Each year in April the Inland Revenue Department (IR) requires businesses and self-employed people to pay terminal tax for the previous financial year. Then only a month later in May, there is the first provisional tax payment for the following tax year. For many, the close proximity of the two payments can make managing cash flow difficult. By choosing to pay your tax through a tax pooling intermediary, such as Tax Management NZ, it is possible to take control of when you pay your tax and help manage your cashflow better.
But what is provisional and terminal tax?
Provisional tax is paid throughout the year, usually in three instalments on payment dates set by IR. It’s based on your previous year’s income tax. Tax pooling lets you pay upcoming provisional tax payments in a manner or at a time that suits you, without having to worry about IR late payment penalties. Terminal tax is the difference between what tax has been paid during the year (think provisional, PAYE or withholding tax) and what you actually owe the IRD, it is due in either February or April. You have up to 75 days past your terminal tax date for the tax year the arrangement relates to pay what you owe when using tax pooling.
How tax pooling works
By purchasing tax through a tax pooling intermediary, you’re able to be more flexible with how much tax you pay and when you pay it. There are no set amounts or payment dates – you pay what you can and when it suits your cashflow, provided you do so within the arranged timeframe. Your tax will be transferred to IR by tax pooling on the dates IR expect them. IR charges interest of 8.35% if you have underpaid or missed a provisional tax payment, paying
tax through a tax pool will reduce this interest cost by up to 30 percent and eliminate any late payment penalties on the amount owed.
Who offers tax pooling?
We use Tax Management NZ as our preferred tax pooling intermediary and have experienced staff who can assist you with making a tax purchase.
To learn more about tax pooling, or to simply get in touch with one of our experts to discuss your options, contact us today.