Provisional tax doesn’t have to cause cashflow problems

Provisional tax doesn’t have to cause cashflow problems

Provisional tax doesn’t have to cause cashflow problems Lee Stace

Financial stressSmall and medium-sized businesses acknowledge there are times of the year when it is difficult for them to make provisional tax payments due to cashflow issues.

Tax pooling can help them manage their provisional tax liabilities without breaking the bank.

A recent poll on tax payment practices and tax pooling, conducted by the Employers and Manufactures’ Association (EMA) in association with Tax Management NZ (TMNZ), found that 58 percent of respondents said the January to March period was the toughest time for them in terms of cashflow.

Fourteen percent struggled to make provisional tax payments due to cashflow issues, while 21 percent occasionally experienced payment problems, as their income patterns were unpredictable.

As we know, failure to pay provisional tax can be costly: Inland Revenue (IRD) charge businesses late payment penalties of up to 20 percent per annum and use of money interest (UOMI) of 8.4 percent.

It is the last thing a business wants – especially when money is tight.

They can, however, use tax pooling to defer their provisional tax payments to a time that suits them, without incurring IRD late payment penalties and UOMI.

Tax pooling also allows owners to prioritise their spending. The money they would otherwise pay the IRD can be used to help grow their business.

So how does tax pooling allow businesses to defer an untimely provisional tax payment?

A tax pooling intermediary such as TMNZ pays provisional tax to the IRD for businesses, and businesses repay the intermediary at an agreed upon date in the future.

Businesses only pay the tax bill that is due at the end. There is no need to pay back the finance if they do not end up needing all the tax.

Using tax pooling to defer provisional tax payments is cheaper than many other short-term financing options –TMNZ’s rates start below six percent – and does not affect existing credit lines.

No credit approval or security is required to use tax pooling.

TMNZ is New Zealand’s largest and oldest tax pooling intermediary, being established in 2003 by the man who developed and helped the IRD implement the tax pooling concept, Ian Kuperus.

Mr Kuperus was named one of EY’s Entrepreneurs of the Year following his work in the tax pooling sector.

TMNZ has helped more than 21,000 New Zealand SMEs save more than $30 million on IRD compliance costs.