Syncing provisional tax to cashflow

Syncing provisional tax to cashflow

Syncing provisional tax to cashflow 1200 630 Lee Stace

As a self-employed painter and decorator, Bart Taylor knows full well how business owners can get themselves into strife if they don’t plan for their tax obligations.

He speaks from his own personal experience.

That’s why Bart is happy to talk about how Tax Management NZ (TMNZ) enables him as a self-employed tradesperson to take the stress out of having to pay provisional tax on dates dictated by Inland Revenue (IRD).

TMNZ offers Bart the flexibility to make the payments when it suits his cashflow.

As someone who doesn’t always get paid every week, that’s important because it offers his business some breathing space while he waits for the money he’s earned from completed jobs to land in his bank account and ensures that other important invoices can be paid in the meantime.

A bit about Bart

Bart owns and operates his own business in Christchurch.

He’s a one-man band and that’s the way he likes it. Plus, most of his work means he does not require a crew, although he will occasionally use contractors when required or on larger jobs.

Bart has been his own boss since 2013, when, at the age of 24, he decided to make a go of this painting lark on his own. The market in the Garden City was awash with painting gigs during the rebuild and becoming self-employed seemed like a low-risk move.

Fast-forward nearly eight years and his gamble has paid off. He is enjoying the benefits that come with self-employment and, as a husband and father in a young family, the better work-life balance he has achieved.

Tough tax lessons

Yet that’s not say that everything has been a bed of roses during that time.

“Becoming self-employed has been a bit of a rollercoaster. Lots of learnings, lots of difficult times, hard times,” says Bart.

“First and foremost, I’m a tradesman, so I am a worker. The back office, the organisation, the financial side of things is not my strong point. With the tax side of self-employment, I managed it very poorly for years because I was so young.”

Like other business owners, Bart wasn’t as prepared as he should have been and was “stung” in his second year of trading. That was when two years’ worth of tax was due. Ouch.

He admits having to pay provisional tax was “rough for a little while”.

“In the trade industry, you don’t always get paid every week and you need cashflow to run your business,” explains Bart.

“My accountant saw there was a risk of if we paid that tax bill in full, that I might fall short in other areas and he wanted to make sure that my relationship with my trade suppliers stay good and that the invoices I need to pay get paid on time, not just the IRD ones.

“He recommended Tax Management NZ and that freed up cashflow.”

Breathing space from IRD to manage cashflow

That’s because TMNZ gives Bart the flexibility to pay his provisional tax when it suits his business, without the consequences of steep IRD interest and late payment penalties.

It operates with the blessing of the taxman, too.

TMNZ makes a date-stamped payment to IRD on Bart’s behalf on the date his provisional tax is due. Bart pays TMNZ at a time when it suits his cashflow.

TMNZ transfers the date-stamped payment to Bart’s IRD account and IRD treats it as if Bart himself has paid on time. This eliminates any IRD interest and late payment penalties showing on his account.

“Sometimes the option of TMNZ, to be able to borrow some money for a short period of time, to make sure you hit that IRD deadline, frees you up with your cashflow until that payment [you are waiting on] comes through,” says Bart.

“The fee of using Tax Management NZ is so low and affordable in comparison to the failings of if you ran out of money in that time, or the scramble and the stress, so it’s definitely worth it.

“It’s changed my perception around making these tax payments. It takes the stress off of it.”

And how does dealing with TMNZ compare to dealing with IRD?

“You get a bit more of a personal touch with Tax Management NZ because you get a prompt response and it’s not a cookie-cutter [reply].”

Bart is one of many small business owners throughout New Zealand who benefits from the provisional tax flexibility TMNZ offers. Feel free to contact us for more information about our service or if you have any questions. We’re happy to help. Alternatively, you can register with TMNZ here.

Lee Stace

Lee Stace is the PR and Content Manager at Tax Management NZ.

All posts by: Lee Stace