Important IRD Changes to payments 2014

taxCheque payments

From 1 October 2014, you will no longer be able to make cheque payments or drop off returns to branches of the Westpac bank.  You will however, still be able to make cash and Eftpos payments at the branch.  You can still post cheques to the IRD – but note the new rules.

Over 70 percent of tax payments are currently made online and the IRD wants to encourage more customers to do the same.  By removing the unintended advantage to customers who post cheque payments on the due date, enables the equal treatment of all regardless of payment method.

If you intend to continue to pay by cheque, the payment must be received by the IRD on or before the due date for payment.  If the payment is received late, then penalties and interest will be incurred.  Using the postal service as an excuse for the late delivery of payments is no longer acceptable.

As part of the promotion of all things electronic, the IRD is also encouraging everyone to file various returns online.  Online channels with the IRD are convenient, secure and available 24/7.  In using online, you are able to file returns and make payments up to and including the due date.  If you would like assistance in setting up an online account with the IRD to take advantage of their online services, please feel free to contact your Moore Stephens Markhams advisor.

Refunds

In the near future, the IRD is also going to be moving away from issuing refunds in cheque form.  It is encouraging everyone to provide bank account numbers to enable refunds to be deposited directly.  With the recent budget announcement that cheque duty is being abolished, the writing is definitely on the wall that the use of cheques is rapidly diminishing.  Within the IRD it is widely acknowledged that cheques are expensive to produce (in some cases it costs more to produce the cheque than the refund it is for) –clearly not a good use of our taxpayer dollars.

This process is currently being worked through as there are a number of processing issues within the Department that need to be ironed out before this can be fully implemented – so there is no firm date as yet that cheques will stop.    The IRD is currently consulting with tax practitioners on the various issues arising.  For example, if a refund cheque is released by the IRD that is incorrect, under the current system you can send it back and it is treated as if you have never received it; fixes are made and the correct refund is reissued.  However, if a refund is deposited directly into a bank account, you only have 15 days to realise it is incorrect, pay the full amount back to the IRD with an explanation as to why it is incorrect, and hope for the best.  These sorts of things are generally captured by your tax agent but for taxes that you deal with yourself, the same issues will arise.

The IRD provides good information on how to make electronic payments, and has a direct link through to each of the banks.  The IRD link is: http://www.ird.govt.nz/makepayment/makepayment-index.html?id=homepage

2014 IRD conference

At a recent conference facilitated by the IRD, the key message was “your interaction with the IRD will change”.

It has been widely known for some time that the IRD’s computer system has been having a melt down.  At this conference it was announced that their ‘Business Transformation’ project is more than just the replacement of a computer system – it is also the opportunity to ensure that the IRD’s processes and tax policies are fit for purpose and capable of meeting future demands.

The Department sees the real benefits of this transformation will arise from the recasting of both processes and policies so that technology makes everything more efficient – technology is a means to an end.  This is seen as a ‘once in a generation’ opportunity for reform and the officials in charge are approaching everything with an open mind.

Part of this reform is moving from tax return management to data management.  At present the IRD process a lot of tax returns.  Often these returns are incorrectly completed and need to be manually reworked or re-entered into the system.  IRD looks at ways it can be provided with information in real time, which it can use to determine your tax liability.  If it can access the right information, it will be able to pre-populate a return, which will show what the IRD considers to be your tax liability.  The IRD will only be able to do this using technology.

The other main theme of the conference was to ensure compliance; some ideas in this area being:

  • Withholding tax – making sure that most people are taxed at source.  This minimises the opportunity for that person not to comply.  The focus here is to make sure that the existing withholding tax systems, such as PAYE, are more efficient and accurate. Also, how to extend existing systems to areas such as provisional tax and a wider range of payments made to contractors.
  • Enforcement – audit activity will still be required. While this is an obvious conclusion, it would appear that the IRD may change the nature of this activity if it is more focused on collecting, managing and interpreting data rather than verifying returns.
  • Penalties – there is evidence that higher penalties do not increase compliance rates and may actually have the opposite effect. New Zealand’s combined late payment penalty and interest regime is significantly harsher than other countries, with nearly half of all outstanding tax debt comprising such penalties and interest.  This whole area needs a rethink.  It is acknowledged that the system should allow taxpayers to correct errors without the threat of penalties.
  • Making it easier to comply – it is not enough to tell people what is required, you have to make it easy to comply. One of the ideas being considered by IRD is collecting under-paid tax from future PAYE deductions rather than through an end of year tax bill.

If you have any questions about the content of this article, please feel free to contact your Moore Stephens Markhams advisor.

Published Winter 2014.

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