Lisa says there are some key questions for small businesses to ask as they prepare their finances for the GST increase from 12.5% to 15%.

It's more than likely that small businesses will have transactions covering both GST rates. “You need to know if your accounting software will cope with having to deal with two GST rates during one financial year. It’s best to double check with your software provider and also to ask what costs are involved and what staff training might be required.”

GST is generally recovered or paid at the rate of the original sale or purchase. “Small businesses need to ensure their systems will be able to produce credit and debit notes at the old and new GST rates.”

Existing contracts and agreements will be affected. “Review your contract prices to ensure you are covered for the GST increase and amend all long-term contracts, agreements, voucher systems and any other ongoing commitments to ensure your business is covered for the increase.”

And expect letters from any suppliers you have automatic payment to advising you of their price increases. The GST Tax Act 1985 allows suppliers to increase their prices on existing agreements or contracts to accommodate increases. For example, when you signed your office rental contract, your weekly rent was set up at $1200 including GST. From 1 October 2010 your fee will increase to $1,226.67 including GST. Your landlord should advise you of this increase in writing.

As for work you’ve been billed for in September but paid for after 1 October, the IRD has explained that you will need to make an adjustment for certain "qualifying supplies". These supplies are goods or services sold or purchased before or on September 30 2010, but not paid for in full by that date and have not been written off as a bad debt.

You'll need to identify any of these qualifying supplies and make an adjustment on your GST return covering that period. “It sounds confusing, but it’s not as scary as it seems and you can always call in an expert if it feels too overwhelming”. The IRD website has more detailed information on qualifying supplies if you need it.

If you’re a small business you might work on a payments basis or have an unusual balance date. It’s likely that the change to GST falls during your return period and you may have to file two GST returns (one as usual, and one transitional return). It pays to check this earlier by looking at your old GST files.
Leverage off the GST increase. Back in 1989, when GST rose from 10% to 12.5% there was a major increase in consumer activity and it’s likely to happen again. Lisa explains, “if your customers want to spend before the next increase, encourage them to pay up-front for continuing goods and services and take advantage of the cash influx.” The end consumer will pay the lower GST rate and you will have the advantage of cash on hand – remembering cash is king.

If you start early the GST rate increase will be a much easier process than you think, Lord Baden-Powell was definitely onto a winner when he came up with the Boy Scout's motto, Be Prepared.



Lisa Martin is the owner of Go Fi8ure, a mobile bookkeeping company working throughout the lower North Island. Go Fi8ure specialise in day-to-day financial management for businesses employing less than 30 staff and are renowned for their service delivery.

www.gofi8ure.co.nz