Massive jump in people needing to pay tax bill off in instalments

There has been a big rise in people paying overdue tax by installment. Photo/file.

The number of individuals and businesses struggling to pay their tax debt on time has skyrocketed this year.

Figures from Inland Revenue show there were 104,443 payment instalment arrangements in March 2020 - up from 41,014 a year earlier.

While the dollar value of the instalments rose from $659 million to $1.167 billion.

Individuals and businesses can request to pay off their debt in instalments if they can't pay it on time.

This usually involves paying an agreed amount either fortnightly or monthly to the tax department, which has to approve the instalment arrangement.

An Inland Revenue spokeswoman said as well as the substantial increase in the amount of debt covered by the instalment plans the average plan increased from just over eight months to nearly 11 months.

"This indicates that people were asking for more time to pay in order to reduce the amount required to be paid per instalment."

The IRD spokeswoman said she couldn't give a break-down on what percentage of the instalment plans were to businesses or individuals or what sectors the businesses were in.

She said if people or companies were struggling to pay they should contact the IRD which would work with them to sort something out.

Terry Baucher, a tax expert with Baucher Consulting, said given the hit from Covid-19 the increase was not surprising.

"A lot of small businesses in retail, hospitality and tourism - I can't imagine the pressure they are under."

Baucher suggested the rise was more likely to be business-related than individuals.

He said he had seen an increase in requests for instalment plans from clients and was working with one or two at the moment on getting an instalment plan.

Businesses who use a tax agent were due to pay terminal tax for the 2018 financial year between February 7 and April 7 and provisional tax on May 7.

Baucher said it may be old tax that was due which now could not be paid because the businesses had cashflow issues.

"It may be they had one or two issues already there and now the cracks have opened up."

Overdue tax currently attracts and interest rate of 7 per cent plus penalty charges depending on how long it is overdue for but if taxpayers can prove their payment issues are linked with Covid-19 the interest can be waived.

Baucher said he expected the IRD to audit some of those who claimed they couldn't pay tax because of the lockdown to ensure they weren't rorting the system.

But he said the best way to handle any overdue tax issues was to front-foot it with the Inland Revenue.

"You will find they are generally quite accommodating. But you have got to keep up the instalments."

Those businesses who could not pay their tax bill may face being bankrupted or having to liquidate the business.

While there were alternatives to paying for the tax debt such as a bank overdraft Baucher said that was often more expensive with interest rates over 13 per cent.

"They want people to be proactive. Often the worst cases are those that put their head in the sand.

"If you get on the front foot they are more accommodating than people realise."

Although those with a poor track record of paying tax may find they faced a tougher line, he said.