Business Tax Transformation

The Inland Revenue is getting a new computer system and has introduced a number of business tax transformation and simplification measures in the Business Tax Bill to make sure taxpayers and the Inland Revenue make the most of the new system.

Perhaps the biggest changes are in relation to provisional tax.  Not only are there are some very helpful changes reducing when use of money interest (UOMI) will be charged on underpaid tax but a new method of calculating provisional tax is being proposed.

A snapshot of these reforms are:

  • An increase in the safe harbour threshold before UOMI will apply, from $50,000 to $60,000 of residual income tax;
  • An extension of this safe harbour to companies and trusts;
  • No UOMI on P1 and P2 instalments where taxpayers pay on the standard uplift basis and make the required payments on time; and
  • The Accounting Income Method (AIM) where provisional tax is calculated on a real time basis. 

The changes to UOMI will come into effect from the 2017/18 income year while the AIM for provisional tax will be delayed until 2018/19 when the respective accounting software providers and Inland Revenue can marry up the necessary technology. 

To encourage the use of AIM any taxpayers using AIM will not be subject to any UOMI exposure.  The idea is for a taxpayer to elect into the AIM regime at the beginning of the year and pay their income tax on a pay as you go basis based on the results in the accounting software.  Payments would be made on a regular monthly or two monthly basis with data sent by the software direct to IR with each payment.  Mid-year overpayments will be available for refunds.

It is an interesting development which goes a bit further than the GST ratio method previously introduced. Initially it is to be made available to taxpayers with turnover of less than $5 million but is a method which Inland Revenue would be interested to see if it could be extended to bigger businesses.

We look forward to seeing how many will take up the AIM regime for provisional tax purposes, as it will not necessarily be appropriate for all businesses that meet the criteria.

Whisky Match – Glenkinchie 12 year old

The whisky match for this suite of provisional tax proposals is the Glenkinchie 12 year old.  Known as the “Edinburgh Malt” due to its locality near the Scottish capital.  A lowland malt which was primarily used as a component for Haig blended whisky. 

The dividing line between the Highland malts and the lowland malts was initially also driven by different rates of excise duty under the Wash Act of 1784 either side of the line.  It is notable for its absence of peat and exhibits freshly cut grass and hints of liquorice.

As a tip for summer try it fresh from the freezer as a refreshing dram.