The next big date on the tax calendar is Friday 28 August 2026. For most businesses with a 31 March balance date, this is when the first instalment of 2027 provisional tax is due. For GST filers, the return and payment for the period ended 31 July is also due on that day. With two payments landing at once, a bit of planning now will save stress later.
How Provisional Tax Is Calculated for 28 August 2026
If your 2026 tax return has been filed, Inland Revenue (IR) expects your first 2027 instalment to be based on your 2026 residual income tax plus 5%, spread across three instalments. If the 2026 return hasn’t been filed yet, the first instalment is instead based on your 2025 tax plus 10%.
A key point to note, the IR’s starting position will be the 2027 year being similar to the 2026 year, but with a bit of growth on top. If your 2026 year was a strong one, your August instalment will reflect that, whether or not the current year is tracking the same way.
Should You Pay the Standard Amount or Estimate Provisional Tax?
Before simply paying the standard amount, look at how the first four months of the 2027 year have actually gone, it’s worth comparing the year-to-date results against the same period last year. Three situations are worth acting on if trading is:
- Ahead of last year. As the standard instalments may leave you short at year end, with the balance payable as terminal tax, upon our review a voluntary top up during the year may help avoid the big end of year tax bill.
- Behind last year. Businesses trading below last year may be able to estimate provisional tax lower. This is something we handle on your behalf and will review your year to date figures to work out a supportable estimate and file it with IR for you. Getting the number right matters, because an estimate set too low attracts use of money interest on the shortfall from each instalment date. If you think your year is going to be down, let us know and we will run the numbers.
- About the same. Pay the standard amount.
GST Is Also Due on 28 August 2026
Alongside provisional tax, 28 August is also the payment date for GST for the period ended 31 July. Around the end of each GST return period, it always pays to look at what your accounting system is showing as GST owing for the period. July can be a solid trading month for many businesses, and a healthy GST bill landing on the same day as your first provisional tax instalment could add up to a large combined payment.
Knowing the likely total a month out gives you time to make sure the funds are there, rather than discovering the size of it when the return is filed. The same rule applies as for income tax: make sure provisions are in place to cover the GST as well, ideally in a separate account topped up as you invoice.
Cash Flow Planning for the August Tax Deadline
Tax is not really a once a quarter cost. Every sale you make and every dollar of profit you earn carries a tax component and it doesn’t leave your bank account straight away. The businesses that find August easiest are the ones that recognise this and treat the tax portion as money that was never theirs to spend.
The most effective habit is also the simplest: open a separate bank account for tax and feed it regularly. Each week or month, transfer across the GST portion of your sales plus an allowance for income tax based on your expected margin. When the money is drip fed as you earn it, 28 August becomes a transfer between accounts rather than a scramble.
A few other points worth checking as part of your cash flow planning:
- Map out the full year, not just August. The 28 August instalment is the first of three, with the others falling on 15 January 2027 and 7 May 2027, and GST continues in between. January in particular catches people out, arriving right after the holiday shutdown when receipts are at their slowest. Putting all the due dates and estimated amounts into a simple twelve month cash flow forecast shows you now whether there is a pinch point coming.
- Watch your drawings. If money is coming out of the company faster than after tax profits are going in, the tax provision is usually the first thing quietly eroded. Drawings should be set with the tax cost of your profits in mind, not just what the bank balance appears to allow.
- Tighten up debtor collection. A large debtors ledger is often the real reason a tax payment feels unaffordable. The profit has been earned and the tax is due on it, but the cash is still sitting in your customers’ bank accounts. Invoicing promptly and following up overdue accounts in the weeks before a tax date can make the difference on its own.
- A healthy bank balance is not the same as spare cash. Before committing to new equipment, vehicles or stock, deduct the tax already owing from what is in the bank. What is left is the true amount available to spend.
If putting money aside has slipped this year and the August total looks daunting, don’t wait for the due date. The section below covers the options, and all of them work far better when they are arranged early.
What Happens If You Cannot Pay on Time?
If you can see that the August payment is going to be a squeeze, the worst option is silence. Late payment attracts an immediate 1% penalty, a further 4% after a week, and use of money interest on top. The better options, all of which work best when arranged early, include:
- An instalment arrangement with Inland Revenue. Set up before the due date, this can prevent late payment penalties, although interest still accrues.
- Tax pooling. An IRD approved intermediary effectively lets you pay your provisional tax later, at finance rates that are usually well below the IRD’s interest and penalty regime.
- Estimate Where the current year genuinely supports it, we can review and file for you.
Could PAYE Reduce Your Provisional Tax Exposure?
For business owners (excluding self-employed), there is another way to take the pain out of provisional tax altogether: pay yourself a regular salary with PAYE deducted, rather than relying on an end of year shareholder salary. The tax on your income then goes to the IR in small amounts every payday, your personal provisional tax exposure reduces or disappears, and your household budgeting gets easier because your take home pay is known.
This doesn’t always suit everyone, and it needs to be set up properly, but for owners who struggle with the three big provisional tax payments each year it is well worth a conversation.
Talk to us now, not on 27 August
If you would like us to review your year-to-date position, check what your August instalments should be, or put an arrangement in place, get in touch with your local Moore Markhams advisor in the next few weeks. A short conversation now is far cheaper than interest and penalties later.
