As the unprecedented times under the impact of COVID-19 continues to unfold, businesses are having to adjust to the many effects of the pandemic. Following a variety of stimulus measures announced by our Government to assist businesses, we discuss some useful tax measures businesses can take to ensure that their taxes are being managed effectively in these uncertain times.

As cash becomes critical to the survival of businesses, it is no better time than now to revisit your tax position and understand how your taxes can be effectively managed as this could result in some extra cash.

Use of tax pooling to settle upcoming income tax due

For businesses with terminal tax due on 7th April under an extension of time (due date is 7th February without an extension of time), they can consider using tax pooling to meet their income tax liability. Tax pooling provides businesses an extra 75 days from the terminal tax due date to have your taxes settled. The last day for taxpayers with an extension of time to buy 2019 terminal tax through tax pooling is 18 June 2020. While interest will continue to apply under this finance option, the interest rate will be more favourable through tax pooling arrangement compared to Inland Revenue’s interest rate.

Increase in provisional tax threshold

Provisional tax has been proven to assist businesses managing their income tax because the tax due is spread out in installments rather than a big lump sum. In uncertain times however, it could add additional financial pressure to impacted businesses when the extra cash could be redirected to other areas of the business.

Effective from 2020-2021, any taxpayer with an annual income tax liability of $5,000 (increased from $2,500) is required to pay provisional tax. A welcome change by the government in light of COVID-19. The first provisional tax due date impacted by this change would be 28th August 2020 for taxpayers with a 31st March balance date. Businesses should discuss with their tax agents early and make necessary adjustments to their provisional tax where they anticipate a loss or a drop to their profit level.

Relief on use-of-money-interest on late payments

Impacted businesses should contact their tax agents early for assistance if they struggle to make their upcoming tax payments. Taxpayers should be aware that they could be charged with late payment penalties on top of use-of-money-interest and the overdue tax if they do not pay the right amount of taxes as they fall due. In other situations, Inland Revenue may approve an installment arrangement plan to be put in place. The key is to be upfront and communicate with Inland Revenue as early as you possibly can.

Amendment to the law has recently passed. With a well-supported case demonstrating your business has been adversely impacted by COVID-19, Inland Revenue may exercise discretion to waive interest, and even penalties in some cases, and approve the tax to be settled at a later date. This relief will apply to interest on all tax payments (including provisional, PAYE, and GST) accrued after 14th February 2020 and will apply for an initial two year period from 25th March 2020.

Tax returns filing deadlines may be extended

The Inland Revenue currently expects tax returns to be filed on time regardless of whether tax payments can be made on time. Failure to do so means you will be charged with late filing penalties. At the time of writing this article, our Government has announced further tax proposals to help businesses manage the impact of COVID-19. This includes giving Inland Revenue discretion to temporarily change return timeframes and any related procedural requirements. For example, extending deadlines for filing tax returns and paying provisional and terminal tax. The power is proposed to be limited to 18 months at this stage.

Tax loss carry-back scheme

Temporary tax loss carry-back scheme, being one of the latest new tax proposals recently announced is expected to be introduced in a bill in the week beginning April 27th 2020. What this scheme does is effectively put cash back in struggling businesses’ pockets by allowing businesses to offset estimated net loss for a particular tax year and offset it against profits in the prior one year. Accordingly, impacted businesses would receive refunds of the earlier tax paid in the previous profitable year. This temporary measure will no doubt give businesses anticipating a loss, some extra cash.

More to unfold…

Due to the unpredictability of COVID-19, we expect further updates in the tax space with finer details to come on the recently announced proposals.  If you need any assistance to the above, we urge you to speak to one of our tax advisors at Bellingham Wallace today.

By Graham Lawrence (Director)

and Sharon Chan (Junior Tax Associate)