Since it began operating on 1 July 2005, the Commission has been designing and building a register of charitable entities in New Zealand.  It will begin accepting registrations in mid-2006.

Registering with the Commission is voluntary and has no bearing on the legal status of charities.  If your organisation chooses not to register itself with the Commissioner it will still be able to call itself a charity and solicit funds from the public, but it will no longer qualify for tax exempt status.

To register, charities will be required to provide the Commissioner with documentation that proves the organisation is carrying out charitable purposes and activities.  Once registered , your charity does not need to provide documents to IRD also.  Instead, the Commission will inform IRD that they have registered the charity.

IRD will continue to be responsible for ensuing that eligible charitable organisations receive their tax exemptions.   In the next few months, IRD intend to issue a statement advising charities on the requirements for tax exemption. Organisations will have until 30 September 2007 to register before their tax status is affected.

The Charities Commission have published a booklet "A Guide to the Chaities act", which is on their website www.charities.govt.nz.

GUIDELINES FOR ESTABLISHING A CHARGE-OUT RATE FOR YOUR BUSINESS

Many service businesses find establishing a fair charge-out rate difficult. You obviously don’t want to be uncompetitive in your charge-out rates. But you also don’t want to set an unrealistically low charge-out rate that means you’re struggling to get anywhere. Here are some guidelines on establishing a fair but profitable rate for your business.

How to work it out

These are the six basic steps to take when working out a charge-out rate for your time:

1. Decide what income you want from your business.
2. Work out how many hours you can realistically charge out each year.
3. Work out a chargeable rate to achieve your income.
4. Work out your overhead costs, and an additional hourly rate to cover these costs.
5. Add a profit margin.
6. Check your rate against the competition.

1. Decide what income you want

Your target income should be based on things such as the standard of living you want, what you could earn elsewhere as a salary, or what you could earn by investing your money elsewhere, plus a risk margin for being in business.

Let’s start by assuming that you want an annual income of at least $36,000 (before tax) from your business.

2. How many hours can you realistically charge out?

Be realistic about the number of hours you can charge out each year. For example, if you work 40 hours a week every week of the year, you could theoretically work 40 x 52 = 2,080 hours in a year. But this doesn’t take account of holidays (say three weeks), statutory holidays (another two weeks) and sick leave (say another week). So the working year now shrinks to a more realistic 46 weeks of 40 hours, or a total of 1,840 hours.

But it is still unrealistic to imagine you can bill out all these hours. Some of your time will be taken up with non-chargeable activities such as administrative tasks, banking, meetings, tendering for work, promotional work, waiting for work and travel time, tea and other breaks.

One way to find out how much time you’re spending on such tasks is to keep a diary for a week, or longer if appropriate. Let’s assume at a conservative estimate that these non-chargeable tasks take up 25% of your time.

So one quarter (460) of the 1,840 available hours needs to be deducted for these tasks. Subtracting 460 from 1,840 leaves you with a total of 1,380 chargeable hours.

3. Working out your charge-out rate to cover your income requirements

Now you can work out a charge-out rate to cover the income you want from the business. You’re aiming to earn a minimum of $36,000 and you’re able to charge out 1,380 hours yearly. To get an income of $36,000 you must therefore charge your time out at $36,000 divided by 1,380, or $26.09 an hour. To this you must also add the ACC levy appropriate to your line of work.  Let’s say the ACC levy rate for your activity is 4%. So $26.09 plus 4% =$27.13.

So in order to earn $36,000 a year, you must at least charge your time out at $27.50 (rounded up).

4. Work out your overhead costs, and an additional hourly rate to cover these costs

Your charge out rate needs to cover your overhead costs or you will be running at a loss. Your overheads should be detailed in your Business Plan or Cashflow Forecasts.  Or you can check your previous Profit and Loss Statement to identify them.

Let’s assume, for this exercise, that they are something of this order:

Accounting fee $1,000
Advertising $2,000
Cleaning $500
Depreciation $1,000
General Expenses $500
Heat, Light, Power $1,000
Insurance $600
Legal Fees $600
Motor Vehicle $3,000
Printing $800
Rent $6,500
Repairs and Maintenance $900
Telephone $1,200
Other $200

TOTAL $19,800

Let’s round this off to $20,000. So $20,000 divided by the 1,380 hours means you need to add another $14.49 to your hourly charge-out rate of $27.13, taking it to $41.62.

5. Adding a Profit Margin

So far the charge-out rate will enable you to achieve your required income, plus an extra amount per hour to cover your business expenses. There’s one extra factor to add: a profit margin. In addition to making your target salary of $36,000, you also need to make a profit margin. This profit margin is compensation for the risks you take when you run your own business, rather than working in paid employment.

A profit margin of 15% would be $6.24 an hour, taking your final charge-out rate to $47.86. So realistically your charge out rate should be at least $48.00 an hour, or $54.00 per hour if you’re quoting on a GST inclusive basis. (GST of 12.5% per hour = $5.98).

6. Is the rate competitive?

At this stage you might be worried that the charge-out rate is uncompetitive compared to what others in your industry charge.

In some cases you might have to remain within an industry scale of fees. In any event you do have to be aware of the average in your industry as you might struggle to get work if you are a long way out. Here are some options:

Lower than average

If your calculated charge-out rate is lower than the industry average, then you don’t have a problem - instead you have an opportunity to earn a better income and you can set your sights higher. For example, if you determine that your charge-out rate should be $48.00 per hour and you know the industry average is $60.00 per hour, you can raise your rate to this level or close to it.

Charging too little for your skills and services can be as bad for business as charging too much because it can undermine people’s confidence in you. They might wonder why you are so much cheaper than others.

Higher than average

LOSS ATTRIBUTING QUALIFYING COMPANIES

A Loss Attributing Qualifying Company is simply a standard limited liability company, which takes on a tax election, to give it Loss Attributing and Qualifying Company status with the Inland Revenue Department.

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