Be proactive with tax matters to avoid complications and interest charges
IF you are like me, today is your first day back on the job after a blissful summer break with family.
It is great to catch up with colleagues and workmates, share tall stories of the ones that got away, the sunburn and the cycle trails, the wins at the Omakau trots and what Santa brought you.
Then you sit down, boot up the computer for the first time in three weeks and boom! Double negative.
Internet banking doesn’t show the business cheque account balance you were hoping for after a couple weeks of outgoings with few incomings as your clients have also been on holiday, AND the diary screams at you that tomorrow (January 15) is the due date for BOTH the second 2019 Provisional Tax payment and the Novemberperiod GST bill.
We know IRD is not so forgiving of late payments (interest at 8.22% and potential late payment penalties), so this is not the positive start to the new year you were hoping for. But do not panic yet.
Even at this late hour, there are options available that may assist you getting through this shortterm cashflow crisis.
At a minimum, and without trying to sound selfserving, you should put in a call to your accountant, assuming they are back from holidays.
It may be that with preemptive conversations with
IRD, an arrangement can be entered into quite quickly, as it is quite reasonable when people contact it proactively, especially around late payment penalties.
Another option could be using tax pooling providers to buy you some time for your provisional tax.
This is best discussed with your accountant but there are ‘‘tax finance’’ arrangements that can be put in place which are not as expensive as IRD interest rates, and can be facilitated as unsecured borrowings.
GST, as effectively trust monies held on behalf of the Government, can be a little trickier, but again worstcase scenarios around nonpayment can be managed preemptively.
Just don’t wait until tomorrow.
In a general sense, we have talked about tax pooling in previous Sharp As Tax articles, as it is a useful tool to manage the impact of tax cash outflows within the wider context of business activities, from delaying payments to the IRD through tax finance, effectively purchasing tax relating to prior periods unexpectedly required due to say an audit or a mistake, or even borrowing against tax already paid within a tax year to fund other business activities/ assets.
The interest rates are circa 30% less than the IRD charge, and such borrowings are unsecured in the sense that you do not need to provide security as you would to a bank.
Better still, refunds can be accessed within three days, versus next year, if the business circumstances change, if all tax is paid via the tax pool.
This is a legislated regime whereby the funds are actually held at the IRD, but with the flexibility set out above.
In summary, many businesses benefit from using this regime, and if you are not using it, maybe you should talk to your accountant about whether it would work for your situation.