Red Alert: What this means
Tax Alert - February 2022
By Robyn Walker, Veronica Harley & Amy Sexton
With all of New Zealand holding its collective breath over the last few weeks as the cloud of Omicron hovered at our borders, our fears were finally met with the whole of New Zealand going into the RED COVID-19 protection framework setting at 11:59 pm on Sunday 23 January 2022. In this article, we recap what COVID-19 tax relief and support are currently available for businesses.
Keep filing returns on time
If Omicron takes hold as expected, staff absences may present a new challenge in meeting filing deadlines and so having a plan to keep on top of filing employment and PAYE information, GST, FBT and other tax returns will be imperative even if payment cannot be made. 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 small business cashflow loan scheme. For businesses that may struggle to physically file returns, Inland Revenue is likely to be flexible in this regard and remit late filing fees, on request, provided contact is made as early as possible and sufficient reasons are provided with the remission application as to why the return was filed late. These remission requests can be made via myIR.
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 an instalment arrangement. Again, it is 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 and the core tax is paid in full.
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 the currently enacted rules, 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. Provision has been made in a current bill before Parliament to extend to this deadline through an order in council, but we are unlikely to see this enacted until late March 2022.
It should be noted that this rule does not apply to interest charged for not getting provisional tax instalments correct.
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.
Review upcoming provisional tax payments
We can’t stress enough the need to talk with your Deloitte 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 concerning 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 Residual Income Tax), 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 relief rule for those small to medium provisional taxpayers significantly affected by COVID-19. This might still be relevant for businesses that are 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. The Inland Revenue advised that, as of December 2021, sections 6H and 6I of the Tax Administration Act 1994 does not allow the extension of this relief to the 2022 tax year but we would not be surprised to see this concession extended in some form.
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.
COVID-19 variations to ease administrative issues
During the 2020 lockdown, the Government passed legislation that enabled the Commissioner of Inland Revenue to quickly issue temporary variations for administrative issues arising as a result of COVID-19. 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.
Small Business Cashflow Loan
Businesses with 50 or fewer employees can be eligible to apply for a Small Business Cashflow Loan. This scheme, administered by Inland Revenue, allows certain businesses to apply for a loan of up to $100,000. The maximum value of the loan available is $10,000 plus $1,800 per full-time equivalent employee. Loans are interest-free for a period of up to two years (if fully repaid in that time). The Minister of Finance recently indicated that the Small Business Cashflow Loan is being reviewed and may be enhanced to provide further support to businesses.
Other Government Support
The Ministry of Social Development still provides businesses to apply for the Leave Support Scheme or Short-Term Absence Payment when staff are required to isolate and cannot work from home. You can find out more about these payments in our separate article.
If you have any questions concerning the issues discussed above, please consult your usual Deloitte advisor.
February 2022 Tax Alerts
- Isolating staff drive entitlements for Leave Support Scheme and Short-Term Absence Payment
- Red Alert: What this means
- Mind your taxes, when thinking about vaxes
- Are you remote working in New Zealand for a foreign employer? Inland Revenue’s finalised view
- Tax fact or fiction?
- Navigating the world of non-cash dividends
- New guidance from Inland Revenue on foreign exchange rates
- Charities and Donee organisations
- When is interest not interest but is income?
- New Regional Comprehensive Economic Partnership takes effect
- Hybrids rules and BEPS disclosures for 2021 tax returns: understanding your obligations
- Snapshot of recent developments