What if you can't pay your provisional tax on time?

To be clear from the outset, our advice is (normally) always to pay provisional tax in full and on time. It's one of the more straightforward ways to keep a business on solid footing, and it avoids interest and penalties that are entirely avoidable. This article is about what happens in genuinely exceptional circumstances, not a suggestion that late payment is a reasonable default.

Every so often a client comes to us and says the payment is due, and the money simply isn't there. It's more common than people think, and it isn't always a sign of trouble. Sometimes those funds have gone into working capital, an early debt repayment, or a genuine growth opportunity that came up faster than expected.

It's worth understanding what's actually at stake if a payment is missed. Inland Revenue may charge use of money interest from the day after the due date, calculated daily on the outstanding amount, and it applies whether or not there's a good reason for the shortfall. On top of that, late payment penalties can apply, an initial penalty when the payment is missed, and further penalties if it remains unpaid. There's also a size threshold that matters here, smaller taxpayers who miss a single instalment but catch up by the final one often face less exposure than a business (tax more than $60k pa) carrying a larger provisional tax bill across the full year, where the interest and penalties compound on a much bigger number.

Whatever the reason for the shortfall, the earlier we know about it, the more options there usually are. Inland Revenue does have processes for instalment arrangements and can take a reasonable view where there's a good explanation and a plan attached to it. What doesn't go down well is silence.

This is really where good governance earns its keep. Regular cash flow forecasting, management reporting, and an ongoing conversation with your accountant mean a shortfall is rarely a surprise by the time the payment date arrives. It gets spotted early, discussed, and planned around.

If provisional tax is looking tight this round, or you'd simply like a clearer read on cash flow heading into the next one, get in touch. We'd rather have that conversation with you now then later in the year.