Page 107 - Build 161

For temporary cash ow de cits, consider negotiating a bank overdraft. The nancial forecasts that you have prepared should help to support your application and show how the overdraft will be repaid over time.
Other measures that can provide temporary relief include using tax nancing for income tax payments and negotiating payment plans with the IRD for historical GST and income tax. In most circumstances, the IRD would expect PAYE to be paid up to date and for the payment of current taxes to be made on time.
Tax nancing can smooth tax cash ows
There are several companies offering tax financing services, acting as tax intermediaries between businesses and the IRD. Your advisor can obtain quotes and organise the tax financing for you.
The tax intermediary sets aside an agreed amount in a tax pool, as at the date of the arrangement. The business pays interest on this until cash flows enable full payment, when the backdated principal amount (held at the date on which the financing plan was initiated) is transferred to the IRD. This clears any use of money interest and penalties imposed by the IRD, so the only cost to the business is the tax financing rate.
The IRD use of money interest rate is currently 8.22% on underpay- ments. Compared to this, the indicative tax nancing rate is from 4.4% at the time of writing. In contrast to other borrowing rates, such as a business overdraft, the tax nancing rate o ers a highly competitive way of smoothing out tax cash ows.
Set up payment plan with the IRD
It is possible to request payment plans for overdue GST and income tax payments. The main option available is an instalment arrangement whereby an agreed amount is repaid over a set period of time. To initiate this, the taxpayer needs to provide the IRD with an instal- ment arrangement proposal. The aim of this should be to pay o the outstanding tax in the shortest possible time while keeping current tax obligations up to date, particularly those relating to PAYE and GST.
An agreed arrangement plan needs to be adhered to in order to avoid reputational issue with the IRD and increased penalties. This is where a robust cash ow forecast and forecast nancial statements could assist in ensuring the arrangement plan is realistic given the taxpayer’s cash ows.
For more This is intended as general advice only. For speci c advice, contact your advisor or local Staples Rodway o ce.
Build 161 — August/September 2017 — 105