A New Zealand firm has launched a new facility that allows businesses to pay their income tax according to their convenience.
Tax Management New Zealand (TMNZ) has launched ‘Flexi Account,’ which it says allows business taxpayers to choose how and when they make their provisional or terminal tax payments.
The Company is an IRD-registered payment intermediary and operates under legislation set out in the Income Tax Act 2007 and Tax Administration Act 1994.
Chief Executive Chris Cunniffe said that the facility comes in the wake of a new legislation that was introduced by the government on February 14, 2017.
“It changes the way Inland Revenue Department (IRD) charges interest to those using the standard method to calculate their provisional tax payments from April 1, 2018,” he said.
But he clarified that taxpayers will still be required under the new system to make payments on dates that may not match business cashflow.
TMNZ has piloted its account with several taxpayers and is looking to roll it out across New Zealand, Mr Cunniffe said.
“Taxpayers with a Flexi Account will be able to choose a payment date in the future that suits them and pay the income tax they owe in one sum or over a longer period through instalments, delaying payment up to more than a year in some cases,” he said.
There are no set amounts and payment dates if paying by instalment.
Taxpayers will be able to chip away at their liability by paying what they can, when they can do so, he added.
Mr Cunniffe claimed that ‘Flexi Account’ will complement the new provisional tax system by providing greater flexibility.
“While the new provisional tax rules provide greater certainty around provisional tax payments, the dates on which those payments fall due remain set in stone. Those dates, as many business owners will attest to, do not always match their cashflow.
“That means if they are paying late, they will still incur IRD interest of 8.27% and late payment penalties. On the other hand, they may need to use their overdraft or restrict their cash outgoings unduly just to meet their IRD obligations,” he said.
Paying through a Flexi Account will eliminate IRD late payment penalties and reduce interest cost by up to 30%.
Mr Cunniffe hoped that the facility will limit the number of taxpayers getting into serious debt with IRD.
The taxman’s debt for 2015-2016 was $4.68 billion, of which $2.56 billion was income tax, he said.
“Interest and late payment penalties add up very quickly and can actually encourage non-compliance. TMNZ is providing a way to reduce this compliance cost while giving taxpayers the flexibility to pay IRD what they owe at a time and in a way that suits their cashflow,” Mr Cunniffe said.
It is understood that a ‘Flexi Account’ will allow businesses to keep headroom in their existing lines of credit if paying on time would cause problems.
TMNZ also claimed that its interest is cheaper compared to other forms of lending such as a business overdraft.
“Approval is guaranteed, and no security is required. There are no fees to apply. Taxpayers of all sizes will be able pay underpaid, missed or upcoming income tax payments for the current tax year or the one just completed through their ‘Flexi Account.’ It will give them an additional 75 days past their terminal tax date to pay what they owe IRD,” Mr Cunniffe said.
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