Some of your Clients may deduct Fees before they pay you. These Fees can include things such as Membership Fees, Service Fees, Insurance Fees, Royalties, etc. The question is, should you raise these Fees as a Business Expense in Hnry?
This all depends on whether or not your Client deducts Withholding Tax:
1. If your Client deducts Withholding Tax before paying you:
When your Client deducts Withholding Tax from you, they will also be declaring your Gross income (before expenses) to IRD. To ensure that you get the right tax relief on any business expenses they deduct, you should raise any prior deductions as a Business Expense in Hnry.
Also, so that Hnry can factor in these expenses into your tax rate, and ensure that you only ever pay the correct amount of tax when you get paid by this Client, you will need to tick the box 'This Client pays expenses prior to payment' under 'Client Details' on the Hnry app. Each time you are paid by this Client, you will also need to let us know the value of any prior deductions before we will be able to process that payment through to you.
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2. If your Client doesn’t deduct Withholding Tax before paying you:
If your Client does not deduct Withholding Tax before paying you, then you do not need to raise any prior deductions as a Business Expense. This is because it won’t make a difference to your overall net income, as the expenses have already deducted before you are paid.
- If you earned $200, and your Client deducted $1 in Fees, you would receive $199 into your Hnry bank account, and Hnry would log your net taxable Income as $199.
- Alternatively, if you were to declare your Gross Income as $200 and then raise a Business Expense for $1, your net taxable Income would be $199.
- Therefore, there is no need for you to raise fees deducted by your Client as a Business Expense on your Hnry profile, as it has already been accounted for, and your net income works out to be exactly the same.