One of the biggest challenges of running a business is paying taxes correctly and on time. Although small businesses understand this obligation, setting aside money from an already limited budget can negatively impact their cash flow. However, neglecting tax dues leads to financial consequences such as late fees and underpayment interest. Luckily, tax pooling can solve this dilemma.
This article will discuss the basics of tax pooling and everything a prospective member might need to get started. First, let’s define this system.
What is tax pooling?
Tax pooling as a tax payment practice is legal in New Zealand to help businesses meet their regular provisional tax obligations. A business entity can use this system to manage its different taxation obligations.Through this system, several taxpayers put money into a pooling account. The cash from a tax pool pays for the members’ tax obligations whenever they are due.
An intermediary, recognised and licensed by the Inland Revenue Department (IRD), manages the overall tax pool and the associated tax accounting services.
How does a tax pool work?
Instead of paying the tax directly to the IRD, a business owner can join a tax pool. The tax pooling provider deposits these payments from different pool members to an IRD business account.
The cash is held in this account until the pool mediator requests a transfer to the account with payment dues.
Having a pool to rely on eliminates the worries of tax underpayments and late fees; a registered intermediary handles all the paperwork for the members. They will also notify the IRD when to transfer a payment to a tax account.
What are the different payments tax pools can make?
The IRD considers payments to a registered tax pooling intermediary valid from when the amount was settled and put into the pool. Members of the pool can make payments for the following obligations:
• Provisional Tax Payments (Voluntary or Normal)
• Income Tax Reassessments
• Agreed Delay Tax
• Deferrable Tax
• Non-Income Tax Revenue Assessments
• Additional Tax Payments for Increased Obligations
• Use-of-Money InterestThe IRD reminds taxpayers that no payment is acknowledged as valid until their chosen intermediary orders a payment transfer to the concerned client account.
Without finalising this transfer, members of the tax pool may still receive notifications from the department, especially regarding overdue statements.
Another thing to remember is that the IRD does not have a record of clients using tax pooling systems unless advised beforehand.
Why should you join a tax pooling system?
As mentioned in the early part of this article, a tax pooling system can help you meet your tax obligations and other tax accounting services on time. Working with a tax provider means relying on a professional to file your tax returns. It’s a time and money-saving option that removes the complications and hassle of meeting IRD deadlines.This article has introduced you to tax pooling and its benefits. Remember that you can only enjoy these benefits if you contact a tax pooling solutions provider that will guide you through every step of the process.
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