We understand how terminal tax can sometimes put pressure on your cash flow. And, if you add into the mix that looming provisional tax payment due on 7 May (the final installment for the 2019 year), it can add up to a few sleepless nights, right?

If this describes your situation, stop losing sleep and pick up the phone to us. Let's look at the issue squarely, run the numbers on your options and take prompt action before your tax bill escalates.

How could I have underpaid provisional tax for the 2019 tax year?

It could have happened if you didn't keep up with your provisional tax payments throughout the year.

Or it may have happened if you had a better year in 2019 than you expected to ('yay, we made more money'), then you probably owe more tax than you expected to have to pay.....

When your business income fluctuates, it can be hard to estimate exactly how much provisional tax you should pay. That's why it's a good idea to keep track and let us know about peaks and troughs through the year. This is something we can help you with in the future.

What if I do owe tax for the 2018 or 2019 tax years?

If it works out that you have tax to pay, there are a number of options available to you.

It could be possible to negotiate a payment arrangement with IRD and make payments over time. We can help you build and submit the proposal.

You could borrow money from the bank or family. If you want to explore borrowing from the bank, let's look at it in the context of your total debt position and see what options are most economical for you in the longer term.

Or you could use a tax pooling service. You can reduce your IRD interest costs by up to 30 per cent and eliminate late payment penalties if you purchase tax pooling money from Tax Management New Zealand.

If you are worried about managing your tax please contact us.

Tax pooling is flexible and can be used for a range of situations to suit different needs. As a finance option, it's no-risk. And as an ongoing strategy for tax management, it helps you meet your obligations while having good control over continuing cash flow.

How does it work?

For tax in arrears, you can settle this liability by essentially purchasing any surplus tax from a business which pays their tax through a tax pool. A tax pooling intermediary such as Tax Management New Zealand (TMNZ) facilitates this trade between buyers and sellers. Tax pool funds are held in an account at the IRD and overseen by an independent trustee.

For upcoming provisional tax, you can finance the payment. You pay TMNZ a one-off, tax-deductible fee and it arranges the upcoming provisional tax payment on your behalf. This is held in an IRD account. When you repay the principal at the date you've agreed with TMNZ, the independent trustee instructs IRD to transfer the tax into your IRD account. IRD treats the tax as being paid on time once the transfer is processed.

Time frames for using tax pooling

If you have a 7 April terminal tax date, you have until 13 June to use tax pooling to buy underpaid 2018 income tax. 

I'm good with terminal tax but I'm worried about this quarter

If cash flow is an issue, you could use tax pooling to defer upcoming provisional tax payments to a later date without incurring IRD late payment penalties or use of money interest. For instance, if your provisional tax is due on 7 May, it could help smooth out your cash flow for the period. It often works out to be cheaper than financing the payment through an overdraft or unsecured loan and approval is guaranteed.

If you need further help with your current tax situation, please contact us for assistance. There is a small charge for arranging TMNZ for you which usually still makes the exercise a cost-effective option.