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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

John Penney
We use Reckon and keep our figures accurate monthly. Turnover under $200K. I would prefer a monthly system, it's not really any different to GST, which we do monthly anyway. I would agree with the EOY washup, which we do with GST anyway when we check the returns against the accounting system over the whole year. With low-end accounting systems permitting prior-month adjustments, there is always the risk of accidentally changing already-filed data. I'm all in favour of a monthly tax system.

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2 months ago
greg ellis
This will be no trouble for me. i welcome this move. rather 'dripfeed' the tax like most other people have as PAYE, than this bulk payments that are hardly ever right.

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2 months ago
Karen12
If companies are using computer software packages eg Xero they should be able to apply to qualify for this even if they don't turn over $5M. With Xero it would be very little extra work for me. Those on working out income manually should remain paying provisional.

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2 months ago
BRADSHAW PLUMBING & SON LTD
This Would be a Great Help to Small Businesses who operate on a tight Budget

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2 months ago
Craig Gordon
1) I think could be easier for some and not others. The current way allows it to work for a greater range of people and their own business/tax management approach. As another mentioned it could be a good idea as long as it presented as optional to small business and not a new mandatory approach. 2) Criteria seems reasonable. 2)

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2 months ago
Annie Kruger
I'd much rather pay as I earn. It won't create any additional work.

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2 months ago
Fabio
I think it would be considered as an option but not compulsory. I keep good records and I am good at keeping money too. I rather have the money sitting in the bank for a whole year generating interests that paying Inland revenue every month. However, I understand some people might find it useful, particularly those ones with unstable cash flows.

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2 months ago
Rob Walters
Great idea, we have monthly balance sheets so will not be a problem.

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2 months ago
DENIS TILSON
I would prefer that we pay TERMINAL TAX as we go, rather than Provisional. After all why should we be paying tax forward when we could be paying the correct tax on a monthly basis. If this tax idea is aimed at small Businesses who use Accounting Software, where is the problem?

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2 months ago
Chris& PeterH
It's a great idea and would be particularly helpful to those beginning in business as they wouldn't have the tax shock in the second year. So many businesses go under because people don't understand their tax liability. Paying with gst would work well.

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2 months ago
Anne Russell
I use this method already and have done for a few years - it certainly makes life easier as my income fluctuates across the year. I am also now a Xero user and it does the calculations for my 2-monthly GST and prov tax payments in a flash. Reconciling items every 2 months is hardly a chore!

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2 months ago
Rob Walters
Yes, with current records it shouldn't be a problem.

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2 months ago
Gene Turner
I keep accounts as close to real time as possible, so this won't cause any issues.

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2 months ago
Charlie Hammond
Yes I,m sure this would work for updating to compatible software will take away the guess work

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2 months ago
Adam Barker
For businesses with lumpy income but fixed costs this proposal won't help much. Based on the comments here some businesses will find this useful but for my business the current system will be better.

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2 months ago
Jennifer Taylor
I use Xero so not a problem for me. It would be great to be able to file provisional tax returns directly from Xero to IRD.

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2 months ago
Favid Abercrombie
I think it will be absolutely superb. No additional costs are expected to be incurred.

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2 months ago
Jon Short
Yes I would much prefer this as I am a one man band & run Xero. I like to do Xero reconciliation every few days or so, so I know where I stand at any one point in time re: tax liability. Provisional tax estimated in the past often does not reflect actual income,(last years plus 5%?). For me, income fluctuates & life's circumstances change, making income difficult to predict. So, often I am paying too much provisional tax or too little making it hard to manage what the balance of my tax account should be to cover all tax costs. This system would ensure that the provisional tax paid through the year is reasonably correct relative to income, with just a tidy up by the accountant at the end of the year to cover off depreciation & any minor corrections etc. It would reduce the size of terminal tax payments or refunds making cashflow/tax liability easier to manage for both small businesses & IRD I'd imagine. Nothing worse than a large unexpected terminal tax payment to find the money for...

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2 months ago
Detlef W.
Yes that is possible - but not every month - that would be additional work. Would suggest twice a year, like GST for small business.

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2 months ago
Thomas Seymour
Yes

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2 months ago
Janet Turner
I use Xero and pay GST every two months so no extra work involved

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2 months ago
Cindy Cooper
Yes I totally agree, as I keep my records up to date with my software package would be great to have it linked up to GST time

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2 months ago
Bruce Parry
I think it is a great idea and less stress on the small business owner.

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2 months ago
Brian Francis
I don't use accounting software as the business is a commercial rental with a small number of transaction each year. The present system of provisional tax is fine.

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2 months ago
Geoff Langford
As long as the GST (2 monthly) data through BankLink is sufficient for the calculation, then I would really welcome this system

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2 months ago
Brent Rice
Yes, anything to make it simpler please.

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2 months ago
Hector Urquhart
Yes definitely. We do our GST return monthly so have up to date records that will allow accurate calculation of provisional tax. The payment of provisional tax as you go would suit us, as we have seasonal income usually at the end of our financial year, and paying tax early in the financial year based on an expected return, places unneccessary pressure on our cash flow. Our business is also weather dependent and hence our return can vary considerably. We fully support payment of provisional tax on real figures.

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2 months ago
David Compton
If it can be kept simple GST like then it will work well for us. If the system is adopted then IRD should undertake to process refunds promptly.

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2 months ago
Bruce Hales
Generally our trading accounting information and profit / loss is up to date but issues like depreciation, stock take adjustments, bad debt write off and other unusual events relating to sales transaction such as product returns and guarantee claims happen only occasionally and all of these affect past profit statements. For example our accounts as at 31st March 2016 are not closed of yet and we are waiting for our Accountant to complete EOY adjustments. BUT As it has turned out the last three trading months far exceeded expectations meaning our provisional tax is well short of actual and we have voluntarily paid extra but still face annoying penalties as this was not predicted at the end of last financial year SO Progressive monthly tax payments are a better idea as long as they can be retrospectively adjusted - in other words - so overpayments can be recovered

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2 months ago
David Grant
I am a tax agent. There are many end of year adjustments that many people need help with. Recording debtors & or creditors for clients recording data on a cash basis, ACC adjustments, recording assets correctly and setting their depreciation rates, stock on hand at year end, work in progress at year end, writing back 50% of entertainment, FBT for month or year end @ March - not returned until May, wages paid within 62 days of year end, interest on shareholder current accounts etc etc. If a client records data well the tax should be within say 20 - 30% but not necessarily closer than that.

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2 months ago
Billie
Yes - I think it's a great idea. Would love to be able to pay my provisional tax as I go as my income fluctuates so much.

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2 months ago
Proco
I support any effective moves to make provisional tax easier for small business. But the use of accounting software is only reliable if the user understands accounting. If not, then it is garbage in and garbage out, regardless of what the software promoters may say. Those that don't fully understand accounting will have to get their records regularly checked to ensure they are paying the right amount of provisional tax. Also, provision should be made for smaller businesses that get by using spreadsheets or cashbooks. For small businesses (say, with turnover under $2 million) I suggest the use of cash accounting for income tax purposes. This would make it so much easier for small business operators. Then there is no need to understand accruals, depreciation, fixed assets, inventory etc. Any change which allows for a final provisional tax adjustment for the final instalment in May would be helpful.

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2 months ago
Dicky
yes defiantly I would prefer to pay provisional tax in the same way I pay gst - do it ASAP.

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2 months ago
hedley brewerton
we would favor pay as you go

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2 months ago
Karyn Boylett
No feel have enough paperwork to keep up with now..... I feel the system works well enough now, but you have to be good at putting money aside for your tax.

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2 months ago
Shirley
yes being able to pay provisional tax more regularly throughout the year would be beneficial. As long as when the wash up is done at the end of the year if we have overpaid we will be entitled to a refund. Using xero means you are always up to date with accounts anyway.

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2 months ago
Deborah Finnigan
Yes this is appears to be a good idea according to our accountant. There will be extra work so I hope there will be grace for small businesses like ours for the initial transition to this.

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2 months ago
Scott Mckenzie
No, the work is already done. Processed with the GST return will work well.

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2 months ago
Heather
I can get a fairly accurate idea at GSt return intervals.

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2 months ago
David Headland
This would suit much better than three good sized payments

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2 months ago
tomo
sounds good to me it is done and dusted except for the final tidy up which should be minimal if accounting programme works it out correctly

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2 months ago
Jill
Absolutely - this would be a much better approach. Won't be too much extra work, will save a lot of guesswork for yer end position etc.

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2 months ago
Hamish Dixon
the current system suits me

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2 months ago
Jacqui
I don't use accounting software. As a small sole trader, I submit my year-end accounts to my accountant. However, I can indicate my monthly income. AIM sounds like a practical, logical process in which to keep on top of tax payments. A good short-term solution, without the burden of long-term tax payments.

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2 months ago
Tim Fahey
This is a great idea, I keep my books up to date anyway and knowing where you stand with Provisional will be great.

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2 months ago
David Conroy
Great idea, have to keep accounting system up to date for GST, Provisional tax should just flow fromthat

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2 months ago
Athol Stephens
I treat tax like any other creditor - get the processes in place and and pay tax, like any other expense, on a monthly basis. Inevitably there will be a tidy up at year end but for my business I don't see that as a problem.

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2 months ago
Deven Maharaj
yes

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2 months ago
Ros Goulding
Yes, as our business is seasonal, so when we are closed over wintertime u would have to stay up to date with accounts even though very little trading is occurring. This will affect my use of time required for other business activities. Prefer provisional tax as it is . Thanks Ros

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2 months ago
Guy Chadwick
For us, there will be no further work from month to month as we undertake all the necessary accounting transactions and journals in each month so we can accurately measure profitability. In this way, we only have minor clean up to do at the end of the year. So we would welcome this as currently our provisional tax varies wildly depending upon our services provided which are project related and so do not follow any particular pattern.

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2 months ago
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