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use of money interest and penalties

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The Government appreciates that possible exposure to use of money interest is often seen as unfair for many businesses. Even if a business ends up paying the right amount of provisional tax during the year they can still incur use of money interest. AIM will remove this possibility.

If a business using AIM to calculate and pay provisional tax does not pay the total tax liability for the year in full during the year, use of money interest will not be applied unless the business has failed to pay the instalments as calculated under AIM.

It is expected that businesses who use AIM will either no longer have terminal tax liabilities (on the basis that their tax payments will be made in near real-time, and based on actual results), or there will be a small difference between their provisional tax payments and their final liability. As the last provisional tax payment date is after balance date, this may allow any shortfall to be identified and paid by the final instalment where the adjustments are easy to calculate.

However, under AIM, if the taxpayer pays less than the amount calculated by the software for any instalment, use of money interest will apply on the shortfall between the lessor of their residual income tax and the amounts of provisional tax due as calculated by AIM throughout the year. Late payments of tax may also attract late payment penalties.

Inland Revenue expects businesses and their advisors to take reasonable care in entering the data into the software program to ensure a fair calculation by the software. If we consider that reasonable care hasn’t been taken, then a business could be liable for penalties of 20% of the resulting tax shortfall.

Businesses that miss payments or provision of the interim data to Inland Revenue will be removed from the AIM option and be placed into the estimate option, where full use of money interest would apply.

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