Two new Acts came into force on 1 April 2017. The Taxation (Business Tax, Exchange of Information and Remedial Matters) Act, and the Taxation (Annual Rates for 2016-2017, Closely Held Companies and Remedial Matters) Act. Key aspects of these Acts include changes to provisional tax, use of money interest and simplified reporting for businesses. There are also changes to tighten New Zealand's disclosure requirements for foreign trusts.
A new method of calculating provisional tax comes into play from 1 April 2018. It is the accounting income method (AIM). AIM allows you to use your accounting software to calculate and pay your provisional tax if your annual gross income is under $5million. Although this method will not suit all businesses it could work well for new businesses as they grow or seasonal businesses as the provisional instalment payable is linked to the business income cycle.
Changes to UOMI
Other business-friendly measures include reducing or removing UOMI for the vast majority of business taxpayers. In the past UOMI has been seen as unfair, because even if a business paid the correct amount of provisional tax during the year it could still incur the interest. As of April 1 this year, this charge is considerably reduced through the extension of the safe harbour rules.
In addition, there are new rates for UOMI. As from 8 May, they have changed to:
- Underpayments - 8.22% (down from 8.27%). That's what you pay on money you owe to IRD.
- Overpayments - 1.02% (down from 1.62%). That's what IRD pays you on money it owes to you.
The rates are reviewed regularly to reflect market interest rates.
The combination of the accounting income method and the other provisional tax changes will reduce the impact UOMI has on small businesses. The changes also remove the one per cent incremental late payment penalty for new GST, income tax, and overpaid Working for Families tax credits.
If you'd like more information about these changes, or how they could benefit you, get in touch with us and we'll be happy to walk you through them.
Make the most of apps to fire up your business
Are you using all your devices to their best advantage? Ideally they should operate like your 'office away from the office.' For example, if you're on the road and need to answer an inventory question or check how often a customer orders, you can use your notebook or phone to have the information at your fingertips.
The number of mobile apps designed to save you time and money is mind boggling. Here are a handful we like – but we strongly recommend you do your own research and find the ones that work best for you.
Hubspot and Salesforce are powerful tools for growing and managing your database. They are inbound marketing and sales platforms that help you attract visitors, convert visitors to customers, close sales and develop marketing relationships.
Trello is a multi-level app for managing projects. Trello's boards, lists, and cards enable you to organise and prioritise tasks in a co-operative, flexible and rewarding way across your workforce.
Viber and WhatsApp reduce the cost of international calls. Calls between other users, no matter where in the world they are, are free. And calls to mobile numbers around the world are cheap as chips.
Both Viber and WhatsApp sync your contacts, messages and call history with your mobile device, and use your phone's internet connection instead of your cellphone plan's voice minutes, so you don't have to worry about expensive calling charges for your business calls.
GotoMeeting for web teleconferencing reduces communication expenses and can eliminate the need to travel to meetings. Work can happen anytime, anywhere. GoToMeeting with HD video conferencing is a simple yet powerful way to collaborate in real time so business can be undertaken anytime, anywhere.
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Provisional tax and you
As mentioned earlier, further changes to provisional tax will be coming next year, starting 1 April 2018. For provisional taxpayers who pay using the standard method, there are two changes to the way IRD will charge UOMI from the 2018 tax year.
The first change applies to smaller taxpayers (including companies and trusts) using what's called the 'safe harbour'.
It's good news for you if:
- Your income tax liability is less than $60,000; and
- You pay the tax required according to the standard method at your three provisional tax dates for the year.
In this case the IRD will not charge interest if it turns out you did not pay enough provisional tax, as long as you pay any final balance by your terminal tax date.
The second change applies to other taxpayers.
If your tax liability is $60,000 or more, and you have paid provisional tax for the year based on the standard method, then:
- IRD won't charge interest if you paid tax due according to the standard method at your first and second provisional tax dates, even if your actual liability is higher.
- The final balance will be due at your third provisional tax date. IRD interest applies on any underpayment of tax from the third provisional tax date.
If you pay using the standard method
It's important you pay the uplift amount on the provisional tax dates required or you'll run the risk of incurring UOMI. IRD will charge UOMI on the uplift amount or a third of the actual liability, whichever is the lower amount. Late payment penalties will also apply if payment is not made on time.
Provisional tax amounts may be substantial and hard to manage. In addition, you may not know your taxable profit for the year until months after balance date. If your income is seasonal and difficult to forecast, or you have an unexpectedly profitable transaction or contract, you could end up owing IRD an amount you'll struggle to pay.
Choose the right payment method
Volatile or seasonal income means you may prefer to use the estimation or GST ratio methods to calculate your payments – in which case you will be subject to the same provisional tax rules as before.
The new pay-as-you-earn option, the accounting income method, which IRD hopes will address those issues, is not available until 1 April next year (to coincide with the start of the 2019 tax year).
Until then, it is important to talk to us if you are going to have trouble meeting your provisional tax obligations. We can work with you to devise a plan and discuss options like the use of Tax Traders Ltd to mitigate your risk if you cannot pay in time or in full.
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BUSINESS HEALTH CHECK
Things to do this month:
TALK TO US ABOUT THE RECENT CHANGES IN TAX LAW AND HOW THEY MIGHT AFFECT YOU
Chances are you will benefit from them.
CHECK OUT SOME MOBILE APPS TO DRIVE YOUR BUSINESS FORWARD
Many are free, and even the paid ones may offer a free trial period.
GET EVERYTHING SORTED FOR US TO FINALISE YOUR END OF YEAR ACCOUNTS
Call or e-mail if you have any questions – there are no dumb questions!
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Key tax dates a quick overview
||Small & large employers return & payment
||Return & payment
||NRWT/ Approved Issuer Levy
||Return & payment
||Return & payment for May
|(Assuming you have a March or May balance date and we prepare your tax returns):
- If you use the Ratio Option and pay 6 instalments/yr
- If you use the Standard or Estimation Option and pay 3 instalments /yr with your GST filing (May bal date)
- Provisional Tax and GST - if you pay 2 instalments/yr (May bal date)
||Return & payment if paid annually
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