Tax pooling is an IRD-approved service that provides an alternative to paying provisional tax on the standard dates. Tax pooling was established by the IRD in 2001 and is designed to help small to medium business pay provisional tax when it suits their business cash flow and reduce tax liability risk.
How does it work?
It works by businesses paying their provisional tax into a ‘pool’ rather than paying it directly to the IRD. When they know what they need to pay in provisional tax, they then transfer this out of the pool. If the business has extra funds in the pool, they can opt to onsell any extra to others (at a higher rate) or if you’re a bit short, you can buy off someone else.
Is tax pooling right for my business?
We work closely with Provisional Tax Finance for tax pooling. They are an approved IRD service and the rate is up to 30% cheaper than the rate the IRD would charge you. It’s not the best option for every business, and it may be easier to pay the IRD on the due dates and remove any risk of incurring ‘Use of Money Interest’ (UOMI – which requires taxpayers to pay interest when taxes aren’t paid on time and applies to most tax obligations). However, depending on your circumstances, it may not be practical to avoid UOMI and so tax pooling could be a good option.
If you’re keen to learn more about tax pooling or if it would suit your business, then get in touch and we can work out the best option for your business.