With the latest COVID alert levels many may be feeling the pinch when it comes to cashflow. Depending on your upcoming provisional tax payment, you may want to look at tax pooling.
Tax pooling benefits
Tax Pooling is a service where people that overpay their tax can then on-sell their tax to people like yourself at a discounted rate compared to Inland Revenue. Most of you will have your provisional tax based on ‘standard uplift’. This basically means that IRD have calculated the tax you’re likely to pay in the current tax year based on your most recently filed tax return and added 5% (if your 2021 tax return has been filed) or 10% (if your 2021 tax return is yet to be filed) assuming we are talking about the current tax year (2022). Not paying your provisional tax payment in full and by the due date opens you up to interest and penalty charges from Inland Revenue.
Tax pooling payment options
1. Single Payment – You pay your provisional tax and interest portion at a later date
2. Interest Up Front – Pay the interest portion now and your provisional tax at a later date
3. Instalment Plan – Pay in equal instalments up until a later date. These instalments include your provisional tax and interest on each payment
4. Pay as you go – A payment here and a payment there until a later date.
Tax pooling example
The example below is based on an upcoming provisional tax payment of $15,000 on 28th of August, deferred until 24 March 2022.
1. Single Payment
The total payment of $15,473.16 is due on 24th of March 2022. This includes interest of $473.16 based on an average interest rate of 5.41%.
2. Interest upfront
A payment of $245.33 is due on the 28th of August with the remainder due on 24th of March 2022 of $15,000 based on an average interest rate of 2.87%
3. Instalment Plan
16 fortnightly payments of $951.78 with the first payment starting 28th of August and the final payment on 24th of March 2022. This is based on an average interest rate of 6.22%
4. Pay as You Go
Pay at your leisure, the final payment is due on 19th of June 2022. Interest will be calculated based on the timing of your payments.
A couple important things to note
· The ‘total’ amount is what you will end up paying which includes the interest and provisional tax amounts
· The amount you will ‘Save’ is based on the interest savings and avoiding late payment penalties by not paying your instalment due which Inland Revenue would have otherwise charged.
· You can have flexibility of when you want to pay your provisional tax back. Let your go-to at Outside know what month you would like to pay this tax back by.
· The larger your provisional tax payment due, the greater your savings would be.
· You’ll get a better interest rate setting up a plan before your provisional tax payment is due
· Beyond the upfront interest amount (and any additional interest payable as a result of extending the maturity date), there are no other charges. No security or financial disclosures are required.
· Your tax payment will only appear on your Inland Revenue statement of account once your accountant has transferred the tax from the tax pool to your income tax account at Inland Revenue. This means that interest and penalties may accrue on your Inland Revenue statement of account until your tax payment is settled and transferred. On transfer, Inland Revenue will consider your tax paid in full and on time. At this point, any Inland Revenue interest and late payment charges will be removed.
I’ve already paid my provisional tax based on the amount you asked me to pay?
In our experience, Inland Revenue are somewhat reluctant to refund a provisional tax payment already made. However, they may be persuaded by showing a confirmation of you tax pooling plan. We can get in touch with Inland Revenue to get try this refunded for you. There may be a bit of a delay in this happening.
How do I sign up?
Decide which payment option you would like to go with and when you would like your arrangement to end. Then, get in touch with your go-to at Outside, otherwise give Saroj an email and she will pass you onto your Go-to. Our fee for setting up a tax pooling arrangement is $75 plus GST.
We use Tax Traders as our provider, watch a video explaining everything below:
As always, we’re here to help you get through the thick of it (and the rest), so if you’re stuck on anything mentioned above, please get in touch with your Outside go-to, or anyone from the team that tickles your fancy.
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