Are you due to pay 28 August provisional tax?
For many businesses, this will be their first instalment of provisional tax for the 2018-19 income year. It’s important to stump up what you owe on this date. IRD won’t hesitate in charging steep interest of 8.22 percent and late payment penalties if you don’t.
Below are some tips to prime you for paying 28 August provisional tax.
Assess your cashflow
Now’s the time to look at money coming in and going out of your business.
Cast your eyes over your debtors’ ledger to see which customers owe you money. If required, ask them if they can sort their bill earlier. Conversely, see if you can buy more time if you owe suppliers money.
If cashflow is tight or you have a better use for the money, keep reading. There’s an option that lets you pay 28 August provisional tax when it suits you.
Be aware of the changes
Familiarise yourself with the recent changes to provisional tax if you haven’t done so already.
IRD has cut you a break by removing the guesswork and need to continuously re-estimate your liability throughout the year.
Basing your payments on a 105 percent uplift on last year’s tax bill means IRD won’t charge interest if your actual liability ends up being higher. This is the standard uplift method. It’s a good outcome if you expect this year’s financial performance to be on par or better than last year.
You can find out more about the changes here.
Know your methods to calculate 28 August provisional tax
It’s also important that you are aware of the different methods available to calculate your provisional tax payments.
As mentioned, the uplift method suits those who expect their profitability to increase. It also caps the amount due at your first two instalments, meaning you have more certainty around what to pay.
Those expecting their year to drop significantly may wish to estimate.
However, you must be certain there won’t be a repeat of the prior year’s result if estimating payments down. That’s because IRD interest applies on any underpaid provisional tax. IRD may also apply a shortfall penalty if your estimates are too low in comparison to your actual liability.
For more information about the provisional tax methods available to you, download our Provisional Tax Guide.
Consider using tax pooling
An IRD-approved tax pooling intermediary such as Tax Management NZ can assist if cashflow is tight by letting you pay 28 August provisional tax at a time and in a manner that suits you, without incurring late payment penalties. You can defer the full payment to a date in the future or pay off what’s due in instalments.
Paying via TMNZ also reduces IRD interest costs by up to 30 percent.
TMNZ holds date-stamped tax for you in its IRD account. You pay TMNZ at the agreed future date or as and when it suits your cashflow.
If in doubt, consult a professional
Finally, seek the advice of an accountant or tax advisor if you have any questions about 28 August provisional tax.
They can determine the best provisional tax calculation for your business and help you manage your payments and cashflow.
If you wish to learn more about the provisional tax payment flexibility TMNZ offers businesses, email email@example.com or phone 0800 829 888.