When is a tax payment considered late?

When is a tax payment considered late?

When is a tax payment considered late?

When tax payments are late, interest and penalties can be applied on top of the core tax amount. These can be quite significant so there’s a big incentive to get tax paid on time where possible.

Inland revenue has recently published a practice statement aimed at clarifying when a tax payment is considered to be late.

The IRD consider a payment to be made on time when it is paid or direct credited into their bank account on or before the due date.

There are some quite useful points raised.

  1. Processing by the Bank. It’s a really good idea to understand when your bank processes payments.
  2. There’s no use setting up a tax payment at 7pm if your Bank only processes payments up to 6pm each day. Your payment will arrive late the next day.
  3. Debit & Credit Cards. You can pay most taxes by using a debit or credit card. IRD will pass on a surcharge if you use this payment method. Even so, that may be preferable to any interest and penalties, depending on the amount outstanding. You can read more about that by clicking here.
  4. Cash or EFTPOS payments can be made at any branch of the Westpac bank. IRD offices no longer accept payments at any of their branches.
  5. Cheques must arrive with Inland Revenue on or before the due date. Delivery times with NZ Post have increased. This means there is quite a degree of uncertainty around when your cheque may arrive. Leave plenty of time. Gone are the days when the post mark on the envelope would determine that you posted it on time.
  6. Post-dated cheques are no longer accepted.
  7. Post-dated electronic payments are accepted and all banks offer the ability to set up a payment for a date in the future. Bear in mind that the payment will only be made if there are sufficient funds in the bank account on that day.
  8. Payments from Overseas. There is some useful information on payments from overseas on the IRD website. You can click on the link here.
  9. Weekends and Public Holidays. If a payment date falls on a weekend or public holiday, the payment may be made the following trading day.

Why has Inland Revenue made these changes?

The Inland Revenue Department is clearly trying to get taxpayers to pay their taxes electronically and there’s no doubt that this is the most reliable method.

What’s our view?

We believe that the option of paying cash over the counter at a Bank or posting a cheque direct to IRD must be retained. This is often the most convenient way for elderly taxpayers.

What if you can’t pay on time?

Tax pooling is a very useful tool if you can’t pay income tax on time. In many instances it will mean you can avoid penalties entirely.

If you can’t pay other tax types, like GST, DWT or FBT, your tax agent can set up a payment plan with Inland Revenue. This involves direct debiting your account.

Feel free to contact us if either method appeals.

Angus is the CEO and founder of Generate Accounting.