Pay tax on your terms
Business taxpayers can now pay income tax on their terms, not the IRD’s. Tax Management NZ’s IRD-approved Flexi Account allows taxpayers to choose how and when they make their provisional or terminal tax payments. This comes after the government passed new legislation on Tuesday which changes the way IRD will charge interest for those using […]
Business taxpayers can now pay income tax on their terms, not the IRD’s. Tax Management NZ’s IRD-approved Flexi Account allows taxpayers to choose how and when they make their provisional or terminal tax payments.
This comes after the government passed new legislation on Tuesday which changes the way IRD will charge interest for those using the standard method to calculate their provisional tax payments from April.
Taxpayers will, however, still be required under the new system to make payments on dates that may not match business cashflow.
TMNZ has piloted its account with several taxpayers and is looking to roll it out across New Zealand.
Taxpayers with a Flexi Account will be able to choose a payment date in the future that suits them and pay the income tax they owe in one sum or over a longer period through instalments, delaying payment up to more than a year in some cases.
There are no set amounts and payment dates if paying by instalment. Taxpayers will be able to chip away at their liability by paying what they can, when they can.
TMNZ chief executive Chris Cunniffe believes Flexi Account will complement the new provisional tax system by providing greater flexibility.
“While the new provisional tax rules provide greater certainty around provisional tax payments, the dates on which those payments fall due remain set in stone. Those dates, as many business owners will attest to, do not always match their cashflow.
“That means if they are late paying, they will still incur IRD interest of 8.27 percent and late payment penalties. On the other hand, they may need to use their overdraft or restrict their cash outgoings unduly just to meet their IRD obligations.”
Paying through a Flexi Account will eliminate IRD late payment penalties and reduce interest cost by up to 30 percent.
TMNZ believes this will limit the number of taxpayers getting into serious debt with IRD. The taxman’s debt for 2015-16 was $4.68 billion, of which $2.56 billion was income tax.
“Interest and late payment penalties add up very quickly and can actually encourage non-compliance. What TMNZ is doing is providing a way to reduce this compliance cost while giving taxpayers the flexibility to pay IRD what they owe at a time and in a way that suits their cashflow.”
A Flexi Account will also allow businesses to keep headroom in their existing lines of credit if paying on time is going to be problematic.
It also provides another way of freeing up working capital as TMNZ’s interest is cheaper compared to other forms of lending such as a business overdraft.
Approval is guaranteed, and no security is required. There are no fees to apply.
Taxpayers of all sizes will be able pay underpaid, missed or upcoming income tax payments for the current tax year or the one just completed through their Flexi Account.
It will also give them an additional 75 days past their terminal tax date to pay what they owe IRD.