Managing outstanding debts can feel overwhelming, particularly when dealing with obligations to the Inland Revenue Department (IRD). Whether you are an individual, company, partnership or trust, when tax is due and not paid on time, you will be charged late payment penalties. If it’s not paid in full then interest is applied, which is currently set at 10.91%. With added penalties and interest, your tax debt can quickly add up to a significant tax bill.
Understanding how the IRD deals with overdue debts and the payment options they offer is important to stay on top of those obligations. In this article, we look at ways you can manage tax debt and what options are available for repaying your debt.
How does the IRD approach debt?
The IRD acknowledges there might be occasions when your tax payments are delayed for valid reasons. To address this, they have established grace periods, instalment plans the possibility of waiving penalties and in certain cases, interest. However, anyone making overdue payments will have penalties and interest added to their bill.
If you do find yourself in a position where you have a debt owed to the IRD and you are unable to settle it in full, the IRD has two options available: payment by instalment or financial relief.
Paying by instalment
You can choose to go with this option if you cannot afford to pay the tax you already owe or will owe in the future. You can apply to split what you owe over weekly, fortnightly or monthly payments.
Before applying you need to decide what you can afford to pay towards your debt, whether you will pay by direct debit or another method and when you require your instalment payments to begin.
You will need to proactively communicate with the IRD if there are any issues with repayments. The IRD may apply the Use Of Money Interest (UOMI) and penalties on any overdue balances and if they do not receive engagement or response, they may take further collection measures.
Financial relief
The IRD may be able to write off penalties or certain amounts if you cannot meet your payments. However, they require you to provide financial details that showcase what is stopping you from repaying the debt and why the overdue amount was not paid on time before making a decision. For companies, partnerships and trusts, the IRD also requires information on whether you have tried getting a loan to pay this debt.
Tax pooling and how it could help you
Tax pooling is a helpful way for businesses and individuals to manage the uncertainties associated with tax obligations. It allows taxpayers to pool their funds in a central account managed by specialised financial institutions or platforms.
The idea is that if someone owes more taxes than expected, they can use money from the pool to cover it. On the other hand, if someone has overestimated their taxes, the extra money goes into the pool. This system is great when you are not sure how much tax you will end up owing. Tax pooling helps smooth out cash flow fluctuations and minimises the impact of unexpected tax bills.
In running a business, it is important to implement good practices for keeping records and filing on time. This helps ensure that you meet the requirements set by the IRD for repayments and stay in compliance with their rules.
If you currently owe the IRD money and are not sure what to do next, contact your local William Buck advisor for a discussion on how best to resolve and plan for the future.
