Can’t pay – or won’t pay?

According to the Government’s Tax Working Group, almost all of IR’s tax indebted taxpayers can be classified into three broad groups –

1) disorganised,
2) can’t pay and
3) won’t pay.

Placing taxpayers into these three groups allegedly helps IRD to understand drivers and behaviours and easily pair an appropriate response to effectively encourage them to comply. Or that’s the idea…

Here at TDM, we don’t like to pigeon-hole our clients into such narrow definitions.

For instance, along with these broad groups, it is important to remember that there are human, social and economic factors which affect taxpayers’ ability to pay.

The Tax Working Group describes their three subtypes thus:

1) Disorganised:
Are confused or disengaged taxpayers that are close to being voluntarily compliant, but have a general apathy towards improving their tax compliance or feel discouraged to try and comply. They may have a poor understanding of their tax requirements and/or have underdeveloped business processes. Their business (or the business owner) may have reached the point where they need
the services of a bookkeeper or tax accountant. Sometimes these taxpayers routinely file and pay late, but a reminder from IR is enough to reverse their non-compliance.

In these cases, IRD won’t find you a bookkeeper or accountant, set you up on Xero and provide free training, or send you reminders – but we will.

2) Can’t pay:
Are taxpayers that are not in a financial position to pay their tax obligations. These taxpayers want to pay their tax, but they do not have the funds to do so. It is likely that these taxpayers are operating a business that has experienced a temporary shock (such as a new competitor or poor harvest), or is permanently failing and is unlikely to financially recover. It is possible the business owner has several other creditors who may not be aware of the full extent of the business’s insolvency.

In this situation, IRD won’t give you tips about how to budget and provide in advance, how to prioritise creditors and set up instalment arrangements – but we will.

3) Won’t pay:
Are risk-takers, adversarial or criminal taxpayers that have the funds to pay their tax debts, but just chose not to. These taxpayers will challenge any attempts to resolve the tax debt, and often be intentionally evasive and deceitful. These taxpayers may file inaccurate tax returns, not pass on employees PAYE deductions or seek refunds they are not entitled to. These taxpayers require greater effort and resource to effectively respond to and resolve.

Although these taxpayers certainly exist, in our experience, many ‘can’t pay’ taxpayers are treated or seen as ‘won’t pay’ clients by IRD, making them nervous or hesitant to provide information or be contacted, leading to a ‘head in the sand’ approach.

Tax Debt Management sees the person, the family, the community behind the debt, and, not only works to confront the debt, but to make changes to ensure current and ongoing compliance and support the people behind the arrears.

Call Rosie today to address the stress and embark on the road to fiscal recovery.

Seasonal work and how to manage cash flow

By Rosie Gallagher

Various businesses are more at risk from incurring tax debt than others, whether it is storing and filing receipts (“That’s not what your glovebox is for Mr. Tradie!”) or filing on time – “but I’m just sooo busy!”

The most at-risk for tax compliance though, is often the seasonal business – the beach front ice creamery in the Mount or the cherry orchard in Otago – how do you keep earning throughout the year?

The two key approaches to this are provision and/or diversification.

Diversification would mean looking at other options of earning – another example of this would be if your business only has one or two major contracts – if you lost one – would you be able to continue?

Diversification of earning could be as simple as turning those cherries into jam and continuing to sell through Winter or swapping out ice-cream for a coffee cart in the colder months.

The key is not relying on one source of income.

The other approach is provisions. Like the fable of the Ant and Grasshopper, if you cruise through times of plenty, you will likely fail through famine.

Taking $100,000 over 6 months is amazing – but, GST isn’t payable once per year. If all of your income comes at once, make sure that by providing some of that income evenly to other months, you won’t be short of GST payments and the like.

Dealing with tax arrears isn’t just about negotiating the debt accrued – it’s about ensuring the right processes are in place to guarantee future compliance – we can handle the negotiations but, also, help with the advice you need to keep that cash flowing.

Call Rosie to address your tax debt today – 0800 829 277.

‘Budget’ is not a dirty word!

‘Budget’ is not a dirty word!

Dealing with people in tax debt every day certainly keeps you appraised of various market trends and economic impacts on various industries.

What can be surprising though, in this age of sky-high rents and technological progress, is that so few families seem to work to a budget anymore.

Client A – let’s call her Jenny, is a successful contractor based in Wellington. She was finding it difficult to get by on what seemed like a good salary – certainly she didn’t appear to have any designer clothes or extravagant expenses…

However, city life and all of its trappings led to daily trips to the supermarket after work, coffees and Ubers on the run, ‘too-tired’ takeaways 3 or more times per week – all were avoidable and could save serious money – certainly enough to cover ongoing tax contributions.

Many of my clients think they have little left in the kitty at the end of the month, but, where we have introduced budgeting or financial management services, the savings are certainly noticeable – one construction worker client had up to $6,000 extra in his pocket every month!

Everyone can benefit from a budget – not just people who are having trouble making ends meet. It can mean the difference between feeling in control and being able to plan ahead, versus always wondering where your money went and going into overdraft between paydays – or, using your GST savings as cash flow – a sure-fire way to get into trouble with IRD.

Remember, having a budget is about control – and every budget needs some breathing space – it’s not about stripping everything right back, sometimes just a few tweaks to your spending habits are required.

Technology and tools such as make budgeting easy – start today and see how much you could add to your household by making just a few small changes.

Bonuses and benefits

Bonuses and benefits

This is the time of year when many of us receive a bonus or, conversely, when we close down for several weeks – either way, change from a normal routine or income can affect the tax you pay – and therefore, can lead to unknown debt.
When you get a lump sum payment or “extra pay”, it can affect the amount of tax you pay. It can also affect your ACC, KiwiSaver and student loan repayments and may affect your entitlements.

Lump sum payments (“extra pay”) include:

  • back pay
  • back-paid holiday pay
  • lump sum holiday pay
  • annual or special bonuses
  • cashed-in annual leave
  • retiring or redundancy payments
  • payments for accepting restrictive covenants
  • exit inducement payments
  • gratuities
  • employee share schemes benefits

If you know you’re getting a lump sum payment, talk to your employer to make sure they’re going to deduct enough tax and ACC. You can ask them to deduct more tax if you think you might end up with a debt at the end of the year.

Student loan

Your employer has to deduct student loan repayments from your lump sum. Check with your employer to make sure they have made a deduction, and with any old employers if you’re owed lump sums from them.

If student loan repayments aren’t taken out you may get a Personal Tax Summary (PTS) at the end of the year showing you need to make a student loan repayment.


Your employer should deduct KiwiSaver from your lump sum payment. Any old employers who are paying you a lump sum need to take KiwiSaver out too.  You’ll also be entitled to employer contributions.

At the end of the year

If you haven’t had the right amounts deducted IRD generally send you a Personal Tax Summary (PTS). The PTS will tell you what’s been underpaid and how much you have to pay. If you receive Working for Families Tax Credits, you’ll a get a PTS anyway.

If you don’t receive a PTS you can still log in to myIR. Click “Money back?”and use the calculator to work out if you’ve paid the right amounts.

If you haven’t followed these tips previously and it turns out there is a shortfall – call Tax Debt Management to get it sorted.

Happy Holidays to all.

Tax Arrears

Tax Arrears

Many people love the idea of starting their own business, however, turning such a dream into a successful enterprise isn’t always smooth sailing. In fact, soon after starting a business, many new business owners realize that they are in over their heads. They see that there are a number of obstacles that need to be overcome, as well as knowledge that needs to be gained. Knowledge regarding company taxes and tax payment penalties is critical because for a company, understanding payment requirements will help to avoid potential penalties, tax debt and possible liquidation proceedings.

Taxation Filing Knowledge
Tax filing and payments in companies mostly consist of GST and Income Tax, however, if you employ staff members, it can include PAYE obligations too. Many businesses hire the services of an accountant to deal with their tax obligations and help them understand business owner obligations / keep the right records. In New Zealand GST can be 2 monthly or 6 monthly, PAYE filing is required every month and income tax returns are due annually.
If you file late on any of these – or do not pay in full, IRD might well apply a penalty for failing to lodge or pay your tax return on time.

How to Avoid Late Filing/Payment Penalties
No matter who manages the company bookkeeping or accounting, the Director is responsible for ensuring compliance with IRD.
There are a number of things companies need to do to avoid having to pay a penalty. A few of the most important aspects are:
keeping accurate records of activities
declaring all their income
making sure the business is registered for all taxes
ensuring taxes are paid on time and the right amount

Make Sure you Pay Enough and On Time
The way to avoid tax payment penalties is to be sure you’ve paid enough tax and at the right time. In New Zealand there are penalties for late filing, penalties for late payment and penalties for failing to file. Criminal prosecutions are New Zealand’s harshest strategy for dealing with those taxpayers who deliberately seek to evade their lawful obligations to the tax office, particularly around PAYE.
Failing to submit tax returns may also result in tax payment penalties, but not only that, as a business, failing to comply with your tax obligations may also jeopardize your chances to claim the deductions that your company may be entitled to. There are companies who knowingly breach a tax obligation and they actually provide false or incomplete information. Extensions for income taxes also don’t entitle a business to pay their taxes later, and in fact the extension only grants an extension of time for filing tax returns, and businesses are required to estimate their income taxes and pay them when filing tax extensions.
What to do if you have Fallen Behind
Companies such as Tax Debt Management can help you to catch up on your filing and make an arrangement to pay the arrears over time or obtain a full or partial write off of tax, based on your circumstances.
However, this will only be practical once, as IRD will expect you to have learned new processes and put measures in place to ensure your compliance going forward. Tax Debt Management can also assist with this. These measures may be; implementing a payroll system to deduct PAYE before your staff are paid, creating a tax savings account to provide for GST in advance and/or installing and training you on Xero or MYOB accounting software to better manage your business needs.
The most important thing is not to leave an IRD problem too long. Interest and penalties compound daily and a small debt can spiral into something unmanageable.