Managing tax filings, payments and cashflow in light of COVID-19
Tax Alert - September 2021
By Veronica Harley
For some businesses presently, managing cashflow in light of the COVID-19 lockdown restrictions will be critical. We thought it could be useful to outline for our readers the types of tax relief available to those struggling with meeting tax obligations, plus a few other thoughts that might help with managing cashflow when it comes to taxes.
1. Keep filing returns on time
Whilst it may be challenging, businesses need to keep on top of filing employment and PAYE information, GST, FBT and other tax returns even if making the associated tax payments will be difficult. Inland Revenue is unlikely to consider requests for relief if it doesn’t have this information as a starting point. Also bear in mind that this information will be required as evidence of ongoing business activity when applying for the resurgence support payment, the small business cashflow loan scheme or the wage subsidy. For the small number of businesses that may struggle to physically file returns, we expect Inland Revenue will be flexible in this regard and not impose any late filing fees, provided contact is made as early as possible.
2. Set up an instalment arrangement
If a business will struggle to make tax payments on time because it has been significantly impacted by COVID-19, a business can apply for instalment arrangement. Again it best to get on to this as soon as practicable and not leave it until after the payments are due. Deloitte can assist you with setting this up. Essentially you will need to agree on an instalment amount, a payment start and end date. Inland Revenue may ask for some financial information to support the application that tax payments can’t be made. It can be set up for any tax type. But the overriding condition is that you will need to agree to pay the tax as quickly as possible. In other words, this is not a holiday or deferral from paying tax. A 1% penalty (instead of potentially 5%) will still be applied upfront, but Inland Revenue has discretion to remit this down the track if the business complies with the arrangement.
3. Apply for UOMI relief
Use of money interest, or UOMI, will still be charged for missing a payment at the current rate of 7%. However under current rules introduced last year, Inland Revenue has discretion to waive UOMI charges until 25 March 2022 if the taxpayer’s ability to make payment on time has been significantly adversely affected by COVID-19 and certain criteria are met. This relief only applies to tax payments due on or after 14 February 2020 and is only available once the core tax has been paid in full. The government has already remitted UOMI of more than $17 million for 96,000 taxpayers and suppressed a further $71 million for 21,000 taxpayers who have a current instalment arrangement.
Given the current lockdown, we understand that work is underway to extend the ability to apply for relief beyond 25 March 2022, so watch this space. It should be noted that this rule does not apply to interest charged for not getting provisional tax instalments correct.
4. Penalty relief
One good reason for struggling businesses to apply for instalment arrangements, particularly for PAYE and FBT payments, is to minimise the penalties that might be charged in the first place. Generally a 1% initial late payment penalty is applied on the day after the due date, with a further 4% applied at the end of the 6th day if still not paid. However for PAYE and FBT liabilities, an incremental monthly late payment penalty of 1% might also be imposed. The incremental monthly penalty can cause outstanding tax to balloon out of control very quickly if left unmanaged. But as noted above, this can be capped to 1% under an instalment arrangement if the terms are maintained.
5. Review upcoming provisional tax payments
We can’t stress enough the need to talk with your tax advisor about options for managing provisional tax payments if you cannot make planned provisional tax instalments. The rules have become a lot more complicated in recent years as several technical changes have been made, particularly with regard to how UOMI is imposed on provisional tax. If you now expect the tax liability for 2022 to be lower than 2021, there are options, but it is necessary to ensure UOMI is minimised in this regard. While it is possible to estimate 2022 provisional tax lower (as opposed to paying based on prior years RIT), there are UOMI consequences to be aware of, particularly if a company is in a group of companies.
As a result of the first lockdown in 2020, the government did introduce a targeted temporary UOMI on provisional tax relief rule for those small to medium provisional taxpayers significantly affected by COVID-19. This might still be relevant for businesses who have yet to file their 2021 returns if they expect UOMI to be imposed. But this relief only applied to UOMI imposed on underpaid 2021 provisional tax. We have raised with Officials whether they will consider introducing a similar rule for 2022 provisional tax.
6. Investigate tax pooling options
Tax pooling intermediaries offer many options when it comes to managing provisional tax payments and UOMI. Tax pooling is particularly useful when there are decreasing profits or missed payments. It can also allow taxpayers to postpone tax payments (at a competitive interest rate) to free up working capital. We suggest you talk to your Deloitte advisor to find out more about tax pooling and whether it is right for your business.
7. COVID-19 variations to ease administrative issues
During last year’s lockdown, the government passed legislation which enables the Commissioner of Inland Revenue to quickly issue temporary variations for administrative issues arising as a result of COVID-19. Last lockdown, these were mainly around extending due dates, deadlines, time periods or varying a procedural or administrative requirement. While most of these have now expired, we can still raise new issues on taxpayers’ behalf with Inland Revenue via a dedicated unit.
8. Restricting access to vehicles to minimise FBT
A common issue that cropped up last time was whether FBT applied to motor vehicles during the level 4 lockdown period. The key is whether a vehicle is still “available” for an employee’s private use during this time. Inland Revenue’s view is that while opportunities for an employee to use a vehicle for private use are practically restricted under level 4, if the vehicle is nonetheless still “available”, whether or not any use has occurred, that vehicle is still subject to FBT. However, an employer can issue a directive to its employees prohibiting private use on any day during level 4 to minimise the FBT liability. This will might only be practicable if an employee has access to an alternative vehicle. Plus employers will need to consider how they provide evidence that actual use did not occur in the event of an inquiry.
If any of these issues will be relevant for your business, please reach out to your usual Deloitte tax advisor for assistance.
September 2021 Tax Alert contents
- COVID-19: What government support is available for businesses
- Objective and subjective factors to consider before claiming a wage subsidy
- Managing tax filings, payments and cashflow in light of COVID-19
- Running a business with ongoing border uncertainty
- COVID-19 Tax considerations for a locked down workforce
- How confident are you in your transfer pricing?
- Snapshot of recent developments