Changes to provisional tax announced

Cashmanager | 7 years ago

There are changes coming to the way small-medium businesses pay tax, from April 2018.

  • Businesses will be able to interact with IRD through an online account.
  • Small Businesses will have the option to pay provisional tax every two months, using their online accounting systems.
  • Use-of-money interest will be scrapped for businesses that go to “pay-as-you-go” tax provisional tax payments.

John Key announced today in his pre-budget speech that there will be alterations to provisional tax and use-of-money interest charges.

“We want the tax system to fit in with how businesses operate, not the other way around,” said Mr Key.

“I think everyone acknowledges that meeting tax obligations is a particular challenge for smaller businesses,” he said.

“Among other things, businesses tell us that provisional tax is hard to get right and expensive to get wrong. Perfect accuracy can sometimes be costly in a way that doesn’t seem justified,” he said.

With the increased use of accounting software like CashManager, more and more businesses will be able to calculate their tax automatically alongside their income. It’s expected that more than 80% of small businesses will use some form of online-based accounting software in the next 10 years.

Where currently provisional tax is estimated and paid in three instalments, there will soon be the option for businesses with turnover of less than $5 million to choose a new “pay-as-you-go” option for provisional tax.

The way the new “pay-as-you-go” option would work is your accounting software will calculate your taxable income every two months. You will then be prompted to make the payment directly through your accounting software, at around the same time you pay GST.

Under this new “accounting income method”, provisional tax payments will more accurately match income as it is earned, be made more regularly, and be integrated into normal business practices.

Use-of-money interest won’t apply to taxpayers who choose this method and who pay their tax on time.

This change could affect 110,000 SMEs, and will come into effect when Inland Revenue launches their new computer system.

This change will make it much more important for small businesses to have good accounting software that they can trust. The benefits of using software will be greater, as you will no longer have to estimate or calculate your tax payments. Using the new system will save you on use-of-money interest as well.

CashManager will be abreast of the changes, allowing you to work directly with IRD when their new system launches.