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Northland Accountant’s | A Simple Guide

The Way to Calculate Income Taxes Use of money interest (UOMI) is charged by the IRD on underpayments and paid out on overpayments made throughout the year.
Standard/Uplift (default method) — last year’s residual tax and 5 percent estimate — according to the estimated gain for the year, GST Ratio — paid with each GST yield and according to a percentage of sales for that period

Changes to Provisional Tax Rules
If at any point you are unable to fulfill tax payments as they become because of the IRD, please contact us before the payment . We can work together with the IRD to make arrangements that may help to lessen the costs of late payments, or allow you to enlist the services of a tax intermediary who will help finance your tax in a lower rate of interest than the IRD charges.

The threshold for becoming a provisional tax payer is $2,500 of residual income tax (RIT). As companies and trusts were formerly excluded in the UOMI safe lane exception, this meant that even when the thing wasn’t a provisional tax payer last year or in reality it did not exist last year, interest would be charged on underpayments in which the present year’s RIT was $2,500.

Provisional Tax Approaches
Please contact us (via our Northland Accountant website)  if you are unsure of your provisional tax liability, or believe that you may be asked to create provisional tax payments according to your current year’s income.

Why Are Tax Payments So High In The Third Year Of Company?
Where provisional tax hasn’t yet been paid during the first year of business, a company can be hit with two decades’ of taxation payments at once. In the next year, the provisional tax obligations are paid during this year based on the first year’s profit.

However, in the third year provisional tax payments are paid based on the second year’s gain, and in addition the initial year’s terminal tax is due at the start of the third year. Thus it’s important to set aside income in the first year of business to cover the tax which will be due on the first year’s profit. In saying that, understanding exactly what your tax liability is likely to be can be difficult.

Provisional tax is a interim tax payment made during the fiscal year. The principle inherent interim tax payments is that tax ought to be paid as income has been earned. If you’re a provisional tax payer, you will most likely create three provisional tax payments during the fiscal year on 28th August, 15th January and 7th May to get a 31st March balance date.

You can also decide to pay twice annually to align with six-monthly GST intervals, or over three times each year if you use the GST ratio strategy and also have a monthly or two-monthly GST period.

Safe harbour from UOMI — this was previously (2017 and previous financial years) set at $50,000 of RIT for individuals. This was extended to $60,000 of RIT for all entities for its 2018 fiscal year onwards. UOMI has been taken away from the first two provisional tax instalments for taxpayers using the standard/uplift method, where obligations required by the IRD (according to the previous year’s income) have been made by the due dates.

Intro of an Accounting Income Strategy (AIM) for smaller taxpayers using an approved accounting program. AIM becomes accessible from 1st April 2018 for the 2018/19 and later tax years. Letting a closely held firm to pay provisional tax on behalf of shareholder-employees to remove their personal provisional tax requirements.
Threshold for Provisional Tax