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Calculating the tax adjustments

Can the right tax adjustments be made?

Traditionally tax adjustments are only identified and calculated at year end. However, most of the information required is available at the time it is entered into software and doesn’t need to wait until year end. 

We are interested in ensuring there is an agreed way of treating these adjustments for tax purposes. This commonality will improve certainty and accuracy of the calculations. It will also ensure that there is no benefit or disadvantage to taxpayers depending on what brand of software is used.

Do you think it’s possible to make the right tax adjustments during the year to result in an accurate payment of provisional tax?

Comments

Julie Greig
Yes, it will be easy enough for me as I use Xero. No doubt at the end of each financial year my accountant will make any adjustments taking into account depreciation, debtors and creditors etc. No problem and much fairer, this way we are not penalised for earning more than we thought we might, there is more room to grow a business without penalty while keeping Provision tax payments up to date two monthly (In my case)

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2 months ago
sara
As an experienced and qualified Book Keeper, I think it puts a lot of onus on businesses to be able to correctly identify capital vs non-capital expenditure. Most SME owners are good at what THEY do and this might be putting an unnecessary burden on them. For those businesses who don't use a professional throughout the year, I think mistakes could easily be made, which will cost them money not only with their Accountant but also penalties with IRD for getting it wrong. Accounting Software (and I'm a distributor of such as well as a book keeper) only makes the data easier to read, it doesn't make the decisions for people. The only suggestion I would make along these lines, is that, not withstanding my concerns above, if people do have the know-how to accurately submit the information, bi-monthly payments in line with their GST returns might be a good idea.

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2 months ago
Sandra Kraakman
In theory this looks like a good idea for small to medium sized businesses. However, we are concerned with paying provisional tax monthly due to the large differences in our income and expenditure month to month. How do we factor in asset purchases, depreciation, etc monthly? Will this provisional tax be a month behind i.e. what was earned last month will be paid for the following month? - which then has the strong possibility of hugely affecting cash flow in any seasonal business. I guess as with any new thing there needs to be more information available so informed decisions can be made. We think this should be a choice for each individual/business and not a directive from the IRD.

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2 months ago
Ed Franken
Greta idea! Stops the issues that happen when the reminder letters get lost in the mail. Simple to administer & reduces the pain of infrequent large outcomes - less painful when done in smaller more regular bites

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2 months ago
Michael Lea
Yes

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2 months ago
Jim Weston
Reading through the word adjustment occurs frequently. Adjustment = extra work. Bad! Farmers are required to pay correct Prov. BEFORE livestock values are published. Very Bad! I do 6 monthly GST, that reduces work. I can cope with lumpy payments. I do not like extra work.

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2 months ago
Gerry Heta
No extra work as I keep up to date. Will stop anxious moments at the end of the financial year. Gerry

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2 months ago
eLIZABETH h
I am contracted to two companies and paid in two differring ways so I think I would find this time consuming.

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2 months ago
Jeff Moselen
Goodness me, lets be careful out there! The calculation & payment of Provisional Tax on a more frequent basis MUST be kept simple. You cannot expect the small business taxpayer to become an accountant and acquire a good knowledge of the tax rules. This is despite the fact that many of the responses you are getting from taxpayers imply that "xero will do all the calcs & adjustments for me quite easily". Not so - garbage in equals garbage out. Provisional tax should remain a provisional payment that is reconciled at year end. Its calculation should be kept simple - the Ratio Scheme is an excellent example of this - but needs to be expanded so that more taxpayers can use it. No UOMI or penalties should arise where the taxpayer follows a SIMPLE calculation process. If AIM is to include the adoption of accounting and tax balance date adjustments and the supply of interim R10A's , then please ensure that AIM is completely voluntary for the small business taxpayer.

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2 months ago
Paul Dunmore
My business is too small to want to pay Xero (a couple of transactions a month). I keep my records in a spreadsheet which computes the financial statements up to the moment, so I always know my pre-tax profit up to today. I might have to alter how depreciation is calculated (depending on the rules), but otherwise there would be no problem.

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2 months ago
Cody Maxted
With using xero reconciling straight from our bank transactions it wouldn't seem to much more of a step to translate it into profit and loss for a pay as we work tax system. Would take the gut feeling as things are going good that we also have a MAMOTH tax bill to pay.....

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2 months ago
John Argue
Best to dispense with provisional tax for small businesses, because income fluctuated wildly. Agree with many of comments below. On Xero, so keeping records up to date necessary anyway.

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2 months ago
P Parker
I am self employed and I don't use any software. I see my accountant once a year. I don't want to buy or use any software. However I would prefer to pay my provisional tax like PAYE.

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2 months ago
george wilkinson
No problem for me,but will be for some clients.Main issue is that it not be made compulsory.Having the option is great,but only if it is an option.

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2 months ago
Graeme G
I'm a one man band so while I'm totally fine with preparing all of my books, I don't have the technical tax expertise or confidence to be able to furnish information to this level. My books go to an accountant and so I would end up having to pay more to them for more regular interaction. So in short - no - I couldn't provide this level of information without incurring more accountancy costs.

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2 months ago
Ben
It may be possible to calculate throughout the year but for me personally it would create extra work. I'm a small business so don't see the benefits to the proposed changes. I don't use any specific accounting software and would almost prefer to keep things as they are now. Testing with a small group of businesses would make sense if this proposal does proceed and gauge how the test case proceeds.

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2 months ago
Kay Smart
I use Reckon Accunts extensively and I'm sure that they bring their software up to be able to easily do this

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2 months ago
Kay Smart
I use Reckon Accunts extensively and I'm sure that they bring their software up to be able to easily do this

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2 months ago
JOHN COLE
I have already adopted to this method of accounting and find that it works extremely well. I recommend it to any small business to ensure a stress free way of staying on top of things.

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2 months ago
JOHN COLE
I don't believe that it can be be 100% accurate but can be fairly close to ensure that only small adjustments need to be made at end of year.

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2 months ago
John Marais
Yes, can do. As close to real time as possible. I do my accounting recon Evert few days... Regards

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2 months ago
Andy Downer
Our accounts are already kept up-to-date as we use accounting software based on our bank transactions and we pay our GST monthly. So there should be no problem to do the same for provisional tax purposes.

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2 months ago
Tony Barrett
It'll work fine for me. Not a problem.

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2 months ago
Judy Dillon
Yes with a good accounting package it isn't hard to know what your financial forecast is at all times.

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2 months ago
Judy Dillon
Yes very easily

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2 months ago
Bella Jonas
Yes I can cope with this as I do the GST through Xero & I can contact our accountant if problems arise.

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2 months ago
Paula Matich
Yes I think proposed system will work for our business as currently use accounting software that is kept up to date for bi monthly GST returns. I guess adjustments will be made at end of financial year for depreciation and interest paid which may then result in surprise tax refund. Should not result in any extra work on accounting side and will take guess work out of making sure your business pays enough provisional tax and does not get penalised if this is not calculated correctly.

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2 months ago
Delwyn Arthur
Personally, my business is so small that I would only want to do year end adjustments. For some clients I would be worried about the validity of their data - a year end catchup may be OK if no penalties were imposed. These are also smaller. I think the proposed $5m cutoff seems sensible.

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2 months ago
Helen Duckworth
I think this is a great idea - and I can handle the work required if Xero calculates it as suggested by John Reilly

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2 months ago
David Fee
I think it is a great idea and will personally give me that push to make sure my accounts are up to date. Just wonder if it would put my accounting fees up?

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2 months ago
Kip Taylor
There isn't enough information about the timing. Do you mean monthly, weekly? Bi-monthly? Aligned to your GST-return period? Doing the AIM accounting at the same time as the GST return wouldn't be too onerous but it would be a pain in the neck if it was a whole new calendar of compliance activities. Perhaps a condition could be that AIM was only available to businesses who use a two-month GST cycle.

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2 months ago
Don Giles
As we keep good up to date records all the time I do not see a problem

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2 months ago
Coralie
If should be easy. I think there maybe a small number of adjustments with things like mortgage interest for home office are included but month to month it would be much simpler.

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1 month ago
Alistair Bean
Will tie in with MYOB and ideally GST schedule

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1 month ago
Trish Allen
No extra work.

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1 month ago
Janine
yes

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1 month ago
Bruce McGehan
Yes I would be interested in this method of paying provisional tax however I agree with comments by Jamaliyeh drake in regards to a final instalment based on expenses, depreciation etc worked out by my accountant.

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1 month ago
Maree
I think it could easily be done but should allow for small business to input details from their own systems, either manual or alternative software and not require mandatory expensive software to comply.

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1 month ago
Michael Cranna
Definitely a better idea than the current system

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1 month ago
garth thomas
Should be ok for my use but I do use an accountant to make end of year adjustments. Not many. Something like this was promised twenty years ago. What happened?

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1 month ago
Debbie Teale
Yes I would way prefer to pay throughout the year and minimise any year end stresses.

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1 month ago
Bernadette
It would certainly be easier to pay tax as you go for smaller businesses. I concur with the comments around depreciation & taxable expenses etc there would need to be a non penalty wash up allowance at the end of the year once the accountants have done their bits. Having a hugely variable income stream this would ease cash flow. Small business software has become affordable & flexible now so could work for most businesses.

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1 month ago
Charles Brink
Correct tax adjustments can be made throughout the year even in a manual/spreadsheet system ... a software package is not required for this.

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1 month ago
Charles Brink
With input from my accountant, I believe this is totally possible.

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1 month ago
Darl Kolb
Yes, this would be better for our small business.

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1 month ago
Glenn Maconaghie
Yes this is a great idea to help small buisness . I use Bank Link and update regulary , and pay GST 2 monthly . I TRY to save 35% off labour charges on each invoice to cover tax and ACC payments to one account , as well as GST to another account . To pay tax at a % ? every 2 months would be good as its a pain to hang on to the money . ACC IS PAINFULL as you get a bill once a year , so ACC should look at this as well .

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1 month ago
John Boyson
Sounds good in principle as long as there is still the ability to do any adjustments needed at the end of the year without any penalties if tax has been underpaid earlier for genuine reasons eg fluctuation in business income. Verifying this will of course be the challenge for IRD.

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1 month ago
Camilla Rutherford
Yes, I think so.

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1 month ago
ross turnbull
great idea....align to GST payment dates....and as mentioned below allow for any adjustment at the end of the tax year..without penalty of course!

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1 month ago
Margaret Baker
We shall see I imagine it will take some time to move to the new system and iron out any issues.

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1 month ago
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