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Provisional Tax and GST

on August 24, 2021 / by Tom Beswick

Three times a year the stars align for taxes and for many businesses two of them are due on the same day. The first payment of provisional tax and GST are both due on the 30th of August. Given the current lockdown the timing of this may put the squeeze on some businesses.
Provisional Tax and GST

If cash is going to be tight here’s some ideas on how to manage:

  1. You need to think about your cashflow plan and think about the ‘what could go wrongs’ so you can plan for that. No business should be making payments if they cannot have a good stab at estimating what the ins and outs over the next month or two are going to be.
  2. If you aren’t going to be able to pay both taxes then pay the GST first. Provisional taxes can be purchased after the fact using companies like TMNZ and Tax Traders. The latest date for most businesses to pay for 28 Aug tax is June 2023 – and the finance cost of deferring for this long may only be 5% pa. Financing tax can be a great short-term option to help with cashflow as you cannot always get the money you need from the bank when you need it.
  3. The IRD assumes your 2022 provisional taxes will equal last year’s total tax divided by 3 payments and adding 5%. So, if you have had a tough first 4 months of the year it might pay to estimate your tax bill down. Talk to your Chartered Accountant so they can tell IRD. There are savings to be had in formally estimating taxes down with IRD – rather than just underpaying.
  4. Most situations are made better with communication – so if payment is going to be tough talk to your Accountant so they can talk to the IRD for you ahead of any short payment. The IRD has extra leniency for writing off interest and penalties under Covid.

Uncertainty is high. If cash is tight in your business, and you are not sure if there’s going to be much support from the bank (or it may not come through in time) then I would look at holding off some or all provisional tax payments as these can be bought later.

Ideally, you’ve been saving for this in a separate tax account. The tax due is essentially for the period from 1 April to 31 July – so really it was money earned prior to lockdown and the money should be in the bank. If it’s not, then after lockdown is over I suggest talking to your Chartered Accountant so you can build some better systems to save for tax i.e. some businesses move a % of weekly sales into a separate tax and GST account.

These are just a few ideas on how to deal with the two taxes coming due on Monday. While the head in the sand approach may feel good for a while the IRD can be a very expensive financing source if managed poorly. If this is all Greek to you then please call your Chartered Accountant so you can put a plan in place.