How to manage cashflow over Christmas
Everyone loves the middle of summer and spending time with family and friends over Christmas, but it can be a challenging time of year for many small and medium-sized Kiwi businesses.
According to a poll conducted by the Employers and Manufacturers’ Association, more than half of businesses experience cashflow constraints between January and March.
It’s hardly surprising. The period after Christmas is traditionally slow for many companies, with people away enjoying their holidays. Consumers also tend to reduce spending after the expensive Christmas and New Year period.
Businesses can come under pressure for a number of reasons. Earnings will be down if companies shut over the break, while others will feel the pinch if they have paid bonuses before the end of the year.
Considering these facts, it’s understandable that many businesses struggle to manage cashflow and make provisional tax payments on 15 January every year.
Unfortunately, the Inland Revenue doesn’t factor in these seasonal challenges. It expects payments to be made on time and charges taxpayers late payment penalties of up to 20 percent per annum and use of money interest (UOMI) if tax is not received on the due date.
Your options for managing cashflow
What are the best options for businesses that want to manage cashflow and free-up money over the summer?
Tax pooling is IRD-approved and can be used to defer provisional tax payments to a time that suits the taxpayer without incurring late payment penalties and UOMI.
This method is cheaper than using many traditional forms of finance. Rates at Tax Management NZ (TMNZ) start from below eight percent, and tax pooling doesn’t affect existing lines of credit. Also, no credit checks or security are required.
The full amount of finance doesn’t need to be paid back if less tax is owed than first thought. The finance arrangement can be easily extended as well.
How tax pooling can help
Say you want to defer a $5,000 provisional tax payment for six months. You would pay TMNZ a one-off, tax-deductible interest amount and TMNZ would arrange the $5,000 provisional tax payment on your behalf.
The interest amount is based on the amount of tax financed and the period of maturity, so in this instance, it would be roughly $205.
The provisional tax payment is held in an IRD account administered by the Guardian Trust. Guardian Trust instructs the IRD to transfer the tax into your IRD account when you repay the $5,000 principal in six months’ time.
The IRD treats the $5,000 provisional tax as being paid on time once the transfer is processed. It’s that simple.
Ready to ease your seasonal cashflow worries? Get in touch with our team to discuss tax pooling options today.
Find our latest resources on tax pooling and calculating tax using the Standard Uplift method here: https://www.tmnz.co.nz/calculating-provisional-tax/
How you can use tax pooling like a savings account
In business, cash is king, and being able to access funds quickly in a crisis can mark the difference between success and failure. In an unpredictable and volatile world, having the ability to access cash during challenging times can be priceless.
Just ask the taxpayers who were able to access provisional tax payments they had deposited in the TMNZ tax pool when COVID-19 brought the world to a standstill.
With tax pooling, companies can easily request refunds of provisional tax payments they have made at the year to date without waiting to file their tax returns. They can receive their refunds within a matter of days.
Tax can be one of the largest expenditure lines for a business, so flexibility is vital.
In this economic climate, it’s far from ideal to have large sums tied up with the IRD.
What if you can’t access the money in an emergency?
What if your profitability projections trend down over the year, meaning you’re likely to overpay?
For taxpayers with a 30 June year-end, the first instalment of provisional tax is due on 28 November. Every business and sole trader should ask themselves the questions above, especially if their work is seasonal or cyclical in nature.
Businesses should also think about the accessibility of their funds if their income is difficult to predict or fluctuates due to factors such as commodity prices, adverse weather events, or the exchange rate.
Accessible tax money
Depositing tax payments into a tax pool can form part of an effective risk management strategy in times of uncertainty.
Look at it like depositing into a savings account with the added benefit of eliminating late payment penalties and IRD interest. You can still access your funds if you need to, you’re covering yourself for tax time and possibly extending your time to pay.
How depositing provisional tax into a tax pool works
Tax pooling operates with the blessing of the New Zealand tax department. TMNZ has been a registered provider of the service since 2003.
Companies deposit their provisional tax payments into a shared pool instead of directly into their own IRD account.
Each payment is date stamped as at the date it is made into the pool (e.g., 28 November). Funds are held in an account at the IRD. This account is managed by an independent trustee, Guardian Trust.
A taxpayer holds their payments in the pool until it instructs TMNZ to transfer their deposits to their own IRD account.
Taxpayers can request a refund from TMNZ of provisional tax deposits held in the pool at any time without having to file their tax return or an estimate with IRD.
Refunds may be subject to meeting anti-money laundering requirements. (Corporate taxpayers also need to be mindful of imputation credit account impacts when requesting a refund of tax they hold in the pool).
A taxpayer typically instructs TMNZ to transfer their tax deposits to their own IRD account once they finalise their tax return and know the amounts required at each instalment date to satisfy their liability for the year.
As the tax being transferred from the TMNZ tax pool to a taxpayer’s IRD account has been date stamped to when it was originally paid into the pool, IRD recognises it as if the taxpayer paid the whole amount on time.
This remits any IRD interest and late payment penalties showing on the taxpayer’s account.
Access previously paid funds
If you’re short on cash, tax pooling also allows you to temporarily withdraw deposits you hold in our pool.
You can access the amount of provisional tax funds you have deposited (minus an upfront interest cost). You also have the option to restore your deposit at the original deposit date once your cashflow situation has improved.
Buy some time
When preserving cashflow is high on the agenda, you can use a tax pool to defer upcoming provisional tax payments to a date in the future without incurring late payment penalties.
For example, someone with a 7 April terminal tax date could have up to 75 days from that date to settle their provisional tax.
Earn more interest if you’ve overpaid
If you have surplus tax remaining in the pool once you have transferred money to the IRD to satisfy your liability, you can earn interest above the IRD’s credit interest rate by selling the excess tax to other pool members that have underpaid for the year or have received a notice of reassessment from the IRD.
Please note that this is subject to market demand.
The purchasing taxpayer can reduce the interest cost faced on their underpayment significantly when applying this tax against their liability. This also eliminates any late payment penalties.
Overpayers earn more interest while fellow taxpayers pay less. Everyone’s a winner!
Find out more
To learn more about managing your provisional tax, check out our tax finance guide and cashflow management tips for businesses.
Alternatively, please get in touch with our friendly support team if you have any questions. We’re always happy to help.
Manage IRD exposure with corporate tax pooling
With the 28 November and 15 January provisional tax dates fast approaching, now’s the perfect time to talk to larger clients about the benefits of TMNZ corporate tax pooling.
Tax pooling is an Inland Revenue-approved system to help New Zealand businesses manage their provisional tax. Instead of paying the IRD directly, taxpayers can purchase overpaid tax from other tax pool members and pay into the tax pool when it suits them.
As some businesses overpay tax when they have funds to spare, they help to cover other taxpayers that need a bit more time to meet their obligations. We like to think of it as businesses helping businesses.
TMNZ is proud to be New Zealand’s original tax pool, pioneering the concept in 2003. We haven’t looked back since, helping large businesses, SMEs, and sole traders with tax management.
With tax pooling, businesses that can’t meet their provisional tax liabilities can purchase tax from those that have overpaid. This is charged at a lower interest rate than the IRD’s use of money interest charges, and companies also avoid late payment penalties.
There are advantages on both sides of a tax pool. Companies that have overpaid into our pool can also earn more interest on their surplus tax than if they had paid the IRD directly.
Clients that experience volatility or pay substantial amounts of provisional tax (eg: more than $100,000 at each date) can reduce their exposure to use of money interest by paying provisional tax into the Guardian Trust/TMNZ tax pool account at Inland Revenue (IRD) rather than directly into their IRD account.
In summary, here are all of the ways corporate tax pooling is great for large companies:
- Companies earn more interest on surplus tax than they would if they overpaid the IRD.
- Tax can be purchased if businesses have underpaid income tax.
- Tax can be swapped across provisional tax dates to reduce exposure to use of money interest.
- Overpaid tax can be refunded within three to five days — without filing a return.
- Businesses can access TMNZ’s in-house expertise for corporate tax pooling advice on how to optimise their provisional tax payments.
- Money is deposited in the TMNZ tax pooling account at IRD.
What’s more, by using the TMNZ tax pool, you and your clients are also helping to give back to New Zealand. All our profit is invested in the Whakatupu Aotearoa Foundation, supporting social and environmental causes.
Contact us today to find out how TMNZ tax pooling can help your clients.
How tax pooling can help your tax management
Meet Andy, a builder who has run his own business for three years. Things are going well, and he’s set to make a substantial profit in the current financial year. He’s well-paid and smart enough to set aside tax he owes with each payment. But clients don’t always pay him on time, causing some serious headaches.
Like many businesses, Andy experiences cashflow issues. He makes a profit but doesn’t always have enough funds in his account to pay provisional tax when it’s due.
What should Andy do? Grin and bear the Inland Revenue’s late payment penalties and use of money interest charges after missing his payment dates? Or seek a better option?
Luckily, Andy’s accountant Lisa knows all about tax pooling and how it can relieve the financial pressure.
Tax pooling explained
Andy asks his accountant how tax pooling works and some of its main benefits.
Lisa explains that tax pooling has been available to taxpayers for two decades, starting in 2003 when Tax Management NZ (TMNZ) became a registered provider with IRD.
The accountant says tax pooling has clear benefits over traditional tax management:
- Taxpayers can choose to pay their liabilities in a time and manner that suits them, without having to worry about IRD interest and penalties.
- They can make significant savings on use of money interest charged and eliminate late payment penalties if they miss or underpay provisional tax, or if they are reassessed by IRD.
- When taxpayers overpay into the TMNZ tax pool, they can earn a much higher rate of interest on overpayment of funds than they would receive from the IRD.
Who oversees TMNZ’s tax pool?
Lisa assures Andy that all payments made into TMNZ’s tax pool account at the IRD are managed by an independent trustee, Guardian Trust.
Guardian Trust oversees the bank accounts into which taxpayers pay their money, as well as the transfer of funds from the TMNZ tax pool to Andy’s IRD account.
Because the tax being transferred has been paid and date stamped as at the original due date, any penalties and interest are wiped once the payment is processed by the IRD.
Companies of all sizes can use tax pooling
Tax pooling can help businesses of all sizes, from companies with thousands of employees down to sole traders. TMNZ’s tax pool is the largest and most established in the country.
Lisa’s research found two companies TMNZ has helped.
One company uses tax pooling to counteract fluctuating seasonal revenue:
“It takes away all those stresses. You’re passing it on to somebody else and saying, ‘take care of this for me, I don’t know what to do, we’ve got a shortage of cashflow’ and it’s the best way of putting more energy into your business and doing the things that you’re good at.”
The second company uses a tax pool as they need to invest in equipment regularly.
“With a business like ours, we are investing quite heavily into assets like cars, campers, and boats. Cash upfront is important [for] us to have.”
Tax Management NZ has helped both companies manage working capital and mitigate the risk of fees and penalties.
“What is the cost of this?” Andy asks.
“Just TMNZ interest,” Lisa replies.
Tax pools can help with voluntary disclosures and audits
Lisa looks through Andy’s expected outgoings for the year. These range from the cost of living to many other expenses associated with owning a business.
The accountant realises that in a previous year, Andy made a mistake on one of his returns and must file a voluntary disclosure with the IRD.
“How can Andy get ahead with the current year if he now has to pay an additional amount of tax for a past year?” Lisa wonders.
TMNZ can assist taxpayers who owe an increased amount of tax as a result of a voluntary disclosure or audit.
Tax pooling provides 60 days from the date the IRD reassessment notice was issued to buy the tax payment he needs and send it to the IRD.
The different tax types available to purchase are historic income tax payments, deferrable tax, and agreed delay tax, as well as other tax types such as GST, RWT, PIE, FBT, NRT, and DWT.
Lisa can use TMNZ to reduce the interest and late payment penalties cost of Andy’s voluntary disclosure.
For the current tax year, Lisa can set up either a Flexitax® or Tax Finance arrangement to give him more flexibility and time to pay (up to 75 days past his terminal tax date for that tax year).
Lisa has other clients that are medium-large taxpayers with big bills and paydays. TMNZ’s Tax Deposit product can help them.
Other advantages of tax pooling
There are several other advantages to using a tax pool:
- Excess funds paid into the pool can either be used for future dates and any other tax types where a reassessment has not been issued.
- There’s the option to sell surplus tax to a taxpayer who has underpaid to earn additional interest.
- The refund process is much faster than directly through the IRD (within three to five days, and without having to file a return for the year).
Take back control
Take control of your tax management with TMNZ tax pooling — a more convenient way to meet your provisional tax obligations.
We offer solutions for all kinds of businesses and financial situations. If you’re new to paying provisional tax, check out our resources on managing tax and business cashflow here.
Ask your accountant about tax pooling options today, or get in touch with our team to find out more.
Five top tips for paying 28 August provisional tax
Are you due to pay 28 August provisional tax?
For many businesses, this will be their first instalment of provisional tax for the 2024 tax year. It’s important to stump up what you owe on this date. Inland Revenue (IR) won’t hesitate to charge steep interest and late payment penalties if you don’t.
If you’re a business owner or operator, here are five useful tips to ensure you’re ready to pay 28 August provisional tax. For agents, you may also wish to share these tips with your clients to help them prepare.
1. Assess your cashflow
Now’s the time to look at the money coming in and going out of your business.
Cast your eyes over your accounts receivable report 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.
2. Be aware of the changes
If you’re a safe harbour taxpayer, be aware that despite the rule changes, IR will still charge LPPs at each payment date. You can find out more about the changes here.
3. Know your methods to calculate 28 August provisional tax
It’s important you are aware of the different methods available to calculate your provisional tax payments. For more information about the provisional tax methods available to you, see our Provisional Tax Guide.
4. Consider using tax pooling
An IR-approved tax pooling intermediary such as Tax Management NZ can assist if cashflow is tight. Working with them allows you to 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 means significant savings on Inland Revenue use of money interest.
TMNZ holds date-stamped tax for you in its IR account. You pay TMNZ at the agreed future date or as and when it suits your cashflow.
5. If in doubt, consult a professional
Do you have any questions about 28 August provisional tax? Seek the advice of an accountant or tax advisor. 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 support@tmnz.co.nz or phone 0800 829 888.
Information in this article is correct as at 17/8/22. You should consult with your tax advisor concerning all tax matters. Read our Terms and conditions.
Paying provisional tax – do you want it to be easier?
Kiwi business owners are all too familiar with the concept of provisional tax, and for many, paying it can be a bit of a chore.
One of the biggest issues people face is the IRD’s inflexibility. The IRD sets the dates you have to pay, and you’ve got no choice but to follow their lead.
No consideration is given to the time of year, business cash flow, or seasonal circumstances. After all, no one wants to pay a big lump sum when cashflow is tight.
The IRD model doesn’t consider whether businesses are light on cash, have an urgent need for money, or a better use for their funds. You simply have to pay up or face the penalties — with IRD interest on top of late payment fees.
But there’s one thing you should know about paying provisional tax. There is a better, easier way: tax pooling.
Tax pooling gives you more choice over your tax and lets you make payments on your terms without incurring the IRD’s wrath.
The option has been available to New Zealand provisional taxpayers for more than two decades.
Since 2003, thousands of businesses have been paying provisional tax through tax pooling providers like TMNZ. We let you pay what you owe at a time that suits you.
The best part? Tax pools are IRD-approved.
So, how does a tax pool work for paying provisional tax?
A tax pool is all about balance. Some businesses in our pool may end up overpaying their liability. These overpayments help other businesses in the pool that need more time to pay. A collective approach.
Users of our tax pool do have to pay some interest, but it’s charged at a much lower rate than the IRD’s interest or the rates you’d pay for taking out an overdraft with the bank. There are also no late payment penalties to think about.
All you have to do is tell us the tax amount due and when and how you’d like to pay. We’ll take care of the rest and notify the IRD.
Why haven’t I heard about this before?
While tax pooling isn’t common knowledge among small businesses, it is considered best practice among many accountants and tax advisers.
How can I start paying provisional tax with tax pooling?
Discuss tax pooling with your accountant (or with one of our Premium TMNZ Accounting Partners) ahead of your next provisional tax instalment or if you’ve struggled to match business cash flow with your past payments.
Ask your adviser to download this free guide that provides simple information on how tax pooling works.
Want to learn more about tax pooling?
Talk to our customer support team on 0800 888 829 or send us an email.
Managing business cashflow in uncertain conditions
Looking back at 2021
In 2021 we learnt that emerging risks can quickly disrupt business operations, strategic plans and cashflow. The pandemic, combined with volatile markets and policy changes, put strain on New Zealand businesses. Revenues that were once predictable became unstable and COVID-19 related costs emerged.
The business environment in 2022
So, what can we expect from this year? Looking at economic indications and market conditions right now, the signs say 2022 will be another turbulent year, requiring careful financial management from business leaders.
With Omicron’s arrival in New Zealand, we are facing more restrictions that will impact business operations. The promise of open borders is looking doubtful, and this will put a strain on business looking to hire oversees talent, with labour shortages expected. Closed borders will also impact supply chains and certain industries like tourism, will continue to feel the crunch.
Stock markets are reacting to the impact of Omicron and other challenges, seen in the weak and falling S&P/NZX 50 Index[1]. Some businesses will be further exposed by interest rates rises, inflation expectations and tougher lending restrictions. RBNZ has signalled that lending will get even tighter from here.
For example, the Government’s recent changes to the Credit Contracts and Consumer Finance Act (CCCFA) are making it harder for business owners to access funding from their bank. The additional information that lenders are requesting, and the security that they require for small business lending means access to working capital can be difficult.
Moving from consumer lending to consumer spending, the data shows that while consumer spending rose in December 2021[2], this was driven by the easing of lockdown restrictions before Christmas, and things will be different in 2022 due to Omicron-related restrictions.
With all of this considered, it’s not surprising that business sentiment is tracking downwards[3].
Managing cashflow through volatility
As 2022 shapes up to be another challenging and uncertain year, businesses will need to consider all the options for managing cashflow.
Tax pooling is a great solution for tax paying businesses which are uncertain about their cash flow. Businesses can use Tax Management NZ (TMNZ) to keep money in their business or defer tax payments to a time that suits them, rather than the prescribed provisional tax dates from Inland Revenue.
The TMNZ tax pool can help businesses to reduce their exposure to interest if income tax has been miscalculated and tax pool deposits can be used as a line of credit if more help is needed. Also, if a business has missed or underpaid a provisional tax payment, TMNZ can help to save money by avoiding penalties and Use of Money Interest.
For businesses looking for working capital to pay their provisional tax, TMNZ can help – without any need for security and at interest rates well below traditional lenders. Businesses that have paid their provisional tax into the TMNZ tax pool have access to a working capital facility up to the value of their deposits. This can be drawn upon when short-term working capital is required.
For more guidance on cashflow management and the benefits of tax pooling, click here.
[1] S&P/NZX 50 Index, January 2022: https://www.spglobal.com/spdji/en/indices/equity/sp-nzx-50-index/
[2] ANZ-Roy Morgan Consumer Confidence, December 2021: https://www.anz.co.nz/about-us/economic-markets-research/consumer-confidence/
[3] ANZ Business Outlook Survey, December 2021: https://www.anz.co.nz/about-us/economic-markets-research/business-outlook/
Payment options for 15 January provisional tax
One of the challenges of paying provisional tax in times of economic uncertainty is making a payment that is both appropriate and does not negatively impact your cashflow.
Tax is one of the largest expenditure lines for a business, so you want to get it right.
You don’t want to overpay, because that’s money sitting at Inland Revenue (IRD) that you could be utilising in your business. Conversely, you don’t want to underpay because you run the risk of facing IRD interest of seven percent and late payment penalties from the date of your underpayment.
Tax pooling offers a safety net if you cannot make your 15 January payment on time or accurately forecast your payment due to the impact of COVID-19.
It's a service that offers benefits not available to those who pay IRD directly, at no downside.
Pay provisional tax when it suits you
The Christmas-early New Year period is often a challenging time. After all, it is a four-week break from business as usual as things slow down.
For someone looking to manage cashflow, tax pooling lets you pay your 15 January provisional tax when it suits you.
Acceptance is guaranteed, and no security is required.
As an IRD-approved tax pooling provider, Tax Management NZ (TMNZ) can be used to pay your tax on the actual date it is due (e.g. 15 January 2022).
You then pay TMNZ as soon as cash is available and IRD recognises it as if the money was paid on time by you.
There are a couple of ways to pay.
You can finance your provisional tax payment. This sees you pay a fixed interest cost upfront and then the core tax amount at an agreed date in the future.
Alternatively, you can enter an instalment arrangement. Under this payment plan, interest is recalculated on the core tax amount owing at the end of each month.
The instalment arrangement offers flexibility in the sense you can pay as and when it suits your cashflow.
All tax pooling arrangements eliminate late payment penalties. The interest payable is significantly cheaper than the seven percent IRD charges if you fail to pay on time.
Pay what you think, top up later
Most taxpayers tend to base their provisional tax on a 105 percent uplift of the previous year’s liability.
However, the current economic climate may have forced some in highly impacted sectors to revise expectations around profitability for the 2021-22 income year to the point where making payments based on the calculation above is no longer appropriate.
Others simply may be facing difficulty forecasting their liability due to the uncertainty of COVID-19. As such, they may want to keep cash close at hand in case things change suddenly.
Now there is some good news.
You do not need to pay provisional tax on 15 January based on uplift, nor do you have to file an estimate to pay less than uplift.
Instead you can pay provisional tax based on your forecast expectations of profitability for the year at the time.
Don't worry if, once you determine the liability for the 2021-22 income year, it transpires that you have underpaid. You can purchase any additional tax you owe on 15 January 2022 from TMNZ.
This can be done at a cost that is less than IR’s debit interest rate. It also eliminates any late payment penalties incurred.
That's because the tax you are purchasing from TMNZ was paid to IRD on the date it was originally due.
You pay the core tax plus TMNZ's interest cost when you make your payment to TMNZ. TMNZ then applies the date-stamped tax sitting in its IRD account against your liability.
IRD will treat it is if you paid on 15 January 2022 once it processes this transaction. The remits any late payment penalties showing on your account.
Please contact us if you have any questions about tax pooling.
Provisional tax 101 — making things easy
Provisional tax breaks up the income tax you pay Inland Revenue (IR). It is paid in multiple instalments instead of one large sum at the end of the year.
You may have to pay provisional tax if you earn income where tax hasn't been deducted before you receive it. When your residual income tax (RIT) for the previous year was more than $5000, you will have provisional tax to pay. Residual income tax is the amount of unpaid income tax for the year minus any tax credits such as PAYE that you are entitled to.
Generally, you will pay provisional tax three times a year. For example, if you have a 31 March balance date (your end of financial year). In that case, your three provisional tax instalments are usually due on 28 August, 15 January, and 7 May. These dates can change by a few days to avoid public holidays and weekends. They can also differ according to how you have calculated your RIT, so it's best to check in with your accountant or myIR to confirm your payment dates.
What if you miss your provisional tax payment?
When you file your income tax return and calculate your RIT for the year, you deduct the provisional tax you paid earlier. If you have paid more provisional tax than you owe, you will receive a refund from IR.
However, suppose you have underpaid your income tax for the year. In that case, you must pay the remaining balance or risk late payment penalties (LPP) and interest accruing on what you owe. IR interest is calculated daily on any outstanding amount that you owe. You can check the current interest rate here.
Don’t worry though, TMNZ can help. Read about our flexible ways of paying tax below.
Late payment penalties and interest
Penalties and interest on missed or underpaid tax may be charged as follows:
- one percent the day after the payment was due.
- an additional four percent if the tax amount (including LPP and accrued UOMI) remains unpaid after seven days.
- UOMI may be charged from the day after the payment was due - UOMI will be charged daily until you have paid your total tax amount, including late payment penalties and any accrued interest.
Special IR interest rules under the Safe Harbour Provision
If you have used the standard uplift method to calculate your provisional tax:
- and your RIT for the year is less than $60,000
- and you pay all required provisional tax instalments on time and in full
Then you don't have to worry about incurring IR interest if the tax you have paid during the year is less than your actual RIT total. This is because you fall under what's known as the Safe Harbour Provision. Any final balance to settle your tax bill will be due by your terminal tax date. IR interest will only apply from your terminal tax date if you don't pay your balance by then.
The rules work slightly differently if the actual RIT is $60,000 or more.
In that situation, if you have paid all your instalments on time and in full, you will incur IR interest on the remaining balance until you have paid in full. IR interest is calculated from your final instalment date for that year.
Flexible ways to pay your provisional tax
With an IR-approved tax pooling provider, like TMNZ, you can smooth out your tax payments up to 75 days after your terminal tax date, so you have up to 22 months longer to pay your tax bill.
With TMNZ Flexitax, you can pay in small regular payments or lump sums when it suits you. There is no up-front payment, and as long as you settle your arrangement by the date TMNZ provides, your IR account will show as paid on time. It's called ‘Flexitax’ for one very important reason. It's flexible. Meaning you can make tax payments on your terms. Regularly or in lump sums. On top of that, you'll never have to worry about LPP or high interest rates again (ours are extremely competitive). And of course, it's all tax deductable.
If you know when you'll have the funds to pay your tax, you can also choose a date in the future using Tax Finance. With Tax Finance, you can look ahead and match your tax payments to seasonal highs. Meaning you can avoid things that have the power to set you and your business back – like bank overdrafts and loans.
With Tax Finance, you choose a date or dates in the future when you know you can pay your tax. You'll lock in a competitive interest rate that you pay upfront. You can rest easy knowing that as long as you settle the arrangement by the date TMNZ provides, your tax will show as paid on time with IR. No late payment penalties, and you will have saved considerably on interest.
Better for your cashflow, better for your business.
What if I've missed my provisional tax payment?
TMNZ can help to wipe late payment penalties and reduce your interest cost if you have underpaid or missed your provisional tax. Contact your accountant or tax agent and let them know you want to pay your missed or underpaid provisional tax using TMNZ tax pooling. Or get in touch to see how we can help.
As always, we recommend you speak to your accountant with any questions.
Information correct as at 01/03/2023
Cashflow relief for farmers impacted by flood or drought
Those impacted by flooding in Canterbury or drought elsewhere in New Zealand have another option to manage their cashflow.
It’s called tax pooling.
It lets taxpayers defer their upcoming provisional tax payments to a time that suits them, without incurring interest (currently seven percent) and late payment penalties from Inland Revenue (IRD).
The service – which has been operating with the blessing of the taxman since 2003 – is available through an approved commercial provider such as Tax Management NZ (TMNZ).
The impact of extreme weather
The Government has declared the recent flood in the Canterbury region as a medium-scale adverse weather event.
As those in this part of New Zealand assess the damage and begin the clean-up following the large deluge of rain, a big dry is beginning (or, in some cases, continuing) to bite other parts of New Zealand. The drought has been classified as a large-scale adverse weather event.
Farmers impacted by these contrasting weather events are being encouraged to act early and assess their options if they need assistance.
For those battling drought, some tough decisions around stock and feed will need to be made. In the Canterbury region, flooding only compounds the financial pressure as many were also dealing with drought beforehand.
Cashflow will be important during this difficult period.
Help is available
Managing tax payments will be a key consideration in managing cashflow too.
IRD, to its credit, is exercising some discretion.
It will allow farmers and growers affected by the Canterbury flood to make early withdrawals from the income equalisation scheme.
For those whose current or future income will be significantly affected by drought, IRD will allow late deposits for the 2019-20 income year up to 30 June 2021.
Early withdrawals are also available in the case of a medium-scale adverse event or if someone is suffering serious hardship.
Please note a taxpayer must satisfy certain criteria for IRD to exercise its discretion around the income equalisation scheme.
There's also the option of re-estimating provisional tax.
However, while that allows someone to get a refund of tax they have paid earlier in the year, it does come with some risk.
Free up cashflow by deferring payment of provisional tax
Farmers growers with a May balance date are due to pay their the final instalment of provisional tax for the 2020-21 income on 28 June.
For a small interest cost, someone can use TMNZ to defer this payment.
We make a date-stamped tax deposit to IRD on behalf of a taxpayer on 28 June and the taxpayer pays us when it suits their cashflow.
A taxpayer can either pay the full tax amount at a date of their choosing or enter an instalment arrangement.
When a taxpayer satisfies their arrangement with TMNZ, IRD will treat it as if the taxpayer had paid on time. Any interest and late payment penalties showing on their account will be remitted.
A taxpayer has up to 12 months to pay their 28 June provisional tax with TMNZ.
TMNZ’s interest cost is much cheaper than what IRD charges when someone pays their tax late.
Please click here to register with TMNZ. Alternatively, feel free to contact us if you have any questions.