The exciting part of a new business is the freedom you have to create your business model. But all businesses have to operate within the law, so it’s vital that you identify the compliance issues you need to manage as well as other possible external factors you may have to overcome.
Many of these factors can be managed by following good business practices. Others may be harder to overcome, requiring expert knowledge and specialised systems that can be costly. A few may even be impossible to overcome.
Ignore external factors at your peril. It can be devastating once you have a project underway to find out too late in the piece that statutory regulations or commercial barriers to entry mean your business is simply not feasible.
The regulations and possible challenges you face will vary with your business type: a web design company may face fewer restrictions and compliance issues than a business set up to manufacture industrial chemicals.
This chapter will help you to consider:
- compliance responsibilities you must face 16
- ways to manage these responsibilities
- potential barriers to market you may face 17
- ways to overcome these barriers.
Your Legal IdentityEdit
Partnership or Joint Venture
Limited Liability Company
Loss Attributing Qualifying Company
Incorporated Society (and status with the chrities commission)
All businesses must pay tax. Plan in advance to meet your tax obligations based on your financial forecasts. Failing to comply with tax obligations can be the downfall of an otherwise successful business.
To avoid incurring any penalties and to help with your cash flow planning, you’ll need to estimate what you expect to pay in taxes as part of your feasibility study.
All businesses pay income tax based on net profit. This is the income you’ve gained from the goods and services you sell less the expenses required to generate this income.
- Smart Business booklet
Inland Revenue’s Smart Business (IR320) booklet offers an excellent introduction to tax compliance issues. To order a copy, phone 0800 377 774 or download it from the Inland Revenue website.
www.ird.govt.nz (Select ‘Forms and guides’ and search by title.)
- Your first year in business is not tax free
Many people think that the first year in business is tax free. This is incorrect. If your business shows a profit at the end of your first year in business, you’ll owe tax. However, exactly how much can only be accurately assessed once you or your tax agent have submitted your annual tax return.
So, although you may not be actually making tax payments on your profit during your first year, that year is still taxed. You’ll have to pay this tax by 7 February in the following year or, if you have a tax agent, by 7 April. It’s important to plan for this tax obligation.
Other taxes you may be required to pay will depend on the nature and structure of your business. There are four steps you should take.
- Check with Inland Revenue which tax types you need to register for (such as GST, Fringe Benefit Tax, PAYE).
- Register with Inland Revenue as soon as you decide to start trading.
- Keep up-to-date, accurate records to ensure information stated on your returns is correct.
- Avoid penalties by submitting payments and paperwork on time.
It’s your responsibility to ensure that you pay all that you’re obliged to. This makes it important to get professional advice and talk to Inland Revenue and an accountant about your specific tax obligations.
See Template 16 (Compliance checklist)
See Template 17 (External barriers)
- Paying provisional tax
If your untaxed income from the first year is $2,500 or more, Provisional tax (a way of paying your income tax in instalments through the year) will apply in your second business year. The amount you pay during the year is credited against your end-of-year tax to pay. Sole traders and partnerships (but not companies or trusts) may qualify for an early payment discount for voluntary tax payments during the first year in business. Contact Inland Revenue or your accountant to check if you qualify.
- Get free tax help
Look at paying taxes as a positive thing – if you’re paying a lot of tax, you’re likely to be generating a healthy income.
Inland Revenue’s community relationship advisory staff can provide free tax education for small business owners. To arrange an advisory visit, go to the Inland Revenue website.
www.ird.govt.nz (Select ‘Businesses & employers’, then ‘Get it done online’.)
Occupational health and safety (OSH)Edit
As the business owner, it will be your responsibility to ensure that people (employees, customers, suppliers and other members of the general public) don’t come to any harm in the course of doing business with you.
Workplace OSH regulations can be far reaching, complex and not always obvious. They could relate to anything from providing adequate facilities for the handling of hazardous goods through to workplace bullying.
- Advice and information on OSH regulations
The Department of Labour is responsible for overseeing health and safety in New Zealand businesses and has a range of information, seminars and self-help tools available to help you determine the regulations with which you’ll need to comply. Contact the Health and Safety Infoline on 0800 20 90 20 or visit the OSH website.
- Accident compensation (ACC)
Even with sound management practices, accidents can and do happen.
To ensure that in the event of a work-related injury you or your employees receive weekly compensation and assistance with treatment or rehabilitation, you’re legally required to pay annual ACC WorkPlace Cover levies. These levies will vary depending on your business type and turnover, and you’ll need to factor them into your overall costs.
- Find out more about ACC levies
For more information about your ACC obligations, contact the ACC Business Service Centre on 0800 222 776 or visit the ACC website.
Liability and InsuranceEdit
Complying with business legislationEdit
There is a range of government legislation of which you’ll need to be aware and with which you’ll need to comply as you go about your everyday business. For example, this includes:
- the Privacy Act 1993
- the Consumer Guarantees Act 1994
- the Fair Trading Act 1986
- the Employment Relations Act 2000
- the Companies Act 1993
- the Health and Safety in Employment Act 1992.
Talk to your advisors about any legislation that might affect your business.
- Review the key websites
Review the Ministry of Consumer Affairs and Ministry of Economic Development websites for any relevant legislation with which you may need to comply.
It’s important to check your intended business activities with your local council or regional authority. Each area has its own particular rules and regulations around the types of business activity that are allowed within certain zones or areas. For example, if you’re a panelbeater you’re unlikely to get permission to operate a panelbeating business from your home garage.
It could well be that your business idea already meets required standards and regulations, but you must check. Note down every aspect of your business that you think might be governed by any type of regulation or guideline.
- Is your business potentially dangerous (such as building and construction, jet boating)?
- Will you need a licence (if you’re planning to open a café, for example, and serve alcohol)?
- Does your building need a Building Warrant of Fitness or Certificate of Compliance?
- Will you need resource consent to operate in your chosen location?
- Can you operate from home, employ others at home, or work outside ‘normal’ business hours?
- Will you have to provide a certain number of car parks?
- Do you need resource consent?
Resource consents can be costly and take some time to process. Be sure to clarify timeframes and prices well in advance. To find out how to facilitate this process effectively, visit the Ministry for the Environment website.
www.mfe.govt.nz (Select ‘Publications’ then ‘Resource management’.)
It’s better to be overly cautious at this point than to find out later on that regulatory issues limit or impact severely on the feasibility of your business.
In dealing with risk you usually have three choices.
- Reduce the risk - Use protection measures such as anti-virus software and robust back-up procedures, or take action to reduce safety hazards.
- Transfer the risk - Insure adequately against losses.
- Accept the risk - After weighing up the pros and cons you can choose to leave things to chance.
Be wary of the last option. It could put you out of business. Your insurance needs can be quite complex and include less obvious cover such as public liability insurance, so it’s worth speaking to an insurance expert about your specific requirements.
If you can’t afford to insure everything at first, at least insure against the major risks and make plans to extend your cover as soon as your finances improve.
- Ask for details of a competent insurance broker
Ask your business contacts for details of a competent insurance broker or visit the New Zealand Insurance Brokers Association website to find a broker near you.
- Insurance company or insurance broker?
Should you consult an insurance company or broker? The difference is that an insurance company generally sells only its own insurance products. A broker ideally offers a range of cover from a variety of suppliers.
Planning to import or export?Edit
If you’re planning to import or export, there will be regulations and associated costs. You may be required to hold a permit to bring certain goods into New Zealand and face an import entry transaction fee.
Depending on what you plan to export, you may also need a permit and will be subject to lodgement and other compliance costs.
- Exporter Education – tax issues for exporters
The NZTE Exporter Education programme offers a range of workshops relating to export issues, including ‘Tax issues for exporters’.
Attending a workshop also entitles you to an export assessment and some free one-on-one coaching, where you can talk about issues specifically relating to your business idea.
- New Zealand Customs Service information
For more details on levies, duties, permits and other compliance requirements visit the Customs Service website.
Other people may be able to offer possible solutions. Talk to people already in your industry or general business contacts about their experiences.
Managing external factors checklistEdit
Complying with regulations and finding ways to manage other external limiting factors are inevitable aspects of doing business. Make sure that you work through all these steps to help you identify any issues that might impact on the feasibility of your business.
:Investigate and identify relevant compliance/regulatory issues.
:Plan ways to manage your tax and other legal responsibilities.
:Check that you can afford to buy adequate insurance cover.
:Identify and address possible barriers to entry.
If you’re confident that you can meet your business responsibilities, there are some further steps you can take to lower the risk of going into business.