IR10 Form NZ: A Guide to Financial Statements for Businesses

If you're a business owner in New Zealand, you’ve likely heard your accountant mention the IR10 form. While it might sound like just another piece of tax jargon, the IR10 is a crucial document that summarises your business's financial story for the year. Let's break down what it is, why it’s important, and how to approach it.

What Exactly is an IR10 Form?

First, it's important to clarify that the IR10 is not your main tax return. It’s a supplementary form that you file alongside your primary return. Your main tax return depends on your business structure:

• IR3 for individuals and sole traders
• IR4 for companies
• IR6 for trusts
• IR7 for partnerships

At its core, the IR10 is a summary of your business's financial statements. It pulls key figures from your income statement and balance sheet and presents them in a standardised format for Inland Revenue (IR).

Why Does Inland Revenue Require an IR10?

Inland Revenue uses the IR10 to get a clear, consistent overview of your business's financial performance and position. It shows them how you calculated your profit from your sales and confirms that you maintain proper financial records. This provides assurance that your final tax calculation is accurate.

Who Needs to File an IR10?

Generally, if you prepare formal financial statements for your business, you will need to file an IR10 to summarise them. This typically applies to:

• Companies filing an IR4 tax return
• Trusts filing an IR6 tax return
• Partnerships filing an IR7 tax return
• Some sole traders filing an IR3 tax return

The requirement for sole traders can be less clear. You are not automatically required to file an IR10 just for being a sole trader. However, if you prepare full financial statements (a balance sheet and a profit and loss statement)—especially if your turnover is high or a bank requires them for a loan—you will need to file an IR10. For most small sole traders who simply track income and expenses without formal statements, it may not be necessary. It's always best to check with a tax professional if you're unsure.

Breaking Down the IR10 Form: What's Inside?

The IR10 form might look intimidating, but it primarily pulls information from documents you or your accountant have already prepared. It is divided into several key sections.

1. Statement of Financial Position (Balance Sheet)

   This section summarises what your business owns (assets) and what it owes (liabilities) at the end of the financial year. It’s a snapshot in time. You'll enter figures like bank balances, accounts receivable (money owed to you), inventory, fixed assets (like vehicles or equipment), and liabilities such as loans and accounts payable (money you owe to suppliers).

2. Statement of Financial Performance (Income Statement)

   This part details your business's performance over the full financial year. It focuses on your income and expenses, listing total sales or revenue, the cost of goods sold, and all operating expenses like rent, wages, power, and marketing. The result shows your net profit before tax.

3. Reconciliation Statement

   This is one of the most critical parts of the IR10. Your accounting profit often differs from your taxable profit, and this section reconciles the two. You start with your accounting profit and then make adjustments for tax purposes. Common adjustments include:

   • Adding back non-deductible expenses, such as 50% of entertainment expenses, traffic fines, or the private portion of vehicle costs.
   • Adjusting for depreciation. The depreciation rates used for your financial accounts may differ from the rates allowed by Inland Revenue for tax purposes.

Common Mistakes to Avoid

Small errors on the IR10 can lead to future complications. Here are a few common pitfalls to watch out for:

• Mismatched Figures: The numbers on your IR10 must perfectly match your financial statements. Crucially, the final taxable income on the IR10 reconciliation must match the income you declare on your main tax return (e.g., IR4 or IR3). This may sound obvious, but it's a frequent source of errors.
• Forgetting Non-Deductible Expenses: It's easy to forget to add back expenses that are not deductible for tax purposes. Items like client gifts, entertainment, or fines must be correctly accounted for in the reconciliation statement.

Do I Need an Accountant for This?

While it's possible to complete an IR10 yourself if your business is very simple, most companies, trusts, and partnerships benefit from professional help. An accountant possesses a deep understanding of tax law and can identify opportunities and risks you might miss.

A professional doesn't just fill in the form; they ensure its accuracy, compliance, and optimisation. They can help ensure you aren't overpaying tax, making their service an investment that often pays for itself through tax savings and peace of mind.

Final Thoughts

The IR10 is more than just another form; it's the official financial narrative of your business for the year. Getting it right is fundamental to meeting your tax obligations and maintaining good standing with Inland Revenue. By understanding its purpose and components, you can ensure your business's financial story is told correctly, keeping your finances healthy and stress-free.