After paying terminal tax on 7 April, upcoming provisional tax and GST instalments due in May could cause significant cash flow problems for your business. By not paying your tax on time, you could open your business up to use of money interest and late payment penalties.
Tax Management NZ (TMNZ) and Crowe Horwath can offer a solution that enables you to pay what you want when you want and not when the IRD expects you to, which saves you money and enables you to carry on running your business.
TMNZ and companies place funds in the tax pool to provide liquidity which allows any clients in an overpaid tax position to sell tax to businesses that are in an underpaid tax position on the dates that they need. When using tax pooling to pay your tax obligations, the tax that you buy is transferred to your IRD account on the date you require which allows the IRD to remove any use of money interest and late payment penalties.
For example, in regards to the third provisional tax instalment on 7 May 2016, let’s say your business has had a better year than you expected. As a result of this, residual income tax for the year will have increased. This means that you have underpaid provisional tax on the first and second instalments leaving you subject to use of money interest of 9.21% on the underpaid tax. Historically you would overpay at the period three instalment and be liable for the use of money interest on the first two instalments.
With TMNZ’s tax pooling, you can pay the estimated liability at period three and top up the underpaid tax at period one and two. This way you limit your interest exposure from period one and two to period three, but also save up to 30% on the IRD’s use-of-money interest rate of 9.21%.
The benefits of tax pooling with TMNZ include:
- allowing you to defer tax payments to a date that suits you;
- an interest rate much lower than the IRD’s rate of 9.21%;
- reduced use of money interest and late payment penalties;
- TMNZ’s fee is fully tax deductible;
- no credit approval is required; and
- unsecured funding.
If this sounds like something you or your business could be interested in or you would like further information, please contact your Crowe Horwath tax specialist.