Tax pooling tips: Using the Due Date on myIR statements may needlessly expose you to UOMI
Here we discuss how TMNZ can help you to avoid interest charges with payments at P3.
Unfortunately we're seeing many clients buying tax at the wrong dates. We believe this is caused by the confusing way Inland Revenue displays the Residual Income Tax liability on the myIR statements. If a taxpayer doesn’t meet the safe harbour threshold of less than $60,000 RIT for the relevant tax year, paying tax at terminal tax date will cost you Inland Revenue Use of Money Interest (UOMI).
Why is this?
- Inland Revenue myIR transaction detail statements show the tax due split on what amounts are liable for late payment penalties and what amounts are not.
- As late payment penalties are charged on the lessor of the standard uplift amounts and RIT/3 for all provisional tax dates, they will usually show two amounts for the P3 date. The standard uplift amount will be shown as due at P3, and the balance of current year RIT will be shown as due at the Terminal Tax date.
- However, what is not clear on myIR is that use of money interest will be is charged on the combined P3 total, from P3 to the date the tax is paid.
- So those that are not transferring the combined total at P3 but transferring the amount at the terminal tax date, will incur interest from the P3 date
How can I stop this?
When transferring or purchasing tax from the TMNZ tax pool, you should be doing this for the combined P3 amount at the P3 date. This will mean you avoid interest charges.
Find out more by reading our detailed explanation here or contacting our national support team.
Disclaimer: This article is correct as at 19 April 2022. It is subject to change. TMNZ will update this article as and when it receives new information from IR. We encourage readers to check this page regularly.
Inland Revenue extends tax pooling deadline for COVID-19 impacted taxpayers
Updated: 11 May 2022
Anyone impacted by COVID-19 will now have 183 days after their terminal tax date (or until 30 September 2022, whichever comes first) to settle 2021 income tax arrangements with TMNZ, subject to meeting certain criteria.
Inland Revenue (IR) has announced it has extended the legislative deadline, after recognising the cashflow difficulties some taxpayers face in the wake of the pandemic and the Government’s response to it. There is also relief for taxpayers unable to determine their 2021 tax liability before their tax pooling deadline.
The change means those with a terminal tax date of 7 April 2022 now have until 30 September 2022 to satisfy their tax pooling arrangements for the 2021 tax year. Normally they have just 75 days after their terminal tax date to pay.
For taxpayers with a different terminal tax date, the extension to settle 2021 income tax will apply if their 2021 terminal tax dates fell on or after 17 January 2022. So those with 17 January 2022, 7 February 2022, 7 March 2022 and 7 April 2022 terminal tax dates can request extra time to pay.
TMNZ welcomes IR’s decision, and we were pleased to be engaged in the change process. The decision reflects the impact COVID-19 is having on our clients in relation to settling their 2021 income tax obligations within the required timeframe.
Eligibility criteria when applying to TMNZ
The extension is subject to a taxpayer completing an application form and meeting specific conditions:
- The transfer relates to a contract the taxpayer has with the tax pooling intermediary that is in place on or before 21 June 2022 to purchase tax pooling funds.
- In the period between July 2021 and March 2022 (Affected Period) the taxpayer’s business must have experienced (or for March 2022 be expected to experience) a significant decline in actual (or predicted) revenue related to the impact of COVID-19 which means that in respect of the 2021 tax year the taxpayer was either:
- (a) unable to satisfy their existing commercial contract with a tax pooling intermediary; or
- (b) was, prior to this variation, not able to enter into a commercial contract with a tax pooling intermediary.
- Or, in the Affected Period, the taxpayer has had difficulty finalising their tax return position prior to 31 March 2022 because of circumstances arising either from the imposition of COVID-19 response measures or as a consequence of COVID-19. This could include the impact of a key staff member or advisor having reduced availability, or the financial impact of COVID-19 causing significant disruption to the normal business operations of the taxpayer.
- Any person that wishes to use funds in a tax pooling account to satisfy an obligation for provisional tax or terminal tax for the 2021 income year must provide, or have their tax agent provide on their behalf, their intermediary with a statement in writing confirming the above requirements are met. That the statement must be provided to the intermediary on or before 21 June 2022.
Our recommendation is that you apply for the extension as soon as possible, to avoid undue stress closer to the deadline.
Other important considerations
- The extension deadline will differ slightly for taxpayers with the terminal tax dates 17 January 2022, 7 February 2022 and 7 March 2022. Please be mindful of this when completing the application form.
- A taxpayer’s final payment must be received no later than 183 days past their terminal tax date (or 30 September 2022, whichever comes first) for the 2021 tax year.
- The 30 September cap has been provided by Inland Revenue because the Commissioner’s overriding permissions to create variations to the tax laws ends on this date.
- TMNZ’s interest rates for extension arrangements are the same as they are for other transactions.
The application process with TMNZ
You can find the extension application form on our website, here.
We’ve made it easier for accountants and agents to apply for the extension on behalf of their clients. On the TMNZ Dashboard, just visit the Taxpayer Accounts page using the link in the left hand menu of the Dashboard and now you can simply select the taxpayer/s you’re applying for - their information will automatically appear on the extension form, saving you time and reducing the risk of manual errors.
As always, if you have any questions, feel free to contact your TMNZ account manager or our customer support team. We’re here to help.
Disclaimer: This article is correct as at 4 April 2022. It is subject to change. TMNZ will update this article as and when it receives new information from IR regarding the extension of the 2021 tax pooling deadline. We encourage readers to check this page regularly.
IRD system issues affecting tax pooling
IRD is working to resolve the problem of its system incorrectly sending grace period letters to taxpayers flagged as using tax pooling.
However, they have fixed the issue which was seeing someone's GST refund being automatically applied to their provisional tax.
Here's what you need to know about both problems.
Plus, we also highlight some other system bugs impacting provisional taxpayers.
Grace period letters
Some taxpayers marked as using tax pooling to pay their income tax were receiving a letter notifying them that:
- They didn't make a payment on time; and
- IRD was giving them a grace period to pay before imposing late payment penalties.
This should not be happening.
We understand the cause of this issue is due to IRD's developers not fixing this problem as expected last year. They got diverted to other tasks before the change on which they were working made it through the test cycle and into production.
They are currently working to correct the accounts of those who have been impacted. This includes reversing the application of the grace period.
IRD will provide an update once it resolves the issue.
In the meantime, anyone who is using tax pooling can ignore any grace period letter they receive.
GST refunds applied to income tax
Despite someone being flagged in the system as having a tax pooling arrangement in place to pay their provisional tax, IRD was still applying their GST refund against their income tax.
Again, this should not be happening.
We understand the cause of this issue was IRD's system automatically ignoring the tax pooling indicator on someone's account.
That was part of a wider issue relating to GST refunds offset against provisional tax.
However, the problem has now been fixed and this will no longer happen.
That said, anyone whose GST refund was transferred to provisional tax prior to this fix will need to contact the department. They can do this by sending a message in myIR.
IRD will then reverse the transfer or refund any excess credits (where appropriate).
In case you missed it…
Below are the other system glitches impacting provisional taxpayers.
These updates from IRD are as at 16 April 2020. However, as far as we can tell, these are still ongoing issues.
Incorrect instalment dates
There is a problem causing some six-monthly GST filers to have three provisional tax instalments instead of two.
As a result, some taxpayers may have had interest (UOMI) charged incorrectly.
IRD is working on fixing this issue. It will provide an update once it finds a solution.
Incorrect UOMI and penalties on weekend due dates
There may be cases where late payment penalties and UOMI have been incorrectly charged if a provisional tax payment date fell on a weekend.
Again, the department is in the process of fixing this issue.
TMNZ will continue to keep you abreast of any IRD issue or update that pertains to tax pooling or provisional tax.