Cash is king and having the necessary cashflow to see you through the Christmas-early New Year holiday period is important.
We say that because the most challenging payment date on the tax calendar – 15 January – is drawing near.
And if your cashflow is a bit of a dog’s breakie, then you would be best advised to start planning and assessing your options now before you come unstuck… badly.
That’s because 15 January is when those with a 31 March balance date must pay GST and their second instalment of provisional tax for the 2020-21 income year to Inland Revenue (IRD).
The Christmas-early New Year holiday is a four-week break from business as usual. Things often slow down during this period and cashflow difficulties can arise. The impact of COVID-19 may make things more challenging than usual if you are in a sector feeling the economic effects of the pandemic.
But calm your farm. There’s no need to panic just yet.
The secret to managing cashflow is having a plan. The five tips below will ensure you are able to enjoy your break over Christmas and the early New Year without fretting.
1. Know what you need
Establish your current cashflow position by reviewing your books and making sure they’re up to date.
A quick cashflow forecast and budget will help you figure out exactly what you require to cover overheads during the holiday period. This is important if it’s going to be several weeks before your income levels return to normal.
It will also help you identify any potential problems before they become actual problems.
If business is quieter during the Christmas-early New Year period, review the number of staff you have working during this time. No point having more people on than you need.
Finally, don’t forget to review your provisional tax payment. If your profitability expectations for the 2020-21 income year are now lower than initially forecast, consider lowering your payment. After all, there’s no need to pay more tax than you need to.
2. Invoice straightaway, chase payments
Send invoices for December and January well before Christmas. See if you can get customers who are closing over the holiday period to pay you before they shut for the year.
Don’t forget the squeakiest wheel always gets the grease, so make sure to chase customers who have outstanding bills to pay.
Find out if they can pay part of what they owe you if they are having cashflow difficulties of their own. Some money is better than no money.
3. Engage with lenders and IRD early
Having a chinwag sooner rather than later with your bank or other lenders about arranging covering facilities is a good idea if you think you will experience a cashflow problem during the Christmas-early New Year period.
Moreover, IRD is being more lenient than usual due to the impact COVID-19 is having on some sectors.
It has the power to waive the interest (currently seven percent) it charges as part of an instalment arrangement if you can demonstrate you are unable to pay on time because of COVID-19.
You will need to be proactive and contact them as soon as possible. Have some financial information readily available as you may need to supply this as part of the process.
Any remission of interest is discretionary and IRD will decide this on a case-by-case basis. And remember, this is not a holiday from paying tax. Should IRD accept your request for assistance, you will be expected to pay the tax you owe as soon as practicable.
4. Consider tax pooling
In the event IRD declines your request for relief, then make paying your GST on time and in full a priority.
You can use an approved tax pooling provider such as Tax Management NZ to enter a payment arrangement for the provisional tax.
This lets you defer payment of the full tax amount due on 15 January for up to 17 months or pay what you owe over that same period in instalments, without facing late payment penalties.
Acceptance is guaranteed. No financial information or security is needed.
There is some interest payable, but this is much cheaper than what IRD charges if it does not grant your request for remission.
That interest cost may be a negligible cost as tax pooling offers certainty.
5. Seek advice
Please contact your accountant if you have any concerns or questions about your cashflow and 15 January tax obligations.
A good adviser will work with you to come up with a plan to see you through the Christmas-early New Year period.