The months of April and May can really tax your cash flow. Let me explain.
For many businesses, their financial year ended on 31 March.
After you have finalised your 31 March GST Return, you will have a rough idea if you have overpaid or underpaid income tax. It is time to review how your business performed and adjust your payment accordingly.
On 7 April, IRD expects you to pay terminal tax for the prior income year. If you do not do so by 7 April, late payment penalties will kick in. You will also register a blip on the radar of IRD’s debt collection team. That’s the last thing you want.
Terminal tax means a taxpayer did not pay or pay enough provisional tax for the previous year. As such, they need to square up the difference.
To make matters worse, IRD may also be applying the use of money interest at a whopping 8.22 per cent to this underpayment. You can reduce this cost by up to 30 per cent by paying through an approved tax pooling intermediary.
A month later, on 7 May, IRD will ask for more tax to be paid. This time it will be a taxpayer’s final instalment of provisional tax for the current tax year.
So not one income tax payment, but potentially two in succession. It’s hardly ideal, is it? The cashflow challenges presented by this tax double-whammy can be a worry, especially for new provisional taxpayers.
But don’t fret. Keep calm and cool. Here’s what you can do to survive the taxing months of April and May.
If paying provisional tax is likely to trigger a cashflow squeeze, we recommend using a tax pooling intermediary which can offer some payment flexibility. It gives you the option of:
• Paying provisional in instalments.
• Deferring the full payment to a time in the future that better suits your cash flow.
Both payment plans reduce IRD interest costs and eliminate late payment penalties.
If you have overlooked or feel you have a cashflow difficulty in paying your tax on a date specified in the legislation, we recommend you talk to us immediately so that we can help you plot a course of attack and recommend flexible solutions which work best for your business and suggest a few pointers on what to do to ensure April and May do not tax your cash flow.
Please call us now on +64 (09) 522 2288 or email us on enquiry@charteredaccountant.co.nz