Pay if you can
If you have the ability to pay, you should pay your tax on time as usual.
Request an instalment arrangement
If you can’t pay, you can apply for an instalment arrangement on the IRD website (or by phone but phone services are severely limited right now).
- Instalment arrangements can be used for Tax, GST, FBT etc.
- You’ll need to agree on a monthly repayment and stick to it.
- Normally, you’re charged the next penalty but future penalties stop.
- Normally, interest is charged on instalment arrangements.
- Normally, you need to apply before the tax is due.
- Generally, the IRD will only agree to an Instalment arrangement if you’re up to date with all your returns and payments.
Inland Revenue has indicated that they may write-off penalties and interest if you’re unable to pay tax on time because you’ve been significantly impacted by Covid-19 and if you’ve exhausted all other funding options. This means once you’ve repaid the late tax (preferably under an instalment arrangement) you can apply to have the IRD late charges reversed but only if you meet the strict criteria.
Early indications are that in practical terms, taxpayers will need to demonstrate the following to IRD:
1. a 30% drop in revenue/income as a result of COVID-19; and,
2. that they have sought financial assistance (e.g. a bank overdraft extension) and been turned down.
Buy back-dated tax
If you haven’t been significantly impacted by Covid-19 or have other funding options available the IRD won’t be able to write off late charges. However, you can still delay your tax payments by buying back-dated tax.
- 7-Apr-20 tax can be delayed until mid-June 2020
- 7-May-20 tax can be delayed until mid-June 2021
This is for income tax only and it’s an IRD approved method. It’s about taxpayers helping each other for mutual benefit. Basically, you buy someone else’s tax to pay your tax, saving on interest and penalties, while the person selling the tax receives more interest than the IRD rates, so it’s win-win. When you have the money ready, let us know.
Going forward, if your 2021 profit is going to be down you might prefer to use the AIM method for paying provisional tax (1-Apr-20 to 31-Mar-21). The AIM method can help you avoid cashflow problems because you only pay provisional tax when you make a profit. With AIM, you’ll pay tax at the same time you pay GST (instead of paying provisional tax in two or three chunky instalments). If you want to move to AIM, contact us well before 28-June-20
Other funding options
- If you have a commercial lease, check the agreement to see if it contains clause 27.5 which allows rent to cease when you’re unable to gain access to the premises.
- Alternatively, ask your commercial landlord for a rent holiday or deferral (if you haven’t already).
- Talk to your bank about their financial relief packages including a mortgage holiday.
- Mortgage holidays stop the principal payments but sadly the interest is still charged.
- Some banks are allowing small businesses to apply for a temporary line of credit.
- Certain banks are now allowing you to withdraw term deposits early
Some insurance providers will let you “keep your insurance in place for up to 12 months without paying premiums”
- Most of you are familiar with the wages subsidy but it’s also for business owners (not just your employees)
- If you apply without meeting the strict requirements, you may be prosecuted later.
- In Xero, show the money you receive as Non-taxable Income with no GST
- As an employer, you must withhold the usual deductions (PAYE, ACC, Kiwisaver etc)
We’d encourage you to prepare a cashflow forecast and defer any non-essential spending.
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Boutique Financial Chartered Accountants & Business Commentators
Copyright © 2020 Boutique Financial Limited Chartered Accountants Auckland All Rights Reserved. Disclaimer: This article is not intended to provide an exhaustive or comprehensive statement of law and should not be relied on or used as a basis for any decision or legal action. Detailed professional advice should always be sought to verify the applicability of the relevant legislation to the specific case