Provisional Tax Instalment 28th August

We are coming up to the first provisional tax instalment for 2025 on 28 August. 

How is it calculated?

The first provisional tax instalment is based on the 2024 filed tax return plus 5%, or if the 2024 tax return hasn’t been filed yet then the 2023 return plus 10%. 

Quite often this calculation method doesn’t fit with how a business is currently performing.  Especially at the moment as many businesses are seeing profits drop when compared to 2023.

What options are available to help fund tax payments?

We understand that many businesses are currently struggling with cashflow. Its not always easy to find the funds to cover provisional tax and still have enough left over to fund operations.

There are options available for provisional taxpayers to help fund their tax payments. These include:

1. Either estimate your income to a lower figure or just pay a reduced amount (risky option)
   This option is risky if you are not sure of what your total annual income will be and IRD may charge interest and penalties for short payment.

2. Use Tax Pooling Services, such as Tax Traders
   Tax Traders is an IRD-approved intermediary who provide additional flexibility at a cost which is usually less than IRD, including:
   

   • Depositing your provisional tax payments into the tax pool rather than paying IRD direct. 
     Benefit: You are able to withdraw your funds if they are urgently needed for business funding.  When you pay the IRD direct you cannot withdraw funds until after your 2025 tax return is filed.  You also get paid interest for excess funds you have in the pool.
     

   • Setup an instalment arrangement and either make regular payments or ‘pay as you go’. 
     Benefit: With this option you have until June 2026 to cover your 2025 provisional tax.
     

   • Finance your tax to a future date.
     Benefit: This allows you to pay your 28 August provisional tax at a later date without IRD penalty.  As with the instalment arrangement you have until June 2026 to have the tax paid.
     

   • Use Taxi to leverage your provisional tax payments to secure working capital.
     Benefit: If you have funds deposited into the tax pool you can borrow up to 90% at a reasonable interest rate and so long as you have repaid the tax by the terminal tax due date you won’t incur any IRD penalties.

What is tax pooling?

The framework was established by Inland Revenue in 2001 to help taxpayers meet their provisional tax obligations. Taxpayers pay their provisional tax into a ‘pool’ rather than paying it directly to Inland Revenue. Then when taxpayers know what they need to pay in provisional tax, they transfer this out of the tax pool and sell any surplus to someone else. A taxpayer faced with an underpayment can then acquire those surpluses for a fee less than the Inland Revenue debit interest rate.

If you would like to discuss the options available for paying your provisional tax in more detail, please get in touch with your CT Advisor.

Cheers
Mat

Mathew Robertson, Managing Director

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This article contains general information only and based on information available at the date of publication. You should obtain advice for your personal circumstances.