Tax Finance: An alternative funding source

Tax Finance: An alternative funding source

Tax Finance: An alternative funding source 1200 630 Lee Stace

Image: Working capitalGrowing a business is hard yakka. More specifically, it costs money.

And therein lies a problem for many small business owners: Cashflow. In fact, it’s not a problem. It’s a major problem. According to Xero’s Small Business Insights data for June, less than half of those who took the survey have positive cashflow. Less than half.

Now granted, there are several choices available when it comes to accessing funds you need turn a business dream into a reality. A bank loan, overdraft, credit card and an unsecured loan are just some.

But again, it’s not that simple. There can be a few hoops to jump through as part of the approval process and you will likely have to use an asset as collateral. If there is no approval process, then chances are you will be up for double-digit interest. Ouch.

However, there is another option that you might find useful. It’s one you probably have not heard about either.

The other option – Tax Finance

Did you know that your provisional tax payments are also a source of finance? Yes, that’s right – provisional tax. That thing many small business owners loathe paying. That thing that places undue pressure on, you guessed it, cashflow.

Allow me to explain.

An IRD-approved tax pooling provider such as TMNZ offers a payment option known as Tax Finance. It lets you free up working capital by deferring a provisional tax payment to a later date, without incurring IRD interest of 8.22 percent and late payment penalties.

For an upfront finance fee, you can choose a time in the future you wish to pay what you owe. This video explains the process nicely.

Essentially, this allows you to use the money you have set aside for income tax more productively. After all, purchasing a new truck or buying more stock will deliver a better business return than having money sitting at IRD, right?

The cost of Tax Finance is cheaper than using your business overdraft or an unsecured loan. Approval is guaranteed. Moreover, you do not have to provide any security.

Who might Tax Finance suit?

Tax Finance will suit those who:

  • Are looking for funding that does not affect other lines of credit.
  • Want to keep headroom in their existing lending facilities.
  • Do not wish to go through the rigmarole of the normal lending process.
  • Want a fixed interest cost.
  • Feel there is more to gain financially from being able to keep money in their business instead of paying income tax.

Here’s how Tax Finance was able to help interior floorcovering specialists Newflor.

How much does Tax Finance cost?

It depends. The finance fee is based on the amount of tax due and the future date you wish to pay.

For instance, at current rates it only costs $215 to defer a $10,000 provisional tax payment for six months.

How does Tax Finance work?

In a nutshell, here is how Tax Finance works:

  1. Ahead of your provisional tax payment date, you tell TMNZ the amount due and pay the finance fee. TMNZ makes a payment for you in its tax pool account at IRD on the date the tax is due. This payment is date-stamped.
  2. At the agreed upon future date, you pay the TMNZ the tax you owe.
  3. TMNZ organises the transfer of the payment it is holding on your behalf to your IRD account. Once it processes the transfer, IRD treats this as if the tax was paid on the original due date. It will also wipe any interest and late payment penalties showing on your account.

TMNZ offers a competitive rate for Tax Finance. For more information, feel free to email support@tmnz.co.nz or phone 0800 829 888. 

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