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LETS GET DOWN TO BUSINESS.

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Kia ora and nga mihi to Manaaki for building this platform,[Context] In 2018 I left a top tier position and spent the remaining months caring for a terminally ill family member #F^*%Cancer! While it was career and financially destructive, in hindsight I know it was time well invested. In restarting my career again, the experience of my last season has really shaped me to the point where I won’t consider probable working opportunities where the workplace culture or leadership doesn’t align with their company’s vision or values. After two years, I can say that I have finally been blessed to secure a purposeful part time role (employed) while also seeing paid (contract) work starting to come through. [Question] 1) Do you have someone that could give me some advice around how to best manage my taxes with employed and contracted work. And 2) Advice around knowing when contracted work should be set up as a business with it’s own company name. Many thanks

Question submitted 05/08/20 @ 05:08am
Industry: Funding & Finance
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  • Morena, power and aroha to you for that time you took out to look after and be with your family member, my own memories of being there with both of my parents at the end remains very special – sad, and also reflective and full of memories of the good and hard times.

    To your questions, this is the time of the side-hustle which is awesome – what I have observed and also practising myself is that flexibility can be a good thing while you are not sure how repetitive and/or certain things are. A few thoughts for you:-
    – Employed work – if that is an employer/employee relationship then the tax treatment on that is pretty clear, the ‘test’ comes down to the real nature of the relationship, and I am not technical here, but if it is clear that you are receiving instructions from the Company around what to do, when and it is relatively repeated role each week/month then it is likely to be a PAYE situation. There can be exceptions to this where it might be a contractor and/or withholding payments situation – it is a bit ‘technical’ – however, one thing you can do is ‘ask’ the Employer – for other people doing this role in the past, what was their tax/employment treatment that will give you an idea.
    – Contracted work – a few things here, there is Tax and GST to consider on this work, first with GST you do not have to register for GST if the expected annual sum is less than $60,000 which just means it is way simpler e.g. you don’t have to invoice with GST added on, the counter to that is that you also can’t claim back GST on any expenses you incur related to the work you are doing for the contracted work. I do figure however that the GST on this type of income is often way more than the expenses e.g. you maybe a net GST payer, but check your situation out. Regardless, you will need to sort out your own Tax on the income you get from this contracted work, after deducting your expenses and file this in your annual returns for income tax.
    – Which Entity – you have asked if you should/could set up a company for your work? First thing, if the work you do has some legal risk associated with it, sometimes people set up a separate entity like an Limited Liability Company however when you start out, I am in favour of ‘little structure’ for a period, you can just run it in your own name, you can still apply expenses against your direct income, you can claim some of your home expenses and the like – you just record what expenses are work / income related and then you claim. After a while, you might set up structure if you are clear you have some certainty and not what is going to happen.

    The one bummer in all of this – you still need to record your income and expenses in a spreadsheet or an accounting system – I myself am running all of my activities out of Excel still – hopeless I know, but I want to set myself up on Xero and learn about that, so I know what it is like for others so it helps me understand how to hack and do this stuff.

    And remember – always pay your taxes!! Good luck. Andy

    Anonymous
    I concur with Andrew’s comments above and would be glad to have a technical discussion with you around your structure and compliance obligations as a contractor, (as Andrew rightly says above, your obligations as an employee should be simple). I can be reached at claire@vcfo.co.nz or 09 553 9641. Good luck Claire

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