COVID-19 BUSINESS & TAX SUPPORT
What Covid-19 business & tax support is available? In addition to the measures announced (see this article and this article), the government recently announced several new measures (this article was updated 22/05/20):
- a tax loss carry-back scheme.
- business tax loss continuity rules relaxed. Rules to be clarified later this year
- greater flexibility /discretion for IRD if businesses can’t meet tax obligations*
- business debt hibernation
TAX LOSS CARRY-BACK SCHEME
IRD say “Businesses expecting to make a loss in either the 2019/20 year or the 2020/21 year would be able to estimate the loss and use it to offset profits in the past year. In other words, they could carry the loss back one year. This change means we could refund some or all the tax already paid for the year they were in profit. It means firms could cash out all or some of their losses in 2019/20 or 2020/21. Without this change, firms would have to carry forward any loss to a year when they make a profit.”
Points to note:
- The loss carry back rules apply to ALL businesses whether trading individually or through a company.
- You will be able to estimate your 19/20 (FY20) financial year provisional tax to NIL based on estimated 20/21 (FY21) financial year losses.
- IRD will update their systems to allow the provisional tax already paid at 28 August and 15 January to be refunded.
- You don’t have to wait until FY21 accounts are finalised to access the losses.
- If you think there’s going to be a loss for this year, let us know and we will include a reasonable estimate of that in the FY20 calculations.
- You do not need to rush to re-estimate your provisional tax before 7 May. Part of the proposed law change would make it possible for you to re-estimate it after the date of the final instalment. This will give you more time to work out any estimated loss for the 2020/21 income year.
- Just be aware that if you get it wrong, use of money interest will still apply; we are told a new rate will be announced soon.
If you are unable to pay this tax on time because of the effect of COVID-19 on your business, IRD expect that you will pay this tax as soon as practicable. In such cases our recommendation is that you contact IRD now to let them know you can’t pay the tax on time and negotiate a payment plan. That will typically be an arrangement to pay the tax over a number of months (or fortnightly or even weekly), and possibly with a deferred payment start date. As part of that process, although this is not specifically mentioned on the IRD website, a pre-requisite may be that you have applied to your bank for some help under the business finance support package underwritten by Government. The advantage of talking to IRD as soon as possible is that you will most likely qualify for remission of late payment penalties and interest.
* IRD can remit Use of Money Interest (UOMI) and penalties; criteria are:
- tax is due on or after 14 February 2020, and
- the taxpayer’s ability to pay by the due date, either physically or financially, has been significantly adversely affected by COVID-19.
The IRD Commissioner may exercise her discretion to remit the interest if the taxpayer has contacted the Commissioner as soon as practicable to request relief and has paid the outstanding tax as soon as practicable – right up until 25 March 2022.
To prove you’ve been “significantly affected”, you’ll likely need to provide at least three months’ banks statements and/or credit card statements, a list of aged creditors and debtors and probably profit and loss statements and/or balance sheet from your business.
Alternatively, you might also be able to apply to:
- pay the tax via installment (possibly with a deferred payment start date);
- have IRD partially or fully write-off the debt due to serious hardship, with payment of the remaining tax by installment or a lump sum;
- allow a partial payment, and write-off the balance.
You would need to provide similar proof, as mentioned above. Contact us for help.