Tax Pooling: What is it and why would you use it
Posted on 25 Oct 2023
Tax pooling is a way to pay your income tax when it matches your cashflow rather than when it’s due to IRD, or to fixup a missed provisional tax payment. Tax pool intermediary’s like TMNZ , Tax Traders and Provisional Tax Finance have “paid on time” date stamped income tax payments at each tax date in an IRD account that those who need more time to pay can buy to pay their tax. You pay the tax pool interest at rates lower than IRD to use this tax. You can pay the tax and interest off over time or in a lump sum and once you’ve paid for the tax you need, the pool transfers the tax from their IRD account to yours. Because it is date stamped, IRD treat this as an on time payment in your IRD account and reverses UOMI and late payment penalties that they’ve been charging.
If you have a more urgent need for cash in your business at provisional tax dates eg you need it for operating expenses, to pay other taxes like GST or PAYE or to invest back into your business by buying a capital asset, tax pooling is a great tool to assist.
You get an additional 75 days after your terminal tax date to pay for your tax when you use the pool but can’t finance your tax past this date.
IRD approves the use of tax pooling and even mentions it on their website as a way of managing your provisional tax obligations. It is safe to use as Guardian Trust administers all payments and transfers of tax and the tax is held in an IRD account so is effectively risk free. It’s easy for you to access the service as there is no paperwork to complete, or security requirements because if you don’t pay the tax pool intermediary, they don’t transfer the tax to IRD. If your situation changes, the tax purchase arrangement can be amended.
Tax pooling can be used in other situations too such as if your are subject to an Inland Revenue audit or we make a voluntary disclosure to IRD to correct an error for another tax type like GST, PAYE, FBT or RWT and this results in more tax to pay.
If you’d like to use tax pooling, let us know and we can assist with getting this setup.
