If you incur expenses in the course of your business activities, you may be able to claim these as business expenses, in order to reduce the amount of your income that you are required to pay tax on.
There are a few frequently asked questions when it comes to Business Expenses:
- When will I get given the money back for my expenses?
Business expenses aren't actually reimbursements - you won't get given the full value of your purchase back by IRD.
- If I raise business expenses, will that amount be deducted directly from the tax I pay?
Business expenses simply reduce the amount of your income that you need to pay tax on - so you won't see your income tax reduced by the exact amount of your expenses.
So how do business expenses work?
For example, if you make $50,000 in income over the course of a year and you have $10,000 of valid business expenses during that year, you are only required to pay Income Tax on the remaining balance of $40,000.
If you earned $50,000 and had no business expenses, your income tax rate would be roughly 16%. Once you factor in the $10,000 worth of business expenses, your income after expenses would be $40,000 - which would result in an income tax rate of around 14%.
By raising expenses in Hnry, we will automatically take into account your business expenses and off-set these against your Income Tax rate to make sure you are getting immediate tax relief. This tax relief is in the form of a reduced overall income tax rate, as per the example above.
So over the course of a year, as you add your business expenses into Hnry, you will see slight shifts in your income tax rate to take into account your business expenses. As per our example above, you are not likely to see massive reductions in your income tax rate, unless you have some very large business expenses compared to your total income.
What if I'm registered for GST?
If you are GST-registered you will be charging 15% GST on top of your service, and can also can claim back the GST portion of any valid business expenses.
When it comes to your GST returns, we'll use your income through your Hnry account, and the expenses you load into Hnry to work out if you are due a GST refund, or whether there is a GST bill to pay.
GST relief is separate from Income Tax relief.
IRD has some very clear rules as to what is and is not eligible as a business expense, and it's all based on the type of work you do. When you raise business expenses in Hnry, our team will inform you if the item you are claiming for may not be eligible based on IRD's rules.
Click the following article that explains what can be claimed as a business expense.
Or watch a brief explanation of how expenses work: