It’s the last thing you want to happen.
However, using tax pooling to settle income tax liabilities reduces your exposure to late payment penalties and UOMI, meaning it is cheaper than paying the money directly to IRD.
Tax pooling allows you to purchase tax from someone who has overpaid tax and then apply that tax to meet your liabilities.
As such, you can eliminate IRD late payment penalties and significantly reduce UOMI costs by up to 30 percent.
When might it work?
If you think you might have underpaid at one of your earlier dates for the 2014 financial year, you can top up at any time with tax pooling intermediary Tax Management NZ (TMNZ) to eliminate late payment penalties and reduce UOMI interest costs.
Is your 2013 terminal tax still outstanding?
Those with unpaid 7 April terminal tax have until 16 June, 2014 to eliminate late payment penalties and reduce UOMI costs through TMNZ.
How tax pooling works
Lord Sparkle Cleaning had a bumper 2014 financial year, with its income tax liability expected to be $300,000.
Because the year was better than expected, the company realises it has underpaid its first two provisional tax payments by $40,000 each.
It purchased the underpaid tax from TMNZ for $83,048. By paying only $3048 in TMNZ interest, it saved $9219 in potential IRD late payment penalties and $561 in UOMI.