Changes to how SMEs Pay Tax

The Government has recently announced a package of proposed tax changes that intend to reduce compliance costs and make tax simpler for businesses. The package is part of the Inland Revenue’s big picture ‘Making Tax Simpler’ initiative that aims to modernise and simplify the tax system. While the proposal will generally apply to all businesses, the changes are expected to benefit small businesses the most.

Tax compliance costs are relatively high for small businesses who play a crucial role in the New Zealand economy. Approximately 97% of enterprises in New Zealand are small businesses, who employ around 30% of the workforce. For these entities, the question of whether ‘close enough is good enough’ is being raised, whereby simplifying the tax compliance process and reducing compliance costs could have wide-reaching benefits for many New Zealanders. The changes proposed within the Governments tax package are outlined below.

Changes to provisional tax
The changes propose to increase the existing use of money interest (UOMI) safe harbour threshold for individuals from $50,000 to $60,000 and allow it to apply to all taxpayers. This effectively means that all taxpayers who calculate and pay provisional tax using the standard or ‘uplift’ method would only be charged UOMI from their terminal tax date provided their residual income tax is below $60,000. Larger taxpayers, who fall outside then safe harbour threshold and pay tax using the standard option, would instead pay UOMI from their last instalment date.

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