I remember one holidays when my sister got caught by our mum “misappropriating” some biscuits from the biscuit tin.
Mum’s generally quite reasonable and if Kate had taken the sensible path and asked, she’d have got her biscuit – and this is the approach you should take with Inland Revenue.
It’s often the case that struggling businesses find it hard to make good on their tax payments and may make the decision to use money owed to the IRD for the business, rather than hand it over to the taxman.
Or it might be the case that they simply don’t have the resources to pay all their creditors, and the IRD falls to the bottom of the pile because it may take longer to knock at their door.
I have to say that we advocate neither course – but our experience shows some businesses do slip into this problem.
If you find yourself in this difficult situation, there are a couple of things you should know and one action you should undertake.
First, failing to make tax payments on time can attract interest and penalties so what you owe today can quickly increase. Second, failing to pay tax under some circumstances can be a criminal offence.
So what can you do?
Pick up the phone. Give the IRD a call. And ask for help. Let them know your position and look to negotiate and enter into an instalment arrangement to pay over a longer period of time.
By buying yourself some time, you can also save yourself penalties as ordinarily, if you make an instalment arrangement and stick to it, the monthly late payment penalties are waived.
Like my mum, the IRD are quite reasonable. In an article I read recently, they’re keen to work with taxpayers to solve their financial problems but tears won’t help.
If you stick your head in the sand and wait for them to catch up with you, you may find they don’t have as much patience and understanding as they would have done earlier, had you given them a heads-up and the opportunity to set instalments in motion.
You possibly won’t get a biscuit if you actually meet the IRD in person but you might get a cuppa and a slice of goodwill for going about the problem in the right way.
Mark Lodder is a PriceWaterhouseCoopers tax specialist covering Queenstown. He’ll respond to your tax questions in his monthly column and can be contacted at firstname.lastname@example.org