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4 posts

Wannabe Geek


# 259838 24-Oct-2019 15:49
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I've been considering going into contracting and my research on the best structure has conflicting messages.

 

Accountants I've spoken to say I should set up as a company but I can't see why that makes sense.

 

My suspicion is that they want to make my life as complex as possible so they can make me use & pay for Xero and file company AND personal tax returns?

 

They said I would get a lower tax rate but I see that if I take drawings then the the IRD will tax me on that as personal income?

 

Also Xero and Accountants seem a bit over the top when all I'll be doing is claiming a few business expenses and putting in a invoice every month.

 

I have recently seen Hnry.co.nz and these guys seem too good to be true.

 

I spoke to them and they're the real deal and were super helpful

 

Has anyone got any experience with them?

 

 

 

I think the myths around starting a company are based on someone else profiting from my ignorance!

 

https://hnry.co.nz/freelancer-resources/guide-to-being-a-contractor

 

 

 

 

 

 


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  # 2343120 24-Oct-2019 16:10
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When I last asked about it, the company made it easier to keep IP you generate seperate and able to transfer the whole company if you sell it was the biggest benifit. Also if you wanted to take on additional shareholders etc, which just a simple labour for hire contracting thing wont need.





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  # 2343121 24-Oct-2019 16:13
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I personally wouldn't bother.

 

I went with a company when contracting and there was zero benefit. I finished contracting now, gone back to perm, and closing the company down was a hassle of paper work etc


 
 
 
 


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  # 2343125 24-Oct-2019 16:14
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Hnry are well recommended in the entrepreneur groups I'm part of.

 

Not an accountant, but I've had a company since I was 18:

 

If you're not planning on doing procurement or services apart from your labour, and it will always just be you, Hnry is a great choice.

 

As soon as you want to buy and sell gear for customers, or buy services/gear to create/sell services, the accounting etc gets harder and a company makes more sense.





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Ultimate Geek


  # 2343149 24-Oct-2019 16:23
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Your obligations for record keeping as a sole trader really are quite simple. You no longer have to produce profit and loss / balance sheet accounts, all can be done with the appropriate IRD tax return. Note, whilst you don't have to get the financial accounts produced etc, you are still required to maintain proper records, including proof of all income and expenses, its just the format that you can choose.

 

There is limited value to a ltd liability company for a single shareholder / small contractor. Most creditors in business require personal guarantees before opening a trading account, and banks will absolutely want guarantees and other security for any business lending.

 

The annual costs of a company aren't significant, around $180 filing fee for annual return. There are costs to set up a company, I think about $1000 or so, but this can be reduced if you choose to set it up yourself.

 

You'll also need to gauge how much you expect to earn, if over $60k, you'll need to register for GST. Note, you can register for GST if you earn under $60k but its not a requirement.

 

Record keeping can be as simple as an excel workbook. You really don't need an accounting software package for just tracking a few simple transactions.

 

Income tab with details of invoices issued.

 

Expense tab with details of expenses incurred.

 

Keep copies of all documents in monthly file, collate them all at the end of the income / tax year and file IR3

 

If it were me, I'd set up a separate bank account from my personal day to day account, making sure I used it for all business income and expenses. Makes reconciling it to your excel sheet dead easy and provides backup records if required.

 

Tax laws have changed recently around payments to contractors, with "employers" required to deduct scheduler deductions (rate is set depending on type of service), so there are some tax matters to get your head around.

 

You'll also need to be wary of what expenses are claimed, personal use needs to be split out / adjusted for for certain expenditure (motor vehicle for example, claiming only a portion for business use based on 3 months log book record keeping) etc.

 

 


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  # 2343153 24-Oct-2019 16:28
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Having a company  gives you protection for your personal assets.

 

If you get involved in a dispute or conflict as a sole trader all your personal assets are able to be taken into account in settling damages actions etc (assuming no or limited insurance cover)

 

Setting up companies in NZ Is pretty easy and  they are not overly complicated to operate.


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  # 2343163 24-Oct-2019 16:58
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sen8or:

 

If it were me, I'd set up a separate bank account from my personal day to day account, making sure I used it for all business income and expenses. Makes reconciling it to your excel sheet dead easy and provides backup records if required.

 

 

And another bank account for your Tax provisions, into which you transfer enough money to pay your GST and enough to pay your Income Tax and ACC levies. Spending this year the money you will need next year to pay your 2019/20 IR3 Tax is too easy to do otherwise, and the Tax Man is generally unimpressed with "I already wasted it on luxuries like food" arguments. ;)


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Ultimate Geek


  # 2343180 24-Oct-2019 17:37
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iR run some helpful courses, for free, for those setting up in business. They have a useful cash book tool available for download.

 

if you are providing services and with no employee’s and no expensive assets, go for a sole trader - there is no advantage in running a company for one income stream.

 

Company Directors are still personally liable for malfeasance in running a company, Wellygary is not particularly correct on that point. I run a company and on an annual basis my lawyer reminds me of those obligations! So if, for example, the company failed to pay tax IR would probably have a go at the Directrs.





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  # 2343221 24-Oct-2019 19:57
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wellygary:

Having a company  gives you protection for your personal assets.


If you get involved in a dispute or conflict as a sole trader all your personal assets are able to be taken into account in settling damages actions etc (assuming no or limited insurance cover)


Setting up companies in NZ Is pretty easy and  they are not overly complicated to operate.



No cannot agree.

Depending on circumstances courts can and have gone after personal assets. Some protection though.

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  # 2343222 24-Oct-2019 20:05
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surfisup1000:
wellygary:

 

Having a company  gives you protection for your personal assets.

 

If you get involved in a dispute or conflict as a sole trader all your personal assets are able to be taken into account in settling damages actions etc (assuming no or limited insurance cover)

 

Setting up companies in NZ Is pretty easy and  they are not overly complicated to operate.

 



No cannot agree.

Depending on circumstances courts can and have gone after personal assets.

 

Correct, particularly if you are found to be reckless in the way the company trades.

 

Taking professional advice is recommended.  It doesn't need to be expensive advice.





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  # 2343226 24-Oct-2019 20:28
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wellygary:

 

Having a company  gives you protection for your personal assets.

 

If you get involved in a dispute or conflict as a sole trader all your personal assets are able to be taken into account in settling damages actions etc (assuming no or limited insurance cover)

 

Setting up companies in NZ Is pretty easy and  they are not overly complicated to operate.

 

 

Not from banks or large creditors (e.g. placemakers) who require personal guarantees.

 

Maybe from the IRD

 

But be aware that if you are taking too much money out of the company as "drawings" (technically overdrawing your shareholders current account), that's technically monies you owe the company and the liquidator can go to you personal to recover it.

 

 

 

 


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  # 2343230 24-Oct-2019 20:39
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there are many advantages as a company

 

1. limited liability. if you get sued as a sole trader your entire life is bankrupted. if you get sued as a company your personal stuff is not touched unless you are sued personally for some criminal negligence or something.

 

2. company has a lower tax rate and your accountant can use that to your advantage. i still don't understand how it works but they will sort it out at the end of the year. if you make less your savings are less, if you make more your savings are more. so this may or may not be an advantage after applying all the accounting fees but in general you will be better off. a good accountant will find ways to save you money that you didn't know existed.

 

3. if you end up needing to register GST, a company can do that easy. if you personally need to register for GST all your personal asset may be liable for gst when you sell them (eg your house, car, etc)

 

4. it goes on and on.

 

just set up a company already.

 

my accountant made sure I was using the cheapest things and told me off using xero, said it's "very sexy" but i didn't need it





Involuntary autocorrect in operation on mobile device. Apologies in advance.


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Ultimate Geek


  # 2343290 24-Oct-2019 21:10
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Having a company allows some "creative" ways of avoiding tax.


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  # 2343309 24-Oct-2019 21:49
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I was very surprised how easy it was to set up my company
online.

Did it over two evenings. Reserve name then later form company.

Most frustrating part was sitting in bank setting up the accounts, (One current and one pie to put the tax in) and going through the anti money laundering rubbish.

Wheres the letter from your accountant telling us where the money will come from...

Well I dont have an accountant yet because I have only formed the company last week..



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Wannabe Geek


  # 2343328 24-Oct-2019 22:15
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Thanks everyone! I’m still wary of accountant advice as most people I’ve spoken to who contract have said the xtra work involved isn’t worth it. Time better spent either working on myself or doing things I love to do. Tax ain’t one of them!
So in a summary I’m gonna go with Hnry as it’s a no brainer to me.
My life isn’t to become a tax expert, that is not a life goal!

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Ultimate Geek


  # 2343366 25-Oct-2019 08:15
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Batman:

 

there are many advantages as a company

 

1. limited liability. if you get sued as a sole trader your entire life is bankrupted. if you get sued as a company your personal stuff is not touched unless you are sued personally for some criminal negligence or something.

 

2. company has a lower tax rate and your accountant can use that to your advantage. i still don't understand how it works but they will sort it out at the end of the year. if you make less your savings are less, if you make more your savings are more. so this may or may not be an advantage after applying all the accounting fees but in general you will be better off. a good accountant will find ways to save you money that you didn't know existed.

 

3. if you end up needing to register GST, a company can do that easy. if you personally need to register for GST all your personal asset may be liable for gst when you sell them (eg your house, car, etc)

 

4. it goes on and on.

 

just set up a company already.

 

my accountant made sure I was using the cheapest things and told me off using xero, said it's "very sexy" but i didn't need it

 

 

why post, if you don’t know what you are talking about?

 

1. It is expensive to sue. A sole trader is typically a single person income for services, not product, and doesn’t have assets; so unlikely to be worth the price of a lawsuit.

 

2. Lower for the company, yes; but as soon as you draw the money for yourself, you are back onto individual tax rates. So if you are a single person, and want to use the entirety of your revenue for yourself (instead of investing in growth, R&D etc) then value of a company is nothing.

 

3. Setting up for GST is the exact same process for a company or a sole trader. Only business assets and expenses are gst claimable and only business revenue attracts gst. don’t think you know how gst works.

 

4. No it doesn’t. There is no benefit to using a company unless you intend to employ people, or you have business assets of value. If you are a services-type of business with only yourself as a revenue stream, sole trader is the way to go.

 

i would change accountants if I were you.

 

 





BlinkyBill


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