5 IR10 Filing Errors That Hurt Your NZ Business's Bottom Line

When it comes to taxes, the IR10 form might not be the most exciting part of your day. It’s the summary of your financials that you file alongside your main income tax return (IR4). But it’s more than just a form; it’s a snapshot of your business’s health. If you don’t treat it with care, it can seriously cost you.

The numbers on your IR10 give Inland Revenue (IRD) a clear view of your business. If that view is blurry or incorrect, it can lead to audits, penalties, and a great deal of wasted time and stress. Getting it right isn’t just about following the rules—it’s about keeping more of your hard-earned cash.

1. Mismatched Numbers: The Most Common and Sneaky Mistake

This is by far the most common error. The numbers on your IR10 must match those in your annual financial statements. It sounds simple, but discrepancies happen far too often, usually because of last-minute changes. An accountant might fix a small error in the statements but forget to update the IR10, or you might make a manual adjustment after a report has been generated.

Regardless of the reason, discrepancies are a big red flag for the IRD's automated systems. It signals that something is off. This isn't just a matter of fines; it also means you have to spend valuable time digging through records and answering questions rather than running your business.

2. Confusing Salary vs. Drawings for Shareholders

When you own a small business, you need to decide how to pay yourself: salary, dividends, or drawings. The IR10 requires you to report this information accurately, but it’s a common point of confusion.

For example:

• You might take irregular amounts from your business account throughout the year and call them "drawings."
• At the end of the year, you might decide to classify some of this money as a "shareholder salary" for tax purposes.

The problem arises if there's no formal employment agreement, no regular PAYE being filed, and no clear documentation. The IRD could challenge this reclassification, potentially treating the payments as drawings subject to Fringe Benefit Tax (FBT) or as a loan. Getting this wrong can lead to an unexpected and unwelcome tax bill.

3. Not Reconciling GST

If your business is GST registered, the IRD collects data all year through your GST returns. When you file your annual accounts and IR10, their systems will compare the total sales and expenses you report for income tax against the figures reported for GST. If there are significant differences, alarms will go off.

Why might the numbers not match?

• Timing Differences: You might be on a payments basis for GST but an accrual basis for income tax. This is perfectly acceptable, but it must be reconciled carefully.
• Data Errors: Simple data entry mistakes made months ago can have a significant impact at year-end if they aren't caught and corrected.
• Ignoring Private Use: Failing to account for the private use of business assets or expenses in your GST returns is a common oversight that can cause problems.

If you don't reconcile these figures properly, the IRD may view your bookkeeping as unreliable. Inaccurate financial data not only attracts scrutiny but also makes it difficult to make sound business decisions.

4. Messy Record-Keeping for Expenses

The IR10 requires you to break down expenses into specific categories. Lumping everything into a single "General Expenses" bucket is not sufficient. You need to separate items like interest, depreciation, and repairs and maintenance.

Sloppy record-keeping makes this task nearly impossible and leads to two costly outcomes:

1. Missing Deductions: You forget what an expense was for, so you play it safe and don't claim it. Over time, these missed deductions add up, costing you a lot in lost tax savings.
2. Over-Claiming: You might guess and claim 100% of entertainment expenses when only 50% is deductible, or claim home office costs without a proper calculation. If the IRD reviews your file and disallows these claims, you'll have to pay back taxes, interest, and penalties.

How to Properly Categorize Expenses

Good record-keeping isn't just about neatness; it's about claiming everything you're entitled to and nothing you're not. Be specific in your accounting software:

• Interest: Split payments into categories like "Mortgage Interest" and "Business Loan Interest."
• Depreciation: Create separate accounts for "Vehicle Depreciation," "Office Equipment Depreciation," etc.
• Repairs and Maintenance: Categorize costs by asset, such as "Vehicle Repairs" or "Computer Maintenance."

5. The "DIY Saves Money" Fallacy

When you're running a business, it’s natural to look for ways to save money, and cutting accountant fees can feel like an easy win. Many business owners are capable of using accounting software and filing their own returns.

However, the IR10 isn't just data entry; it's the culmination of your financial year and requires an interpretation of tax law. A small mistake when dealing with assets, shareholder loans, or specific expense claims can have a ripple effect that costs you much more than an accountant's fee.

A good tax professional doesn't just fill out a form. They review your entire year, catching things you might have missed (like depreciation claims or loss carry-forwards) and ensuring everything is structured correctly to avoid future problems. Sometimes, the cost of not getting professional advice is far higher than the cost of getting it.

Putting It All Together

The IR10 may feel like a bureaucratic headache, but it is a direct reflection of your business's financial integrity. Getting it wrong will attract the IRD's attention. Paying too much tax or leaving yourself vulnerable to penalties will hurt your bottom line in the long run.

Taking the time to double-check your numbers, classify payments correctly, and keep your records solid is one of the most effective ways to protect your business. If you're ever unsure, speaking to a professional is a smart investment, not just an expense.