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Taxing times ahead in April and May
April and May are notoriously difficult months for cashflow with terminal and provisional tax payments due to Inland Revenue (IRD). The consequences of not paying on time – interest of 10.39 percent (from 9 May 2023), and late payment penalties – can further exacerbate things. Here’s how to avoid getting into strife.
Pay terminal tax for 2022 tax year immediately
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Terminal tax means you didn’t pay enough provisional tax for the previous year.
If you don’t pay this by 7 April, late payment penalties will apply, and you will register a blip on the IRD debt collection team’s radar. That’s the last thing you want as a tradesperson.
You may also notice IRD is charging interest on the tax owed.
This can be reduced by up to 30 percent by using an IRD-approved tax pooling intermediary, like Tax Management New Zealand (TMNZ). IRD treats tax paid through a tax pool as if your provisional tax was paid when it was due, eliminating any interest and late payment penalties incurred.
An intermediary also gives you an additional 75 days past your terminal tax date to pay.
Review your 2023 year
The 8 May instalment of provisional tax is the final payment for your 2023 tax year.
Given your year ended on 31 March, you will have a rough idea whether you have overpaid or underpaid income tax. Look at how your business has performed and adjust your payment accordingly (no point paying more tax than is required, right?).
Know your payment options for 8 May provisional tax if cashflow is tight
Tax pooling offers some payment flexibility if paying on 8 May does not suit you. Provisional tax can be deferred to a later date or paid off in instalments via an intermediary.
Again, this will reduce your interest cost and eliminate late payment penalties.
Whatever you decide, make sure you discuss your options with your accountant and do what’s best for your business.
About TMNZ
TMNZ is New Zealand’s leading and pioneering tax pooling pioneer. Since 2003, TMNZ has inspired innovation to help create a better tax environment for Aotearoa. Over 100,000 taxpayers have saved more than $500 million, by using TMNZ’s flexible and simple tax payment solutions. And today? TMNZ is reimagining its business by investing 100% of profits in a restored and thriving Aotearoa. With this purpose at its core, TMNZ is proud to work alongside its philanthropic partner the Whakatupu Aotearoa Foundation, to bring this vision to life.
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