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.

Tax Pooling – Jump on in!

By Rosie Gallagher

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.

For instance, I recommend all of my clients operate a GST savings account, whereby, every time you are paid, 15% goes straight into an untouched savings account, just waiting for GST time to be paid in full and on time.

Income tax can be harder to manage though. That’s where Tax Pooling comes in.

You use this pool to pay or finance your provisional and terminal tax. There are no penalties charged by the IRD if you have underpaid, or if you have not paid your provisional tax on time. You save up to 30% on use of money interest (UOMI) when compared to the IRD.

The various ways of utilising tax pooling for your benefit are:

  • Tax deposit – Deposit your provisional tax payments into the TPS tax pool and increase your return on overpayments.
  • Tax purchase – Save up to 30% in use of money interest costs and avoid late payment penalties by buying the tax you need from the TPS tax pool.
  • Tax swap – Increase your return/reduce interest costs by swapping excess tax payments made into any tax pool for tax on the date you require.
  • Tax finance – Finance provisional tax payments at very competitive rates for up to 21 months. No application fees, no credit checks, no security required.
  • Defer payments – Reduce your interest costs by purchasing back dated tax now, but deferring payment until a future date at a lower finance rate.
  • Historic deposit finance – Holding a deposit in the TPS tax pool? Treat it as a pre-approved overdraft facility – the funds can be withdrawn and financed at competitive rates at any time.

We recommend an IRD approved tax pool company such as Tax Pooling Solutions – http://taxpooling.co.nz

Don’t drown in tax debt, we’re here to help. Call Rosie to address your tax debt today – 0800 829 277.

“AIM – Provisionally better.”

By Rosie Gallagher

How often does provisional tax time roll around and you’re totally unprepared?

In the world of tax debt management, after GST being used as cash flow, inability to account for or pay provisional income tax is the second most common way to fall behind in your tax obligations.

Provisional tax is based on the income you made the year before, so, even if you are not making any profit this year – there is still provisional tax to pay. Well, no more!

Finally, there is a better solution to being hit with a several thousand dollar bill every few months.

The accounting income method (AIM) is an alternative provisional tax option provided through software with MYOB, Reckon APS and Xero.

It’s a cash flow game changer – if you do not make a profit you will not have to pay provisional tax – hallelujah!

Recent legislation changes mean you’ll be able to join AIM at any time during the year from April 2019, just get yourself hooked up with MYOB, Xero or Reckon APS.

AIM uses functionality included in approved accounting software to work out payments. You can continue to use another provisional tax option if you think your business will not suit AIM. It will suit your business if:

  • your business is growing
  • you’re new to business
  • you have irregular or seasonal income
  • it’s hard to forecast your income accurately, or
  • you have accounting software or want to start using accounting software.

Once you’ve chosen AIM you’ll only pay provisional tax when your business makes a profit. This helps you avoid cash flow problems.

As long as you make your payments in full and on time, there is no exposure to use-of-money interest. If your business makes a loss you can get your refund straightaway rather than waiting until the end of the year.

Whilst we always welcome ways to avoid tax debt, we’re also here to help you if it has already occurred. Call Rosie to address your tax debt today – 0800 829 277.

The right recipe for tax debt resolution.

The right recipe for tax debt resolution

When you fall into the boiling pot that is tax arrears in NZ, IRD ensure that ‘paying it next month/when you can’ is an option that rarely works.

Adding a pinch of heinous interest and a dash of penalties – both late filing and late payment – means that within just one month, your forgotten PAYE return could have increased by over $250.

Imagine you lost the contract that has been getting you by, knowing another opportunity is coming up in 6 months, you don’t file or pay PAYE or GST for 5-6 months, thinking that the next contract will get you back on track.

Your average GST is $3k, average PAYE is the same.

In just 6 months, you are now over $30,000 in debt, with several thousand dollars of interest and penalties.

You try and pay the arrears, but, they keep rising, interest compounding daily – meaning you can’t pay your current taxes – or make a dent in the arrears you owed due to the penalties. You’re metaphorically swimming in pancake batter, getting nowhere.

Tax Debt Management always requests that penalties are wiped to enable our clients to concentrate on their current compliance – and address any arrears fairly.

If you meet the hardship provisions – we can go further than that and request a total hardship write off – the largest write off ever received by TDM was over $300k – so no amount is out of the question.

Sometimes Case Managers just need the right ingredients, presented to them in the right way – and we know what that is. A steady mix of tax administration law, with a sprinkling of your story and a commitment to whisk you away from the stress of dealing with IRD.

By Rosie Gallagher

Why fight to save a limited liability company – surely I’m protected?

Why fight to save a limited liability company – surely I’m protected?

Many of my clients don’t see the point in fighting to save a limited liability company, assuming that they’ll lose any assets to the Liquidator but will be personally unaffected.

Unfortunately, this isn’t the case. There are two main areas of a liquidation that can, and often will, affect the shareholders and/or Directors personally in a Liquidation.

Directors can be held accountable for ‘Breaches of Director’s Duties’ and shareholders can be liable for any drawings taken from the business without having tax taken at source – what is known as an Overdrawn Shareholders’ Current account.

Many times, it is far better to try and negotiate a payment arrangement with IRD, save the company and wind it up naturally, rather than allow a preferred creditor’s liquidator to target you personally for your company’s loss. Often, the debt owed by the company is less than what the liquidators will demand from you personally for drawings or breaches.

Protect yourself and your business, call Rosie today on 0800 829 277.

By Rosie Gallagher

I am a name, not a number!

I am a name, not a number!

By Rosie Gallagher

Two big results for Tax Debt Management in the last couple of weeks have reiterated that there is no time to address your tax arrears like the present.

This month, M/s Consultant and Mr. Handyman received full write off of their debts, (over $200,000 in total,) under the hardship provisions, despite M/s Consultant working full time and Mr. Handyman having travelled overseas several times in the past year.

Tax Debt Management doesn’t just project your finances and ‘cut a deal’ for IRD, we look at your personal circumstances and ensure you are treated as a person – not a debt.

We looked at M/s Consultant’s need to provide childcare as a solo parent whilst she worked and asked IRD to consider Mr. Handyman’s trip to see his daughter overseas compassionately. It had been several years since he saw her last and she was graduating.

These aspects, combined with; financial analysis, new processes implemented, and the timely provision of information ensured that M/s Consultant and Mr. Handyman will have a stress-free 2019.

M/s Consultant said, “I still can’t believe it’s true!” Mr. Handyman said it with flowers! If you would like to be treated as a name, not a number, call Rosie today on 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 Sorted.com 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.

KiwiSaver

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.