The invoice is in the return, but the cash is not in the bank
This is an illustrative composite client situation. It does not describe one identifiable business or a result achieved by Pillar.
A GST-registered New Zealand company completed work for a customer and issued an invoice. The customer then delayed payment. When the next GST return was prepared, the invoice appeared in the sales total even though no customer cash had reached the bank account.
The owner asked: “If the customer has not paid us, why would we pay GST now?”
The answer starts with the accounting basis recorded for the GST registration. It also depends on the invoice, payment and supply dates, the return period, any special supply rule, and what has happened to the amount since it was billed. An unpaid invoice should not be removed, written off or moved to another period merely to make the return follow the bank account.
Check the registered basis before reading the transaction
Inland Revenue recognises payments, invoice and hybrid bases for GST. Under the payments basis, a business generally includes amounts received from customers and paid to suppliers. Eligibility usually requires taxable supplies of $2 million or less over the relevant 12-month tests, unless Inland Revenue accepts that the nature, value and volume of supplies make the basis appropriate.
Under the invoice basis, the return includes amounts customers have been notified to pay by invoice even when they have not yet paid. If a customer pays before an invoice is issued, the full sale price can also enter the calculation. The hybrid basis applies the invoice basis to sales and the payments basis to expenses, which can create its own cash timing pressure.
The owner should check the GST account in myIR, the registered person and the accounting basis used in prior returns. A Xero report setting or an internal label does not change the basis held by Inland Revenue.
Put the invoice, payment and return dates on one line
For the composite company, the review begins with the agreement or order, evidence that the goods or services were supplied, the taxable supply information, and the bank or payment-platform history. Record the date and amount of every invoice, deposit, part payment, credit, refund or cancellation. Then identify the GST return period that covers those events and whether the return has already been filed.
Inland Revenue says GST-registered businesses must retain taxable supply information that supports the figures in their returns. Since 1 April 2023, this is the official term for the information formerly centred on tax invoices. Existing documents can still use the words “tax invoice”, but the evidence needs to support what was supplied, the parties, the amount and the GST treatment.
Some transactions have specific timing rules. Progress payments, periodic payments, land, hire purchase and other supplies may need a separate review. A standard invoice example should not be applied to a different contract without checking the supply facts.
An overdue invoice is not automatically a bad debt adjustment
An invoice can be late, disputed, reduced or genuinely uncollectable. Those descriptions do not have the same accounting or GST effect.
If the price changes after taxable supply information has been issued or a return has been filed, the business may need supply correction information and a corresponding return treatment. The documents and commercial facts should show what changed and when. Deleting the original invoice can break that trail.
Inland Revenue allows a GST credit adjustment when a supply was accounted for and all or part of the consideration is later written off as a bad debt. The business must keep records of the recovery steps. A business using the payments basis generally has no deduction for an unpaid debt it writes off because it did not include that GST before receiving payment, subject to specific exceptions.
The website cannot decide whether this customer’s debt has become bad or which recovery action is sufficient. The accountant needs the collection history, dispute correspondence, ledger entry, approval and any legal advice before confirming an adjustment.
Changing basis is a future registration decision
A cash-flow problem may prompt the owner to ask whether the business should use the payments basis. Inland Revenue provides a process for changing a filing frequency or accounting basis. The business must first check eligibility and the approved effective date. A change can require adjustments for outstanding debtors and creditors so that amounts are not omitted or counted twice.
This means a basis change is not a switch that can be applied retrospectively to one slow-paying invoice. The accountant should compare the business’s sales level, customer payment pattern, supplier timing, systems and expected adjustments before recommending any change.
The current cash forecast should still include the GST payment date. If the customer pays late, the forecast can show the gap between the return obligation and expected receipt without changing the filed treatment. The related profit and cash-flow client situation explains why a timing gap needs its own cash analysis.
What to bring to the first GST timing review
Bring a myIR GST registration summary showing the legal person, accounting basis and filing frequency. Add the relevant return and working paper, the customer agreement or order, taxable supply information, any deposit or part-payment record, bank or payment-platform history, correspondence about the delay, and every credit, cancellation or correction document.
If a return has already been filed, bring the filing confirmation and later entries made in the accounting system. If the debt may be written off, include the recovery steps, approval and ledger treatment. Do not send myIR credentials, customer correspondence or detailed accounting records through the website form.
Pillar’s tax and compliance service can review the GST basis, period and supporting records. Where return settings or debtor records need attention, the Xero and accounting systems service may also be relevant. To have a Pillar accountant confirm the appropriate review, use the published phone details or contact Pillar.