Update as at 14 April 2020 after IRD clarified its position following the publication of this article
Someone who is struggling to pay tax on time due to COVID-19 will have to engage with IRD and agree to the terms of a payment plan if they want to receive a remission of interest (UOMI).
Given that, they might find setting up a Flexitax® arrangement with TMNZ much easier.
But more on that later.
The criteria for UOMI remission
First, IRD has issued general guidance on the requirements taxpayers must meet in order to be eligible for a remission of UOMI on tax obligations due after 14 February 2020.
To qualify, someone must satisfy the department that they are:
- Physically unable to make their payment when it’s due because of COVID-19; or
- Struggling financially to pay on time because of the economic impact caused by the outbreak of the deadly virus.
IRD also requires taxpayers seeking relief to both contact them and pay the tax they owe “as soon as practicable”.
Now on the surface that doesn’t sound too onerous. However, this is the taxman we’re talking about and the devil always lurks in the detail.
And, when you delve a little deeper, it appears that they’re asking a lot from anyone seeking assistance due to COVID-19.
What does ‘struggling financially’ mean?
IRD says there must be a reduction in someone’s income or revenue as a result of COVID-19 which prevents them from paying their tax on time and in full.
The extent to which there needs to be a reduction in income or revenue is not explicitly set out.
IRD will look at GST and other tax return information to help it get a picture of someone’s financial affairs when determining the extent of the relief it will grant them. That’s why it’s important to keep filing these returns.
They may want to know how a taxpayer plans to sustain their business if they own one.
IRD indicates that they may ask a taxpayer to provide the following information when applying for a remission of UOMI:
- Bank and credit card statements for at least the last three months.
- Any management accounting information.
- A list of aged creditors and debtors.
We understand this will be for more serious cases where someone is asking for IRD to write off the tax payable in addition to UOMI.
And, although they do not mention this specifically, their guidance document implies someone will also need to have reviewed other financing options before going cap in hand to IRD. The two examples they give are not helpful as they involve taxpayers who either cannot get an extension of their business overdraft or have maxed out their personal loans or credit cards.
If the department deems the taxpayer has the means to pay on time following a review of their financial affairs, it will expect that person to do just that –and will take appropriate action if they don’t.
What does ‘as soon as practicable’ mean?
IRD says it will determine this on the facts of each case.
As a general guideline, they say someone will satisfy this requirement if they both apply for relief and agree to pay the tax at the earliest opportunity (or over the most reasonable period given their specific circumstances).
We take this to mean that taxpayers seeking a remission of UOMI must:
- Be proactive and apply for this relief as soon as possible. If you have missed a payment, you can still contact IRD and ask for remission.
- Agree to pay the tax they owe as quickly as possible – most likely at a date or within a timeframe set by IRD based off the financial and tax return information it receives from the applicant. In other words, this WILL NOT be a two-year holiday or deferral from paying tax.
- Contact IRD as soon as possible if they encounter further difficulty and need to re-negotiate the terms of the agreement.
- Honour the agreement with IRD by paying the tax they owe.
If someone ticks those boxes, we believe IRD will consider them to have met the ‘as soon as practicable’ requirement.
How will the UOMI remission work?
Taxpayers seeking a remission of UOMI will agree to enter a payment plan with IRD.
This will likely be a regular instalment arrangement, but may also include:
- An instalment arrangement with a deferred payment start date.
- A partial write-off due to serious hardship and payment of the remaining tax by instalment or a lump sum.
- A partial payment and balance write-off under maximising recovery of outstanding tax.
Again, the type of payment plan entered – and any instalment amounts payable – will likely to be determined by IRD based on someone’s financial and tax return information.
In serious cases of hardship, IRD says it may agree to write off the debt.
UOMI and late payment penalties will continue to accrue for those who enter a payment arrangement.
However, once a taxpayer pays the tax they owe and IRD deems they meet the criteria for remission, it will automatically cancel UOMI.
IRD will also wipe late payment penalties.
Those who do not pay the outstanding tax will face UOMI from the date they stop complying with their arrangement.
IRD’s ability to remit UOMI due to COVID-19 under s183ABAB Tax Administration Act 1994 will apply until 25 March 2022.
Why paying with TMNZ might be easier
The requirements a taxpayer must meet to receive a remission of UOMI from IRD may prove to be one hurdle too many during what is already a difficult time due to the COVID-19.
They may find it easier to set up a Flexitax® payment arrangement with TMNZ if they’re unable to pay their 7 May 2020 provisional tax on time – or missed paying terminal for the 2019 tax year on 7 April 2020.
The reasons why are simple:
- It’s light touch in terms of organising the arrangement – approval is guaranteed, and no security or financial information is required.
- Taxpayers have the flexibility to pay as and when it suits their cashflow.
- No need to worry about late payment penalties.
- Competitive interest cost in comparison to most other forms of credit or finance. We’re the next best option for those who are ineligible (or don’t want to go through the process of applying to IRD) for a remission of UOMI.
- The arrangement doesn’t impact other lending arrangements.
- More time to pay – an extra 75 days to settle the 2019 terminal tax and up to 13 months to pay provisional tax for the 2020 tax year.
- You only pay for the tax you end up requiring.
- We’re approved by IRD.
Please get in touch with us today if you wish to know more about Flexitax®.