Farm Accounting and Bookkeeping Questions? Answered!
I have seen a number of questions asked on FMNZ and thought I would do my best to answer a few!
Are you going self-employed for the first time? First sharemilking or contract milking job?
These are the first steps to take when first going out in business. It can be a daunting and exciting step but getting a few things correct at the beginning can help a lot.
Firstly, your business set up – Sole trader, Partnership, Company, Trust? What is best for you? There is normally at least two of you in a farming business and it's best to get some qualified guidance with this step, but generally a partnership or a company are most commonly used.
A partnership is more easily set up and has less compliance costs annually. Two or more of you share the profit (and pay income tax personally on this). To register a partnership, you apply via IRD. To register a company, you need to apply via companies.govt.nz. The major advantage of trading as a company is that the shareholders’ liability is limited to the amount of money they invest as share capital. The shareholders are not liable for the company’s debts. Depending on taxable income you may pay less tax in a company as the top tax rate is currently 28% as opposed to 30% for individuals over $48,000 each, and 33% over $70,000.
After you have made this decision you need to get a bank account for the new venture and register for GST and PAYE if necessary. You need to register for GST if your annual turnover is more than $60,000 per annum which is most farm businesses. You have the choice of 1, 2 or 6 monthly GST. And payments or invoice basis. I suggest two monthly payments basis as it is easier to keep up with this and remember what was spent on what, as opposed to doing it six monthly. Another point to think about with a farming business is most apply to IRD to change their balance date from the standard 31 March to 31 May to work better with the farming season. As soon as you start in business keep details of any money you spend on the business to claim back later. (see below for what you can claim) In the first year of business, if you have a vehicle that you will use for business as well as personal, it pays to keep a log book to get a business percentage for business use and when you have this % you can claim this % of ALL of this vehicles expenses, Fuel, Road Users, Maintenance etc. You need to keep a log book for three months every three years.
What can you claim?
Farming has a few different rules when it comes to what you can claim for GST and Income tax purposes. You can claim costs directly incurred in producing income as well as a % of your household expenses like power and phone and also vehicle expenses of your personal vehicle as mentioned above. The IRD has a lot of helpful information like this pamphlet on Dairy Farming on what you can claim. If in doubt keep the receipt or invoice and ask your accountant or bookkeeper. You cannot claim any personal expenses or the likes of life and health insurance.
For claiming GST there is no GST on Wages, Financial Items, IE interest and bank charges and you must have an IRD approved GST invoice. If you sell anything business related and are GST registered, you must sell at a price plus GST and repay this GST to IRD in your return. If you want to do the bookkeeping yourself and are unsure in the beginning find an accountant or bookkeeper who is willing to work with you to help you learn more to help yourself and get things correct.
In today’s world I highly recommend getting a software program to help with your accounting and bookkeeping. From the ones I have used and seen for farming I suggest either XERO or CASH MANAGER RURAL. They both can pull in your bank transactions and you code them as necessary and they help you to produce your GST returns etc. There are pluses and minuses to both programmes and it pays to see what your accountant or bookkeeper prefers as this will save you money in your end of year bill. Cash Manager has, at the moment better budgeting and forecast cashflow as well as stock reconciliations etc. You can get an add on to XERO called figured if you would like these extras at an extra monthly cost, but good old Microsoft Excel is capable of this too. I think XERO has better reports for monies spent and tracking options if you have more than one farm or want to follow the costs of say, maize growing through to the stack.
As a farmer I suggest the Cashbook GST version of XERO via a registered advisor for $21 per month plus GST. Unless you are doing a lot of invoicing this gives you everything you need and it sends GST returns straight to IRD. It also has an automated payroll function for a little extra cost you can use for wages which tracks leave owing etc and works out the PAYE and Kiwisaver for you. Cash Manager Rural is an annual fee of $570 + GST. Both are very beneficial though to your farming business and tracking your expenses and both have free trials so you can have a play and see what works better for you and your business.
Jacqui Porter is a mother of three girls and wife of a hard working dairy farmer. They own a 200 cow dairy farm in Northland. They have farmed herds from 190-1700 cows in Canterbury, Golden Bay, West Coast and Northland.
She has a passion for farming, and knows you need good financial management to succeed. She wants to help others achieve this to make their own businesses more profitable and has started up her own business doing bookkeeping and accounts specialising in farming.
In 2003 she completed the National Certificate in Agribusiness Management for Business Planning and Financial Management, and then did an introductory accounting course in 2004. She has been working at an accountants in town since her youngest went to school and has recently completed the Certificate in Bookkeeping and gained XERO Adviser Certification and is currently studying Farm Accounting.
If you have any questions on the above or would like to talk to Jacqui about having a like-minded farmer accountant doing your bookkeeping and Financial Accounts, or helping you to get setup to do it yourself, please don’t hesitate to get in contact via email firstname.lastname@example.org or call 0272 642 149 or on Facebook