Catriona Knapp joins Nadine Higgins on The Prosperity Project to discuss how to get ready for when the taxman comes a-knockin'.
Business owners are being warned not to bury their heads in the sand if they owe money to the IRD, as the organisation steps up efforts to collect overdue taxes.
IRD data shows New Zealanders owe $9.5 billion in overdue tax, with small business owners and the self-employed most likelyto get behind.
Future Focused Accounting director Catriona Knapp told Nadine Higgins on The Prosperity Project podcast that facing up to what you owe and getting a plan in place to pay it is crucial.
“What they [the IRD] don’t like is people burying their head in the sand, not communicating, hiding from them.”
Getting behind can be costly – the IRD’s “use of money” interest rate applies to overdue funds and is almost 9%.
There are also penalties that compound your debt and the problem. “You get [charged] 1% initially,” Knapp says. “Then another 4% put on if you haven’t paid in seven days’ time, and then you get another 1% thereafter monthly, accumulating on that balance.
Future Focused Accounting director Catriona Knapp is this week's guest on The Prosperity Project podcast. Image / NZ Herald.
However, Knapp says in her experience, the IRD is not unreasonable. “The IRD has this reputation for being bulldogs, ogres,” she says. “But the reality is, as soon as you’re upfront with them and you communicate with them, then you’ve got them on-side.”
In fact, she says if you enter a payment arrangement with the IRD – and stick to it – you won’t be charged further penalties.
She says it’s clear the Covid-era of IRD leniency is over. “They are door-knocking if you don’t respond. You get plenty of chances – lots of phone calls, lots of letters – but they are door-knocking.”
Knapp says most people don’t deliberately avoid tax, they simply get trapped by cashflow pressure and then panic or are too embarrassed to admit they’re struggling.
She says there are plenty of strategies that can help you stay on top of your obligations, such as setting aside a percentage of every payment, using tax pooling, or moving to the AIM (accounting income) method rather than provisional tax payments.
“Ultimately, you’re going to do better in your business if you’re focusing on generating revenue and not focused on minimising tax, avoiding tax, and getting stressed about not being able to pay tax.”
