Changes to the interest and penalties regime
IRD have announced that from 1 April 2017 they will be changing the hated interest and penalties. For provisional tax payers using the standard uplift method (based on prior year) there will be no interest charged on the first two instalments. I.e. they won’t take the interest calculation back to the first payment retrospectively.
For late payments on new returns filed there will still be the initial 1% penalty the day after for late payments and 4% after 7 days but the 1% monthly incremental penalties will go. UOMI will still apply.
Proposed Provisional Tax payment Changes
You may have heard through the media that the IRD are doing away with Provisional tax. As with a lot of their recent releases, this is only partially true. But (hopefully) from 1 April 2018 your business could qualify to pay tax using the AiM Accounting Income Method.
This would mean your company could pay its provisional tax with its GST returns and the amount you pay will be based on what you’re earning now, not last year’s taxable income as the current system does. This is an attractive prospect.
To qualify you:
- Need to be a company
- Have turnover under $5million
- Must use accepted Accounting software
- Must make accrual adjustments. You’d need to adjust every period for debtors, creditors, stock, depreciation. This means you must run a debtors and creditors ledger, run a stock system or count physically regularly and an asset register.
We think this is great. It will take a lot of the guess work out of Provisional Tax payments. And it makes cash flow a lot easier to predict.
We also think every business should always prepare full management accounts every month (or 2 ) to really understand how their business is going.
The adjustments you’d need to make mean you may as well run full accrual accounts. This will encourage more to do so.
But – and there’s always a but – For many businesses what might be saved in interest on tax, or helped with cash flow could well be spent on the approved accounting software and making sure the adjustments are accurate prepared every GST period. Many businesses only do basic cash accounting during the year, as that’s all that’s required to calculate GST payments, and many accounting systems make this easy to do. Many of the GST returns we prepare for clients are done this way. The new system will require a step up in accounting processes in businesses.
Every client we run bookkeeping services for has full accounts prepared every GST period, as we really believe in the advantages to the business of having up to date accurate accounts so for these clients, it’ll be a no brainer to take advantage of the new Provisional Tax regime when it happens.
If you’d like to talk to us about upgrading your accounting processes and our Virtual Bookkeeping service give us a call.
If you’ like to respond to IRD’s survey about these proposed changes got to https://aim.makingtaxsimpler.ird.govt.nz/
Contractors can elect own Withholding tax rate and can do voluntary deductions.
There will be option for Shareholders in a close company to apportion Motor Vehicle expenses instead of paying FBT.
We will update you on how these relate to you and how they will work in practice as soon as more details are available