Determining if you’re in business

It’s not uncommon for people who are thinking of going into business for themselves to already be “in business” without realising or acknowledging it. Some may have inadvertently acquired a significant profit without necessarily intending to do so while others, for example, may be making an income from selling second-hand goods online but not viewing this as operating at the level of a business.

When they come to start a business, they’re then surprised to find the government already considers them to be carrying out a business activity and they might’ve failed to meet their tax obligations as a consequence.

By learning more about  Inland Revenue’s set criteria for assessing such cases, you can confirm your situation and clear up any discrepancies before you go any further with your business plans.

On this page:

• General criteria
• How Inland Revenue assesses whether you’re in business
• What to do if you’ve been “in business” and haven’t realised it

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General criteria

There are three general indicators which suggest you may already be in business. If any of these apply to your activities you should contact Inland Revenue on 0800 227 774 for advice.

1. You’ve started charging others for the goods/services you provide.
2. You supply goods/services on a regular basis.
3. You intend to make a profit from doing so.

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How Inland Revenue assesses whether you’re in business

Inland Revenue looks at the following areas to assess whether an individual is already in business.

The nature of your activity

Is it:

1. run on a casual basis, or
2. organised?

How much time, money, and effort you put into the activity

Do you:

1. carry it out only occasionally and with little investment, or
2. apply a significant portion of your time and resources?

How long you have been doing the activity and your future plans for the activity

Have you:

1. only just started doing it, or
2. been providing your goods/services for years?

Are your ambitions for the activity:

1. significant, or
2. inconsequential?

How much you make from the activity

Does the activity:

1. generate occasional surplus cash for you, or
2. form a significant part of your income?

Whether you run your activity in a similar way to most businesses in the same trade

Do you:

1. carry out the activity in a makeshift way, or
2. incorporate industry processes, standards or norms to improve your goods/services?

If you intend to make a profit

Are you:

1. just producing your goods/service in a makeshift way, or
2. measuring your rate of return for profit?

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What to do if you’ve been “in business” and haven’t realised it

If you’ve looked at the above questions and found that you can answer at least one of them with a #2 answer, you should contact Inland Revenue on 0800 227 774 to discuss your situation.

You may have outstanding tax obligations that could complicate starting a business further down the track, so it’s worth making contact now to ensure your peace of mind. You may need to make a voluntary disclosure.

Find out more about how to put your tax affairs right on the Inland Revenue website.