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
- 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.
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.
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.