We have seen a significant number of clients experiencing cashflow problems over the past couple of weeks.
With the first instalment of provisional tax for the 2019 tax year due for many on 28 August, we thought we would mention an IRD-approved service provided by Tax Management NZ (TMNZ) that may provide some assistance.
In a nutshell, they let you pay provisional tax at a time or in a manner that suits you, without incurring late payment penalties. Even better, the interest cost is 30% less than that charged by the IRD which makes this an extremely cost effective way to meet your tax obligations.
They provide two payment options for upcoming provisional tax payments – Flexitax and Tax Finance. Both reduce IRD interest costs and allow you to keep headroom in your existing lending facilities.
Chip away at what you owe with Flexitax
Flexitax allows you to pay your 2019 provisional tax as you go in instalments.
There are no set amounts or payment dates – you pay what you can and when it suits your cashflow, so long as you settle what you owe within the legal deadline (see further down).
Under Flexitax, TMNZ interest is recalculated on the core tax owing at the end of each month so you only pay interest on what is outstanding.
Here's a great video explaining how the service works:
Defer the full payment with Tax Finance
For those wanting a fixed TMNZ interest cost and payment date, Tax Finance is worth considering.
It allows you to defer payment of the full amount of tax due on 28 August to a time in the future that better suits your business.
You pay an upfront finance fee and pick the date when you would like to pay. The upfront finance fee is based on the amount of tax due and how long you are postponing your payment.
Benefits of using Flexitax and Tax Finance
Cashflow Flexibility - You can choose to pay provisional tax in lump sums or spread the payments over the period of time that suits you rather than the specific dates required by the IRD;
Interest charged is tax deductible and based on competitive lending rates that are lower than most business lending rates and IRD use-of-money interest rates.
You will not incur any penalties with IRD for paying tax when it suits you as the funds will be paid to the IRD at the date that the provisional tax payment is required.
Approval is guaranteed and no security is required.
Deadlines
You have up to 75 days past your terminal tax date for the 2019 tax year to pay the tax you owe using Flexitax or Tax Finance. So, if you have the standard 2019 terminal tax date of 7 April 2020 you have until mid-June 2020 to complete your payments.
We think Flexitax and Tax Finance are great ways to manage cashflow and provisional tax payments if you are experiencing problems not just for 28 August but for any other provisional payment date as well.
If you would like to know more or want to look at putting a Flexitax or Tax Finance arrangement in place for your 2019 provisional tax, get in touch with the team at Thrive CA today.