As a new business owner, it's important you understand the provisional tax system as it affects your business.
In your first year of business, you can receive a significant tax deferral. Your first year's tax bill is, in some cases, not payable until 7 April the following year. For example, if you went into business in June 2023, assuming you have a March balance date, your first year's tax bill may not be due and payable until 7 April 2025, which is quite some time away. Your provisional tax for the following year may not be payable until May 2025.
The first two tax bills you sometimes receive in business - terminal tax for the previous year and provisional tax for the current year - can be tough for new businesses. If you aren't aware of these impending tax bills, they can be a shock and have a serious effect on the your cashflow.
We believe it is vital that, six months into your new business, we prepare a simple tax plan for you so you have a general idea of how much tax will be payable and when. We can then programme the likely payments into your cashflow plans. This is far better than waiting until the following year to find out your tax commitments.
Discount for new businesses
Newly self-employed people or people in partnerships can also make voluntary payments of provisional tax during that first year of business and receive a 6.7% discount on the first year’s tax.
Is your business affected by COVID-19 or other adverse events?
Generally, if you are late with your tax payments, you may incur late payment penalties and use of money interest. If your business is affected by COVID-19 or other adverse circumstances including the storms and cyclone damage of early 2023, Inland Revenue have some discretion to remit penalties and interest for tax payments. Affected businesses should contact Inland Revenue as soon as they know they will not be able to pay on time.
Please let us know if this is an issue for you and we can engage with Inland Revenue on your behalf. Inland Revenue can come to an arrangement on the understanding affected businesses still pay the tax they owe as soon as they can.
The provisional tax system is complex. The attached guide gives more detail.