Most of us want to pay as little as legally possible to IRD, yet so many seem to want to pay more than they have to. So to help those who like to pay more than the bare minimum, here are five simple tips. Follow these and you'll soon find yourself paying extra - in some cases substantially more.
File returns late
It doesn't matter what tax we're talking about, they all need returns filed. Without that IRD can do nothing with any money they receive. If it's being transferred from money they already have, they may refund that, rather than offsetting it. And these days more and more refunds are by direct credit - so there is a chance that if you don't keep on top of your bank accounts you won't notice the refund in time to return it (20 working days) and not accrue extra charges.
Unless you have a legitimate excuse (e.g. a stroke) that that will cost you money. You can file returns even if you can't pay - but why not give IRD more of your money.
Make payments after the due date
Tax payment deadlines are (or should be) well known. There are unusual ones, such as GST for March and November - but they're all well-known.
Generally, there are three reasons for not paying tax on time:
- Lack of cash
- Wanting to pay extra penalties and interest
You may think there's not much you can do about forgetfulness - but at least you can get the IRD website to give you a personalised list. Of course, having a list doesn't make the payment for you - sadly you still have to do that.
Lack of cash is a surprisingly common problem amongst business people. There are basically two main things you can do about this. Sadly both require paying the money plus interest later.
- Make an arrangement with IRD. Suppose you owe say $5,000. If you make an arrangement before it's due to pay $500 per month, then as long as you pay on time every month, even with interest it will be paid off within a year. If you really want to pay extra, miss a deadline or two.
- Arrange with a tax intermediary to pay the bill. I won't go into details, but there's no actual money involved until you make the payment. So should you feel the urge to give IRD more money, simply make an arrangement with an intermediary and don't meet your payment to them. Then IRD will charge you with interest and penalties - a double success.
And if you're happy paying IRD extra money, then ignoring payments until after their due date is guaranteed to succeed.
This very broad area offers a multitude of possibilities - even if you don't seek to avoid or evade tax. Ignorance is no defence. You still have to pay the penalties and interest even though you don't know the rules, and how to comply with them. This is probably the major way to pay more tax - there are so many ways to get things wrong. Using a non-Kiwi software package will almost certainly invite errors. Not understanding clearly the finer points of assets financed by H/P, entertainment, wages and deductions - even what is a legitimate business expense can all lead to incorrect accounting and reporting. Waiting until IRD points these out is another way to pay them more money.
Imitate an ostrich
Something doesn't appear right - but you can't put your finger on it. It happens to all of us at some stage. Maybe you've suddenly noticed a big drop in gross profit, or you're showing a GST refund for the first time ever. You could dig harder, and perhaps take advice from a professional. Or you could stick your head in the sand.
Rely on pub advice
The classic I encountered was an issue brought to us after a taxpayer had largely completed a deal. Because the advice he'd taken was not professional, parts of it were reasonable, but the end result was the client lost $50,000 to IRD. In terms of single deals, this client far exceeded expectations in paying more than the minimum required.
There are more ways to pay IRD more than you have to - but you get the idea. It's easy to pay IRD a lot more than necessary. My serious personal view is you should seek to pay more - but only because you earn more. Don't pay more than you have to.