“Help, I’ve got tax debt relating to provisional tax or end-of-year tax and I can’t pay it right now” – you want to keep the IRD happy (well who doesn’t) but you aren’t happy or can’t be bothered trying to get a loan to cover it – help!!
Tax pooling may be the best option for it but “what the hell is that” I hear you say? Basically companies (called intermediaries because they act as an “agent” between you & the IRD) manage the purchase of tax credits with the IRD and use them to pay your tax.
In other words the company arranging the “tax pool” offsets your tax debt against tax paid in advance or tax overpaid by others (yes believe it or not some do!!) and the IRD make a paper adjustment so the advance funds held by them are allocated to your debt. To quote the IRD ”Tax pooling will allow taxpayers to pool tax payments, offsetting underpayments by overpayments within the same pool, thereby reducing their UOMI (use-of-money interest) exposure. The pooling arrangement will be made through a commercial intermediary who will charge clients that acquire tax pooling funds and compensate depositors whose funds are acquired by another client”.
Due to the nature of Tax Pooling there is usually no credit check etc required, the interest rate charged is usually lower than bank loans and you nominate and discuss repayments when you can “sort” your tax debt with the intermediary – in the meantime you and the IRD are square.
Can I use it for GST or PAYE – no! However the IRD will consider tax pooling “can also be applied to reassessments or increased obligations to pay certain other taxes, arising from for example voluntary disclosures, resolution of disputes, and deferred tax and any UOMI payable on the increased amount payable or deferrable tax”.
How do I arrange this? Well there are a number of intermediaries approved by the IRD and they will advise you of them or you can make enquiries to your accountant who will get things underway on your behalf.