Over the last six to twelve months Inland Revenue (IRD) has been taking a firmer stance when it comes to collecting overdue tax. This is in the form of increased liquidation action and enforced withdrawals directly from a taxpayer’s bank account.
Given the potential for IRD to take action it is more important than ever to engage with IRD, rather than put your head in the sand. Ideally, you can negotiate and enter into an instalment arrangement with IRD to clear the debt. The benefit of doing so is that IRD will hold off from taking action while the terms of an instalment arrangement are being met, and there is the potential for penalties to be remitted once the debt is cleared. However, entering into an instalment arrangement can be easier said than done.
Understandably, IRD takes the view that it should not be used as a bank to support a business that is unable to meet its obligations. This would provide an unfair advantage over competitors and would be unfair to those who do comply. Hence, IRD now expects businesses seeking instalment arrangements to demonstrate both their ability to meet proposed repayments and to stay current with ongoing tax obligations.
It is therefore not necessarily a question of whether the business has ‘any’ free cashflow to pay its tax, but whether it has sufficient cashflow to meet its future obligations, plus amounts that are already owed. If a business can enter into an arrangement to pay ‘something’ but will continue to fall further behind, IRD will likely decline the request and the business should therefore ‘fail’ rather than continue to trade without being able to meet its obligations.
What is changing
A hard line will also be taken on PAYE and GST as these are regarded as Crown funds held in trust by the business until they are paid to IRD. Non-payment of employer deductions is a criminal offence. Penalties can include fines, imprisonment, and shortfall penalties of up to 150 percent. Company directors and officers may also be held personally liable if they are aware of ongoing non-payment.
A proposal to enter into an instalment arrangement will likely require the following information to be submitted:
- How much can be paid weekly, fortnightly or monthly
- A statement of assets and liabilities
- Forward looking budgets
- Cashflow forecast
If specific transactions are anticipated that are relevant, such as equity from a new investor, IRD could ask for details of that transaction, such as Term Sheets, Sale and Purchase Agreement and details of the investor. Their purpose being to assess whether the transaction has a real prospect of occurring or not.
The IRD’s tougher stance highlights the growing importance of compliance and proactive engagement. Businesses should act early to manage their tax obligations, seek professional advice when needed and avoid using tax funds as working capital.
How We Can Help
Navigating tax debt can be a stressful experience, but you do not have to face it alone. At Moore Markhams, our purpose is to help you thrive, even through challenging times. Proactive engagement with Inland Revenue is crucial, and our experienced advisors are here to provide the expert guidance you need.
We can assist you in managing your tax obligations by preparing the necessary documentation, including cash flow forecasts and budgets, to support a fair and realistic instalment arrangement. We will work with you to understand your financial position and represent you in negotiations with IRD, ensuring your case is presented clearly and professionally.
Our team can provide strategic advice to help you maintain compliance and get back on a stable footing. By acting as your trusted partner, we can help you manage this process effectively, reducing stress and allowing you to focus on running your business.
