Dealing with IRD Debt

Gina Gambitsis • September 26, 2024

Remember you are not alone....things are tough out there

Many New Zealand businesses are feeling the impact of New Zealand’s slow economy. Latest statistics show business leaders feel less positive about their business financials than they have in the past two years, with cash flow a major concern for many.

When times are hard, businesses may find themselves prioritising their finances and determining which creditors to pay first. While this can be a difficult decision, it’s essential to consider who you are legally and morally obliged to make payment to - including Inland Revenue.

The role of Inland Revenue

Inland Revenue has two main duties:

Firstly, to protect the integrity of the tax system; and
Secondly, to collect over time the highest net revenue practicable within the law.

Broadly, this means they need to be fair and collect money efficiently. These duties are important when considering Inland Revenue’s position on debt owed by the taxpayer.

Prioritising payment

When funds are tight, businesses may need to make careful decisions about which creditors to pay, and when. While it can be tempting to prioritise paying the ‘squeakiest wheel,’ major suppliers and those who could interrupt your operations, it’s important to consider all your debt and the creditors you are obliged to pay.

Inland Revenue may not make the most noise and for some businesses, they may not always be at the top of the list when it comes to thinking about debt and prioritisation – but tax obligations must always be met. This is especially important given the $29 million allocated for compliance in this year’s Budget, which the IRD has said it will use to target people who have not met their tax obligations. Inland Revenue has indicated that they are focusing on tax debt owed by businesses in the construction industry, and businesses who took out the small business cashflow scheme loans.

We covered the role of fairness for Inland Revenue above. For business leaders, it’s equally important to be fair in meeting your tax obligations. If you practise fairness when dealing with Inland Revenue, you may find you receive fairness in return.

Practical tips for dealing with Inland Revenue debt

With this in mind, here are some practical tips for dealing with Inland Revenue debt.

PAYE and GST are considered to be funds held on trust for Inland Revenue, so prioritise the payment of these tax debts.

Hit it head on. Contact Inland Revenue sooner rather than later - they are there to help taxpayers with managing compliance and can assist with an instalment arrangement.

Interest and late payment penalties will accrue on overdue tax debt. Have upfront discussions with Inland Revenue about financial relief and instalment arrangement, as timely application may result in fewer penalties being applied.

Any instalment arrangement to make good the debt over time must be realistic and should take into account the need to keep up to date with your current tax liabilities.

Explain the reasons for the predicament. This is important. For example, if the business is suffering because of personal spending, this is different from a significant downturn in the market and a fall in revenues.

Serious financial hardship relief may be available for sole-trader individuals if paying the tax debt will result in them being unable to meet daily minimum living expenses, medical expenses or pay for education costs of their children. In such situations, Inland Revenue may agree to write off an amount of tax debt.

Stand in the shoes of Inland Revenue. What could the Commissioner expect to receive if they closed the business down and liquidated the assets, versus continuing operations?

Finally, it’s important to remember that when you’re dealing with Inland Revenue, you’re dealing with people. This can be easily forgotten in the increasingly technical world of chat bots, emails and AI. Keep this ‘people’ element top of mind - respond, don’t bend the truth, and do what you say you’re going to do; there’s a lot more greyness in this than “0s” and “1s”.

If you’d like any assistance meeting your tax obligations, give us a call.

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Navigating the ins and outs of business expenses and tax deductions can feel overwhelming for many New Zealand business owners. However, understanding what expenses you can claim can significantly reduce your taxable income, ensuring you don’t pay more tax than necessary. Fortunately, the New Zealand tax system is clear about which business expenses are deductible, and with the help of professionals like GCOL Chartered Accountants, you can make sure you’re maximizing your claims. What Are Business Expenses in New Zealand? In simple terms, business expenses are the costs incurred in the day-to-day running of your business. These expenses are essential to generating your business income and are therefore deductible, meaning you can subtract them from your revenue to determine your taxable income. The New Zealand Inland Revenue (IR) Department has guidelines to help business owners understand what expenses are claimable. Here's a breakdown of the most common claimable business expenses: 1. Operating Expenses These are the costs involved in keeping your business running. Examples include: Rent and Utilities : The cost of renting office space or premises, as well as utilities like electricity and water, are claimable. Insurance : Premiums for business insurance (e.g., property, liability, and vehicle insurance) are deductible. Advertising and Marketing : Costs associated with promoting your business, such as online ads, print advertising, and marketing campaigns, can be claimed. Office Supplies : Items such as paper, pens, computers, and other office-related expenses are eligible for deduction. Bank Fees and Interest : Fees for business accounts and interest on business loans are deductible. 2. Vehicle and Travel Expenses If you use your vehicle for business purposes, you can claim a portion of the vehicle expenses, which may include: Fuel, Repairs, and Maintenance : If your vehicle is used for business, you can claim the costs proportionate to business use. Travel Expenses : Airfares, accommodation, and meals while traveling for business purposes are deductible. Remember, personal use of the vehicle or travel expenses cannot be claimed. You will need to apportion these costs based on business use. 3. Employee and Contractor Costs If you have employees or contractors, the following are claimable expenses: Salaries and Wages : Payments to employees, including bonuses, holiday pay, and KiwiSaver contributions, are deductible. Contractor Fees : If you hire independent contractors, their fees are also claimable. Training and Development : Costs associated with training and developing your team are deductible, so long as they are relevant to your business. 4. Depreciation Some business assets, such as equipment, vehicles, or buildings, lose value over time. Instead of claiming the full cost in one go, you can claim depreciation on these assets. The IRD provides depreciation rates for various asset types. 5. Professional Services If you hire professionals to assist with your business, their fees are claimable, including: Accountant and Legal Fees : Fees for financial advice, tax preparation, or legal assistance related to business activities can be deducted. Consulting Fees : If you engage business consultants for services such as market research or business planning, these expenses are also claimable. 6. Home Office Expenses Many small business owners or sole traders work from home. If this applies to you, you can claim a portion of your home-related expenses, such as: Mortgage Interest or Rent : If you work from home, you can claim a percentage of your mortgage interest or rent based on the portion of your home used for business. Electricity and Internet : You can also claim a portion of your electricity, phone, and internet costs based on the percentage of time you use them for business. How GCOL Chartered Accountants Can Help While the list of claimable business expenses might seem straightforward, many business owners find the nuances of the tax system difficult to navigate. That's where GCOL Chartered Accountants comes in. Our team of experts is here to help you maximize your tax deductions while staying compliant with the IRD’s guidelines. Here’s how we can assist you: Maximizing Deductions : We’ll ensure you claim every allowable business expense to minimize your tax burden. Tax Planning : Our team can help with strategic tax planning, offering advice on how to structure your expenses and income to maximize tax efficiency. Accurate Record-Keeping : We help you maintain accurate and organized financial records, making it easier to file your returns and defend your claims if needed. Depreciation and Asset Management : We provide advice on depreciating assets properly to ensure you're getting the maximum allowable claim over time. Compliance with IRD : Our team stays up to date with the latest tax regulations and ensures your claims are compliant with New Zealand tax laws, so you can avoid penalties or audits. Get In Touch with GCOL Chartered Accountants Today Managing business expenses and understanding tax deductions can be complicated, but with GCOL Chartered Accountants on your side, you can rest assured that your business is in good hands. Whether you're just starting out or you've been in business for years, we offer expert guidance tailored to your specific needs. Contact us today to learn more about how we can help you optimize your tax situation and ensure your business’s financial success. Let us take the guesswork out of managing your business expenses so you can focus on growing your business! By staying informed and seeking professional advice, you can make the most of your claimable business expenses under the New Zealand tax system. Let GCOL Chartered Accountants help you navigate the complexities of tax deductions with ease.