GST Basis Switcher NZ | Invoice vs Payments vs Hybrid

This calculator helps you work out which GST accounting basis suits your business: invoice (accruals), payments (cash), or hybrid. The basis you use affects when you must pay GST to Inland Revenue, which can make a real difference to your cash flow. You enter your total taxable supplies for the past 12 months, your expected turnover for the next 12 months, whether you're a non-profit body, your average debtor days (how long customers take to pay you), your average creditor days (how long you take to pay suppliers), and your current outstanding debtors including GST. The tool checks your eligibility against the $2 million payments basis threshold under section 19 of the GST Act 1985, then returns a comparison table showing whether each basis is available to you, how it works, and its cash flow impact, along with a recommended basis and an estimate of how much working capital the payments basis would free up compared with the invoice basis. Use it before applying to Inland Revenue to change basis, or when your turnover is approaching the $2 million threshold and you need to know whether you will be forced onto the invoice basis. The cash flow figures are estimates based on the debtor and creditor days you enter, so treat them as a guide rather than an exact forecast.

Updated  Tests against the $2,000,000 payments basis threshold per section 19 of the GST Act 1985.
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Business profile

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Cash flow profile

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A typical small business has 30-45 days. Construction/professional services often 60+. The longer your debtor days, the more the payments basis helps cash flow.
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Current accounts receivable. Used to estimate the cash flow benefit of the payments basis.

The three GST accounting bases

Invoice basis (accruals)

You account for GST on sales when you ISSUE the invoice, even if the customer hasn't paid yet. You claim GST on purchases when you RECEIVE the invoice from the supplier, even if you haven't paid them yet. This matches financial accounting and is mandatory for businesses with turnover over $2m. The downside: you can pay GST to IRD on sales before your customer has paid you.

Payments basis (cash)

You account for GST on sales only when you actually RECEIVE the cash. You claim GST on purchases only when you actually PAY. Best for cash flow because you never pay GST on unpaid invoices. Available only to businesses with turnover of $2m or less, and non-profit bodies of any size. The vast majority of small businesses use this basis.

Hybrid basis

Combines invoice basis for sales (you account for GST when you ISSUE invoices) with payments basis for purchases (you claim GST only when you PAY suppliers). Rarely advantageous. Might suit a business with mostly cash sales but very slow creditor payments. Any GST-registered person can elect the hybrid basis.

The cash flow impact

For a business with $1m annual taxable sales and 45 day average debtor days, the payments basis saves approximately $18,500 of working capital tied up in GST. This is the GST you would otherwise pay to IRD on issued-but-unpaid invoices. Over a long period this is a permanent timing difference favouring the payments basis.

When to use the invoice basis voluntarily

Some businesses below the $2m threshold elect invoice basis voluntarily because:

  • They have large upfront purchases and want to claim GST input tax before paying the supplier
  • Their customers pay quickly so the cash flow benefit of payments basis is small
  • Their accounting software is easier to manage on accruals
  • They are growing and want to avoid switching bases later

Sources

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Frequently asked questions

What is the difference between invoice and payments basis for GST?

Under the invoice basis, you pay GST on sales when you ISSUE an invoice (regardless of whether the customer has paid) and claim GST on purchases when you RECEIVE an invoice. Under the payments basis, you pay GST on sales only when you actually RECEIVE payment, and claim GST on purchases only when you actually PAY. The payments basis is much better for cash flow because you don't pay GST on unpaid invoices, but it is only available to businesses with turnover of $2 million or less.

Who can use the payments basis for GST in NZ?

Businesses with total taxable supplies of $2,000,000 or less in the past 12 months, AND who do not expect supplies to exceed $2,000,000 in any forward 12-month period beginning on the first day of any month. Non-profit bodies can use the payments basis regardless of turnover. If you exceed the $2m threshold, you must switch to the invoice basis (or use the hybrid basis as a transition).

What is the GST hybrid basis?

The hybrid basis combines invoice and payments accounting: GST on sales is accounted for using the invoice basis (when issued), but GST on purchases is accounted for using the payments basis (when paid). This is uncommon and rarely advantageous. It might suit a business with mostly cash sales but slow-paying suppliers, but most businesses are better with one of the pure bases. Any GST-registered person can elect the hybrid basis.

How do I switch GST bases in NZ?

Apply through myIR (or write to IRD) explaining your reason for the change. The change typically takes effect from the start of your next GST taxable period. When switching from payments to invoice basis (e.g. when crossing the $2m threshold), you may need to make a one-off transitional adjustment to capture invoices outstanding at the switch date. IRD will confirm the effective date and any adjustments needed.