The perks of tax pooling

Keeping a lump of cash aside to pay provisional tax on your Inland Revenue due dates can be challenging for any business, especially if you have cashflow issues and need money on hand. For some companies and sole traders, tax pooling is the perfect solution.

The way it works is that IRD-approved intermediaries transfer money to Inland Revenue on your behalf. Once the pool has made the payment to Inland Revenue, it is considered to be ‘tax paid’.

All you have to do is keep up with your payments to the pool or purchase tax payments with a finance charge. Pros include:

• flexibility around when you pay provisional tax; you can overpay when you have a bit more money and have some breathing room when things get tight
• avoiding penalty charges and use of money interest (UOMI) charges for late payments; the pool will always make time-stamped payments for you
• if you haven’t paid enough tax to meet your provisional tax liability, tax pools typically charge lower interest rates for purchasing tax payments than those charged by Inland Revenue.
• if you’re short on cash, you can dip into your tax pool payments as an emergency line of credit, as long as you top up the money later.
• if you do take money out of the pool, you’ll pay a lower rate of interest than banks charge

MTM Accounting works with Tax Management NZ in arranging tax pooling for clients. Talk to us today to see if tax pooling is the right fit for you.