Welcome to the Christmas Vision Accounting e-newsletter for 2014. December is here already and this year seems to have flown by. What a great busy year it’s been for us - and we hope it’s been a successful and prosperous year for all of you.
We would also like to say ‘Thank You’ to all our valued clients for your business this year, and we look forward to continuing to be of service to you in 2015.
For our last newsletter of the year to you – we would like to provide some valuable information to help you through the Christmas and January period. This can be a hard time to manage cashflow, so read on for some great strategies to help you through…
A way to solve Christmas cashflow issues
The period after Christmas can be tough for many small and medium sized businesses.
According to more than half the respondents to a poll conducted by the Employers and Manufacturers Association, January to March is when they tend to experience cashflow constraints.
It’s hardly surprising, really. The period after Christmas is traditionally slow business-wise. Consumers are either enjoying their holidays or getting their finances in order following their festive season spending. Earnings will be down if businesses shut during the break. Others may also feel the pinch if they paid staff bonuses prior to the holiday season.
It is, therefore, understandable how having to make a provisional tax payment on 15 January might be a bit problematic for some.
Still, it does not change the fact that Inland Revenue (IRD) expects this payment to be made on time and will charge taxpayers late payment penalties of up to 20 per cent per annum and use of money interest (UOMI) of 8.4 per cent if the tax is not received on the due date.
However, those who wish to free up cash at a time when they need it most have an option.
Tax pooling is IRD approved and can be used to defer provisional tax payments to a time that suits them - without incurring late payment penalties and UOMI.
This method is cheaper than using many other traditional forms of finance - rates at Tax Management NZ (TMNZ) start from below six per cent - and does not affect existing lines of credit.
No credit check or security is required.
The full amount of finance does not need to be paid back if less tax is owed than first thought. The finance arrangement can be easily extended as well.
How it works
Say you wish to defer a $5,000 provisional tax payment for six months.
You would pay TMNZ a one-off, tax-deductible interest amount and TMNZ would arrange the $5,000 provisional tax payment on your behalf. The interest amount is based on the amount of tax financed and the period of maturity, so in this instance would be $145.
The provisional tax payment is held in an IRD account administered by the Guardian Trust. Guardian Trust instructs the IRD to transfer the tax into your IRD account when you repay the $5,000 principal in six months’ time.
IRD treats the $5,000 provisional tax as being paid on time once the transfer is processed.
or phone us if you would like to know more.
What You Need to Know
Don’t forget – IRD Cheque Policy
IRD have changed their policy on when payments will be considered to have been received on time. Payments made by post are now treated as made on the day Inland Revenue receives them; the date of posting is irrelevant. It's therefore up to you to make sure you post your cheques in good time to reach IRD on time. There's no guarantee that a payment posted on the 18th will reach Inland Revenue by the 20th.
If you’re sending a post-dated cheque, Inland Revenue will not bank it until the date specified. So even though it’s physically received before the due date, it will still be treated as received late if the specified date is after the due date. You can also make payments in person, either at an Inland Revenue office or at a Westpac branch (note Westpac no longer accept cheques for tax payments) as long as you do so before close of business on the due date. Now might be a good time to think about making your payments online, if you don’t already.