Jeremy Tauri: Try to ease the pain at tax time

How do you pay your tax?

Instalment plans ... should be the last option on the list."February, April and May are an expensive three months for small businesses that have a March 31 balance date.

On February 28, GST's due for two-monthly or monthly filers, followed by terminal tax in April and provisional tax in May.

So, with that in mind and cashflow recovering from the holiday months, now is the time to look at how you pay your tax.

If you've been diligent in setting aside your GST and tax throughout the year, then perhaps it's no major feat for you to meet these obligations.

But if you have cash locked up in big jobs or slow-paying customers who also have tax obligations, then you may have to seek other ways to pay.

Paying by cheque used to mean you could squeeze a few extra days in to bring in money using the date posted as a recorded payment date. That's no longer the case. Cheques need to be at the IRD on the payment date otherwise you'll wear penalties and interest.

Westpac, which receives payments on IRD's behalf, only accepts cash or eftpos -- no longer cheques or tax returns.

IRD receives 70 per cent of payments online and internet banking has tax payment services dedicated to making the payments to the right IRD numbers and tax types up to and including the due date.

If you want to pay by credit or debit card, IRD's website has an online payment gateway to receive credit and debit card payments but these will incur a 1.42 per cent transaction fee plus charges from your card issuer.

However, you should get credit card loyalty points and it's a free source of credit as long as you can meet the credit card payment by the due date.

To defer provisional and terminal tax payments over 3-12 months, tax management services exist to facilitate your tax at a interest rate cheaper than the IRD's.

There are no application forms and all you need to do is pay the interest up front and make the payment to the tax service at the date agreed.

The IRD encourages payers who aren't able to pay their taxes on time to set up instalment plans -- this stops penalties but you'll still be charged interest, so this should be the last option on the list.

Jeremy Tauri is an associate at Plus Chartered Accountants.