Businesses wanting to ease the burden income tax payments have on cashflow and have greater flexibility around their payments now have another way to pay.
They can pay their provisional and terminal tax through Tax Management NZ (TMNZ) via monthly instalments, where they pay what they can, when they can.
Tax pooling intermediaries, which are approved by Inland Revenue (IRD), reduce IRD interest costs and eliminate the late payment penalties.
Businesses that owe a substantial amount of tax will find this a useful way to manage cashflow while meeting their tax obligations, says TMNZ Chief Executive Chris Cunniffe.
"While IRD is thinking about how business should pay tax in the future, TMNZ has provided a way that allows them to pay in flexible monthly instalments," he says.
"For instance, say a business owes provisional tax of $50,000. They could pay $1000 in the first month, nothing the following two months, $15,000 the next and then the remainder of what is owed after that."
Businesses can pay in instalments for income tax for the current tax year or one just completed.
Late payment penalties are wiped and IRD interest costs reduced as the tax they purchase had been date stamped on the original due date.
TMNZ's interest cost is calculated on the remaining amount of tax owed every month, says Cunniffe.
Businesses have until 75 days after their terminal tax date to make their last payment.
Cunniffe says providing flexibility was TMNZ's response after noticing growing demand from its clients for instalment-type payments.
"This is about ensuring our services are tailored to the needs of everyone who pays provisional tax."
Where might Flexitax be useful?
Below are two examples of how businesses with income tax liabilities could use Flexitax to pay in monthly instalments.
Scenario A: upcoming provisional tax payment
A business has an upcoming provisional tax payment of $20,000 for the 2016 tax year due on 15 January 2016.
Paying the full amount to IRD at this date is problematic as they experience cashflow constraints during the January-March period.
TMNZ can arrange for them to pay via monthly instalments to help manage their cashflow.
To activate Flexitax, the business would pay to TMNZ part of the amount due on 15 January.
Let's say it choose to pay $2000 first up. This payment – and other Flexitax payments made in the future – would be made into a bank account administered by an independent trustee, Guardian Trust.
TMNZ would issue the business an updated balance statement showing $18,000 is left to pay off.
Updated balance statements are sent to the business each month under a Flexitax arrangement until it pays off what it owes IRD.
Guardian Trust will transfer each payment from the tax pool to the business' IRD account. The transfer will show on the business' IRD statement once it has been processed by IRD, with an effective credit date of 15 January 2016.
Scenario B: underpaid income tax
A business owner's accountant has finalised their tax return for the 2015 tax year and has notified the owner they have underpaid provisional tax by $15,000.
The owner has up until mid-June 2016 to pay what they can, when they can with Flexitax.
They decide to pay $5000 at their first payment and then the remaining $10,000 whenever they can after that, but before the mid-June 2016 deadline.