What to do when your side hustle turns serious

What to do when your side hustle turns serious

Congrats if your hobby turned side hustle has turned serious! So now what?

First of all, if you’re regularly selling products or services then you could be considered “in business” by IRD even before it turns serious to you.  So, keeping track of your business-related income and expenses is important from the start.

Financial Record Keeping

We recommend that you sign up for accounting software such as Xero as your business grows. If you’re not yet ready to do this, one of the easiest ways to keep track is to have a separate bank account that you use solely for business purposes.  Alternatively, you could use an excel spreadsheet to list business income and costs. Or if you prefer good old pen and paper, write it all down in a book. 

Remember to keep your receipts for any business purchases.  You can scan or take a picture of receipts and save them to a folder on your phone/computer or keep the paper copies – whatever works for you.  The main thing is that you can find it if IRD requests a copy.

Tax Registrations

Don’t panic! Chances are you’ve been trading as a sole trader/individual and you will already have a personal IRD number that you’ll also use for business. If you’re unsure whether you should be trading as an individual, company or some other structure, see our blog on structures.

If you expect your sales to be $60,000 or more in the next 12 months, then you should register for GST (Goods & Services Tax).  You can also choose to register before you meet this threshold, for example if you’re going to make some large purchases to grow your business and want to claim the GST back on this.

When you decide to employ staff, you’ll also need to register as an employer with IRD and learn about your obligations as an employer.

Filing your Tax Returns

The tax year runs from 1 April to 31 March each year, meaning that you’ll need to let IRD know your total business income and expenses for that period and pay tax on the difference (net profit).

If you’re a sole trader, you do this by including the information in your personal income tax return which is called an IR3.  The IR3 is due to be filed by 7 July each year, unless you have a tax agent, then it isn’t due until 31 March the following year.  The tax on your income is due to be paid on 7 February the following year or 7 April if you have a tax agent.

When you register for GST, you will have the option to file either monthly, two-monthly or six-monthly.  Most small businesses file on a two monthly basis, which allows you to pay six smaller amounts of GST over a year than you would if registered on a six-monthly basis and keep on top of paperwork. Your GST returns are usually due to be filed and paid on the 28th of the month after the end of the filing period.

When you employ staff, you need to deduct PAYE (pay as you earn) from the employee’s wages and pay this to IRD on their behalf.  You are also required to let IRD know the details of wages paid each time you pay staff.  This is called “payday filing” which needs to be done within two days of paying the employee. Because of the frequency of payments, it’s much more efficient to use payroll software that automatically files the information with IRD on your behalf. Total PAYE deducted from wages each month are due to be paid to IRD on the 20th of the following month. 

Clear as mud?!

Enlisting an experienced accountant who can take care of all your obligations for you can relieve a lot of stress.  If you require assistance, or want to have a chat about your business finances, please get in touch.