Expand your business using provisional tax

Expand your business using provisional tax

Expand your business using provisional tax Lee Stace

Growth (750px)

Provisional tax payments are inevitable and can force any small or medium sized business owners to place plans to expand or reinvest on the backburner.

However, Tax Management NZ (TMNZ) has a solution that enables them to manage cashflow better by making an arrangement to pay their tax later.

Any owner with cashflow issues should lend their ear to what New Zealand’s oldest and largest tax pooling intermediary has to say.

After all, its founder director Ian Kuperus is the brains behind the concept of tax pooling, and the company has helped more than 25,000 SMEs save more than $70 million in Inland Revenue (IRD) compliance costs since 2003.

TMNZ’s solution comes in the form of its Tax FINANCE offering.

This is an IRD-approved product that lets owners shift provisional tax payments to a time that better suits them, without running the risk of incurring IRD late payment penalties – which can be up to 20 percent per annum – and use of money interest of 8.4 percent.

In situations where they are looking to expand but have cashflow constraints, not only does Tax FINANCE allow them to postpone paying provisional tax without feeling the financial sting from the IRD in their back pocket, but it also frees up much-needed working capital.

Put simply, the money owners would have otherwise paid to the taxman can be used to reinvest or grow their business.

Problem solved.

Tax FINANCE is also ideal for those owners who might have trouble securing additional funding from conventional sources because it does not affect existing credit lines and no credit checks or security are required.

Moreover, with TMNZ’s rates starting from below six percent, it is cheaper in comparison to many other traditional forms of finance such as using an overdraft or unsecured loan.

Tax FINANCE is flexible because the finance arrangement can be easily extended. Should owners not require all the tax they have financed, they do not have to pay for it.

To defer provisional tax payments using this method, an owner pays TMNZ a one-off, tax-deductible interest amount. This interest amount is based on the amount of tax financed and period of maturity.

It would cost $290 to defer a provisional tax payment of $10,000 for six months.

Not a bad trade-off given the amount of working capital that becomes available as a result.

TMNZ will arrange the $10,000 provisional tax payment on the owner’s behalf. This payment is held at the IRD in the account of an independent trustee, the Guardian Trust.

The owner then pays the $10,000 principal in six months’ time. Guardian Trust instructs the IRD to transfer the tax into the owner’s IRD account.

IRD treats the $10,000 provisional tax as being paid on time once the transfer has gone through.

*This story was featured in NZBusiness as part of a feature on major financing options to maintain a strong cashflow.