If this is your first year of trading, remember to pay provisional tax…
Khan Greig of Tax Management NZ says, non-payment of provisional tax for companies trading in their first year is a problem we see regularly. “Many taxpayers do not even consider tax until their accountant has completed their financials and tax return. By the time the company considers tax, a year has passed since the IRD has expected their first provisional tax payment.”
All resident companies are required to pay provisional tax if their residual income tax (RIT) is greater than $2,500. Depending on when the company starts trading, the IRD expect payment of provisional tax three times in the year. If the company does not make payment, or if the company does not pay exactly one third of the liability, the IRD will charge use of money interest (UOMI) at 8.4% on the underpaid level of tax.
The dates when provisional tax payments are due for companies in their first year of trading depend on when the company started operating:
· For March balance dates, if they started trading between 1 April and 28 July, three provisional tax payments should have been made on the standard provisional tax dates.
· If they started trading between 29 July and 15 December, two provisional tax payments should have been made on 15 January and 7 May.
· If they started trading after 15 December, one payment should have been made on 7 May. UOMI will apply from the first date in which they should have been paying provisional tax and late payment penalties only apply after terminal tax date.
If your business is in its first year of operating, making voluntary provisional tax payments is a wise business decision and a good way to minimise your exposure to UOMI.
By Khan Greig, Tax Management New Zealand