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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

BillBoyle
For my business this makes perfect sense and stops the need for more substantial payments at years end. I can't see much office work burden and, for my particular business, I'd plan to make monthly tax payments, based on the months GST return.

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2 months ago
Dean Harding
I like the idea of paying as I go but I reply on my accountant to do everything beyond my cashbook, and this is currently a once a year thing for them so not seeing how this would benefit me without being forced to do more things on a computer based system myself.

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2 months ago
Jarrod Gillespie
yes I think it is a very good idea but it is only good for business with good accounting pratices

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2 months ago
peter morice
No problem with this as we already complete regular bookwork

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2 months ago
peter morice
no problem if you can cope with the current prov tax system anything else will be a breeze.

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2 months ago
Bev Oswald
The current ratio system works on this basis , but the IRD have the rules around this so tough to get into - just make ratio available for all businesses and available from day 1!

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2 months ago
Anne Tucker
Yes, I keep my accounts up to date already. I need to do this as I'm already on 2 monthly GST.

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2 months ago
Dave Addison
Paying provisional every two months at the same time as GST, based on actual income, makes great sense. However, the mechanics of calculating the amount to pay would have to be built in to my software programme to provide ease-of-use and eliminate the chance of an incorrect calculation which could result in penalties.

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2 months ago
catherine mcwatt
Pay as you go is a much better system. Adjustments can always be made by the accountant,

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2 months ago
Ken Lomax
I'm keen to provide you with feedback but not in this public forum.

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2 months ago
Kim Baldwinson
I would much prefer to pay tax as we go on a bi monthly basis. A minor final adjustment at the end of the financial year once the final accounts are done is far more manageable that having to pay in advance based on last years earnings.

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2 months ago
Josh
Many small businesses do not understand accounting principles, best practice methods and the difference between transactions being on revenue and on capital account. I regularly see tax payments and drawings put to the income statement, assets incorrectly classified as repairs and maintenance, GST claimed on overseas transactions, bank and loan accounts that don't balance, I could go on. In other words many businesses do not have the necessary knowledge to produce accounts that are reasonably accurate for income tax and GST purposes. Often these accounts are prepared by bookkeepers who have done the certification courses for the accounting software being used, but their actual accounting knowledge is inadequate. This means that if the pay as you go system is implemented, based on the above, many businesses will be paying either far more or far less tax than they should. Many business owners will be in a for a rude shock when their annual financial statements are prepared by their accountant and discover they need to pay more tax or realise they've overpaid their tax and could've put that working capital to far better use during the previous income year.

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2 months ago
N Frederikson
This would not involve any extra record keeping. It would be a godsend if you have only a vague idea as to how much work you would get in any year

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2 months ago
Hazel Kirkham
This would present no extra work for us. For businesses that are slack with their accounting, perhaps this will be an incentive to get their house in order. However, the turnover threshold would exclude us as we don't turn over $5m+. Any business that does should definitely not have a problem with being up to date with their accounting.

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2 months ago
Julian Inch
Yes I would prefer to pay provisional tax in the same way I pay GST - as you go. Many small business will be interested in this pay as you go option. Those claiming additional accounting costs etc should have the option to remain on the current system.

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2 months ago
Bob D'Ath
There are some advantages in paying income tax as you go, for one it stops you having to predict your final profit result in advance and getting it hopelessly wrong and being financially punished for that. But there are downsides as well, eg your final taxable result includes depreciation and can include shareholder salaries and other adjustments. How are these things handled in an automated system. Cashflow is also an issue. The proposed scheme works well if your customers all pay on time but often they don't and you have "lumpy" cash receipts. I wouldn't be keen to pay tax on invoice generation before receiving the cash. Maybe tax payments every two months in arrears would iron that out?

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2 months ago
Fay Freeman
I think paying as you go is absolutely the best decision for small businesses. There is a good discipline in keeping accounting records up to date which should be a requirement of every business.

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2 months ago
Fay Freeman
Yes absolutely. If it is not possible for someone to keep accurate records maybe they should rethink their business processes.

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2 months ago
Deborah Hamilton
Paying as you go would work much better for our business, than the current practice. And we use xero and re-conciliate regularly so that GST can be paid on time bi-monthly, calculating provisional will be done for us by xero I'm assuming? It may not work for everyone so they can stick to the old system - Will we have a choice which system we prefer? If yes than there is no issue, choose the one that works best for your business with the option of swapping after 12 month trial if the new system doesn't work. I'm not an accountant so I don't know the issues with calculating all the depreciation/expenses etc as you go as opposed to end of year. But as it is 'provisional' surely there will be final checks done at end of year to confirm the final anyway?? And if small payments have been made all year it will make the final payment much easier to deal with.

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2 months ago
Gill Johnson
I can that it maybe advantageous for many small businesses but I prefer to keep my accounts up-to-date then calculate the depreciation etc at the end of the financial year when all my data is to hand.

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2 months ago
Clay Nelson
Yes I believe my Accountant and I can make the right payments through the year to keep up with Prov tax

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2 months ago
John Shearman
The IRD is on the wrong track, again. Keep it simple. Based on GST Return data for the period, all that needs to be done is make a calculation that allows for wages, interest and other non-gst expenses together with sale or purchase of fixed assets. This calculation will tell the IRD the cash profit for the GST Return period. This could be returned along with the GST, maybe using the same form. It is easily auditable and the provisional tax paid should fall in line with the seasonality of the business. This option needs to be restricted to payments basis and 1 or 2 monthly return filers. Terminal tax should easily wash up any effects of stock debtors etc as these do not tend to vary much for small businesses.

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2 months ago
Ian keightley
Prefer this option

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2 months ago
Joel Bradley
Support this idea. It will give a clearer instant picture of the cash position. -

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2 months ago
Celine Filbee
Yes it will be beneficial for me to pay income tax in installments, my income is regular and I use accounting software

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2 months ago
Andy Edwards
I'd think paying as you go will benefit small businesses. Most enter their figures into accounting software like Xero every month or two anyway (to be able to file GST returns), so I think this change would be excellent.

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2 months ago
Abby Bishop
If it is set up the same way as GST then yes, we use Xero, so I would imagine if this comes in then most accounting packages would add this functionality.

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2 months ago
Helen Goldsworthy
I think this is a great idea. It would be good to not have it hanging over you all the time!! If you pay the funds over when the cash flow is good it works well!!

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2 months ago
Elangovan Vaiyapuri
I prefer to pay my Income Tax immediately like paying my GST after declaration. Should scrap the Provisional Tax, putting too much pressure on me and my business.

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2 months ago
Karen Maher
I think it could take a lot of the worry out of paying tax in big lump sums.

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2 months ago
Jill Spurr
sounds just what we need. Those big payments are crippling.

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2 months ago
Jo R
There are a lot of end of year adjustments made in calculating the taxable profit of a business, including depreciation and shareholder salaries etc. The suggested option may benefit small businesses who don't regularly put monies aside in a savings account for provisional tax, or those whose profits fluctuate hugely from year to year, however I wouldn't want to see this as a required method, only a voluntary method of paying. There are plenty of small businesses who DO put aside into a tax savings bank account, and don't need the extra stress to be doing monthly journals throughout the year instead of at the end of the financial year. The other scenario where it might be helpful is when the shareholder/director actually takes an employee salary/wage under the usual payroll (PAYE) system, and therefore the salary is already expensed in the P&L throughout the year, not as an end of year journal. Apart from that, I don't really see that it would be particularly accurate for those businesses who don't have accounting expertise, or couldn't afford to be paying their accountant that regularly to calculate the taxes. To be fair the IRD would need to not penalise any inaccuracies that the small business bookkeeper makes during the year, allowing for a wash up once the accountant finalises the end of year accounts.

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2 months ago
Alastair Ball
Each month I do accounts so always up to date so being able to pay provisional tax based on these is a much preferred method for me. If there is any incentive for small businesses to keep there accounts up to date this may be it.

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2 months ago
David Downer
I say yes to the AIM at the same time i do GST, it would make it so much easier to pay provisional tax. I had to make bulk payments based on potential invome, which when it came time to pay i had to take extra loans to cover the cost, i have only being operating for 4years and I struggle to pay the bulk amount. As this stage i dont pay myself as i am to worried about not being able to afford taxes. Anything to make it easy..thanks.

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2 months ago
Chris Kitzen
Yep easy to do and no trouble at all.

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2 months ago
Carol Ballard
Most business pay GST so You get a fare idea how much tax you should pay and we are used to paying every 2 months. Better than getting a huge bill at the end of the year

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2 months ago
barbara harder
Tthis sounds like an excellent idea and as I used a computerised software programme ,it will not mean extra work for me. However I would still like there to be the option of the 3 instalments for those who wish to continue that way

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2 months ago
Bernice
We will all need to understand all the new proposed rules. In general I support the change. But in saying that, we have always expected provisional tax and have set aside funds ahead of time to cover these. I always have my monthly accounts up to date so being able to pay provisional tax based on these would not be a problem. Perhaps a flexible adjustment to allow for depreciation or a mistake at the end of each financial year would be a good idea, with no penalties.

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2 months ago
Murray Drinnan
We use MYOB and keep our records up to date so is no extra work for us. It would be easier to pay as we go, generally because it is in smaller amounts rather than three lump sums. As to overpayment, in a small business like ours it won't be huge and it will be refunded back anyway or could be credited to the following years tax.

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2 months ago
Aaron Stevens
Great Idea, this would not add any extra work load for me.

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2 months ago
H Robertson
Yes This would be a good method for keeping up to date with income tax. It is not a problem to keep up to date records as I do this anyway for gst. We were discussing last week about paying tax more regularly.

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2 months ago
Max Gardner
I use MYOB for my gst returns and file on line. It woul be a piece of cake

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2 months ago
kay Braid
We use MYOB for my husband's self employed accounts so there would be no extra work. Being able to pay as we go would make life much simpler.

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2 months ago
Lynn Jones
As I understand it, and applying it to our business, this proposal will require more work and cost at our end by both our company and its accountant as not all figures are known until year end, combined with a further complication of holding funds in foreign currency accounts which will require an additional layer of work to regularly obtain conversion amounts. An accounting package which includes FX is too expensive for our business. I am in discussion with our accountant regarding this proposal.

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2 months ago
Lester Bartle
I think the measure would be a positive step forward for SME's. It will be good to have as an option and I see some my clients using it.

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2 months ago
Bernie Blomfield
I keep my records up to date on a weekly basis so it would be no extra work or effort.

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2 months ago
Carolyn
As my accounts are kept up to date most of the time. there should be no extra work for me. Would prefer it to be with the GST payments and not monthly though.

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2 months ago
Grant1968
I think this is a great idea - as long as so it stays 100% voluntary and those who only do their accounting once a year are not disadvantaged in any way. The idea that provisional tax is based on 105% of last years income is nuts. My accounts are updated on real time basis so would be very little extra work. I account for expenses on cash basis until end of year so that would be the one thing I might need to change.

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2 months ago
Chris Davidson
Sanity prevails! Yes I am all for this change.

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2 months ago
Helen Grubi
I would be very keen to see this form of provisional tax payment looked into further. I use software that already gives me most of the information that i would need. I am not sure how capital expenditure and depreciation would be adjusted - perhaps an annual correction? Yes - I'm very interseted.

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2 months ago
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