12/01/2021

Provisional tax represents one of the largest expenditure lines for a business. In this unpredictable COVID-19 environment, it’s more critical than usual to ensure payments are both appropriate and don’t cripple your cashflow in terms of quantum and timing.

As you prepare to pay provisional tax on 15 January, consideration should be given to paying into an Inland Revenue (IR) account operated by an approved tax pooling provider.

This offers several benefits not available to those who pay IR directly, at no downside.

A significant advantage of paying into the pool is the ability to get a quick refund if your cashflow situation or profitability expectations suddenly change due to factors beyond your control. A refund can be sought at any time and without having to file a tax return or estimate with IR. They are typically paid out within days.

Subject to market demand, overpaid tax for the year may be sold to another taxpayer who needs it to cover their own obligation, generating for the seller a greater return above IR’s credit interest rate.

Tax pooling’s also a tool to proactively manage upcoming payments.

Where economic uncertainty makes it challenging to forecast profitability, one option is to make your payments into the pool, reviewing your cashflow position/business performance at each instalment date and waiting until your actual liability for the year is known.

If you’ve underpaid, the additional tax payable can be purchased from the pool. This can be done at a cost that is less than IR’s debit interest rate. It also eliminates any late payment penalties incurred.

If you’re looking to match cashflow to your business needs, tax pooling provides flexibility around when you pay provisional tax.

You can finance your payment, whereby you pay a fixed interest cost upfront and the core tax at an agreed upon future date. Alternatively, you can enter an instalment arrangement and pay the tax pooling provider’s interest when you choose to make the final payment towards your liability. Both options eliminate IR late payment penalties and interest.

If you have any questions about tax pooling, please do not hesitate to Contact us or Call Toni Alford