Thousands of kiwi businesses are going to find paying taxes is more straightforward after a reform of SME provisional tax payments. The highlights for all our clients who own small- and medium-sized businesses:
1. No more estimations. This is great news because it means greater accuracy – the new provisional tax option uses software to calculate your payments throughout the year.
2. You’ll probably pay less use of money interest. Choose the new system and it won’t apply. Stay under the old ‘uplift’ method and if your annual liability is under $60,000, you won’t be subject to use of money interest either. If your liability is over $60,000, use of money interest will only apply on the last instalment of your tax. (Use of money interest will still apply to overdue payments.)
3. Contractors can choose their own withholding tax rates. These can range from 10% to 25%, but from April next year it will be easier for contractors to choose the rate that works best for them.
4. IR debts will accumulate more slowly. The previous 1% per month penalties on income tax, GST and some other payments will be scrapped. This is great news and will hopefully make businesses more likely to make repayments. As the Prime Minister said, “Building up a very large debt to Inland Revenue is often an ineffective way top get individuals and businesses to resolve their tax situation.”
5. Companies can now pay tax as an agent for shareholder-employees. This makes life a bit simpler for small business shareholders.
6. Overall, your cost of tax compliance should be lower. Around 97% of New Zealand businesses are small business and the IR’s research shows that “tax compliance costs are relatively high for small businesses.”
An estimated 110,000 businesses could take up the new pay-as-you-go option and you’ll need to be using Xero, MYOB or a similar sytem to take advantage of it. If you’re not already on Xero, we’ll try to get you switched over so you’re up and running for the April 2018 when the new system gets underway. PM John Key estimates that 30% to 40% of New Zealand businesses are using cloud-based accounting software now but expects to see that rise to 85% or 90% by 2026.
You can read more about the changes in the IR’s document Making Tax Simpler or give us a call and we can talk to you about what the changes will mean for your business.
By Elle Le