IRD owed more than $7 million in tax by 43 Tauranga companies

The Inland Revenue Department is owed millions by 43 Tauranga companies. Photo / Getty Images

Paying tax can be painful. But it is especially important for businesses to keep track of what they owe - and pay it. If they end up spending that money elsewhere the consequences can be dire, and they can go bust or be forced into liquidation. Carmen Hall reports.
The Inland Revenue Department has sought more than $7 million in owed taxes from 43 Tauranga companies in less than three years.

Experts say many are using the IRD as a bank and 70 to 80 per cent of businesses that went bust did so because of unpaid taxes.

Data obtained by the Bay of Plenty Times under the Official Information Act showed from 2017 to July 26, 2019, the IRD took 43 businesses to the High Court at Tauranga to be placed into liquidation. The companies jointly owed $7.02m but could not be named due to confidentiality and sensitive information.

IRD customer segment lead Richard Philp said in the 2017/18 financial year, the department collected $73 billion and 88 per cent made their tax payments on time, while 81.5 per cent of the remaining debt was resolved in six months.

He said it was up to the commissioner whether to take recovery action against taxpayers and the department was given additional government funding in 2018 to collect unfiled returns.

''We encourage customers to contact Inland Revenue as early as possible to discuss their options or get independent tax advice if they are unable to pay their tax.''

Tax Link director Allan Wells said often businesses who got into trouble were using the IRD as their bank, thinking they could trade their way through it.

''But that is just a fool's paradise because that doesn't happen.''

Burying their heads in the sand was a common scenario, he said, and human nature meant money was spent elsewhere.

''One of the things I do know is about 70 to 80 per cent of businesses that do go bust do so because of tax and that it's a huge percentage. The original tax could be quite small but the penalties and interest can double or treble over a five-year period and that is when it becomes crippling. A $30,000 bill is all of a sudden $100,000.''

He said, unfortunately, some people should not be in business.

''In New Zealand, a lot of people really just buy themselves a job but they don't have the skills to or discipline to allow for the tax consequences.''

Often Wells said the IRD would look at writing off the debt as sometimes there was nothing to be gained by going through the court process as the companies had no cash.

He suggested people new to business adopt a mentor.

Experts say quite often those in business may take money meant for taxes and spend it on something else. Photo / File

Accredited insolvency practitioner Kenneth Brown said often the IRD was an easy creditor not to pay.

''For instance, if you don't pay one of your normal creditors, by the end of the month they are on the phone saying 'where is our money?' Or they will say 'if you don't pay I won't supply you the goods'.

''The IRD don't generally do all that, they are not chasing them on a regular basis they will send them notices and letters but it's not quite as threatening as somebody saying I will cut your supply.

''They tend not to pay the IRD and use that money elsewhere.''

Brown said the IRD would not usually take legal action against a company unless it was owed a considerable amount of money and once the court appointed a liquidator they would take over the business and assets.

Priority One chief executive Nigel Tutt said the main challenges for local businesses were typically growth-orientated.

''So cashflow management and talent are important for business owners to consider . . . and despite business confidence falling in other areas, it is still relatively strong in the Bay.''

Tauranga Chamber of Commerce chief executive Matt Cowley said the chamber was reviewing its training services.

''We focus on improving the financial skills of businesses. While we haven't focused on tax specifically, we are looking at cool new ways to give tips and pointers to our members.

''We have many members who are tax experts for small and medium businesses. They ensure you're paying the minimum required tax and can structure ways to avoid surprising tax bills.''

He said businesses currently had a cautious future outlook.

''While some businesses have shortening sales pipelines, others are relishing the opportunity, such as temporary recruitment agencies.''

A couple of hundred dollars to an expert upfront could make life less stressful in the future, Cowley said.

''If a business is already struggling, then you're best to chat with your bank, or the local chamber, who can refer you to helpful resources so you can map your way forward.''

Tauranga companies taken to Tauranga High Court
2017 - 22 companies
2018 - 12 companies
2019 at July 26 - Nine companies

Total owed by Tauranga companies
2017 - $3,211,616.12
2018 - $1,342,908.55
2019 - January 1 to date $2,465,947.00 - Source Inland Revenue Department