When it comes to due dates and business tax debt, the IRD don’t mess around. Business owners who shirk their tax obligations can quickly find themselves in trouble.
If you know your tax bill is going to be bigger than you can handle, it’s important to deal with that as soon as possible – ideally long before it’s due. If you can’t pay your tax bill, you should look at the following steps:
CONTACT THE IRD AS SOON AS POSSIBLE
The IRD want to help you meet your tax obligations, so if you contact them as soon as you know there’s a problem, they can help you find a solution. It’s best to contact the IRD before the due date, if at all possible, as it increases your chances of being able to get favourable terms.
You should also file your tax returns on time, even if you’re unable to pay the tax owing. If you’re tax compliant or seeking to be, the IRD will most likely be happy to negotiate a payment arrangement for you to pay your debt off in instalments over time. This can help you with cash flow management while you try to turnaround the business.
If you are suffering from serious ill health then you may qualify for relief under the hardship provisions.
If your business has been adversely affected by Covid-19 then IRD will consider financial relief and instalment arrangements. IRD can remit penalties and UOMI in these circumstances. You may be asked to provide a 12 month cash flow forecast (IR591) in support, bank statements, credit card statements and accounting information including debtors and creditors. To apply for financial relief you will be asked to complete an application. You will need to provide the current value of the company's assets, liabilities and the position of your shareholder current account. The current account will record your net drawings from the company.
Call the IRD on 0800 377 771, fill out an instalment arrangement form online, or see their website page on instalment arrangements for more details.
IF YOU'RE EXPERIENCING SERIOUS FINANCIAL HARDSHIP
In some circumstances, the IRD will write off an agreed amount of your debt if they determine – based on their criteria – you are in serious financial hardship. They will take into account your payment history, your current situation, and your ability to meet future obligations. You’ll need to fill in the Disclosure of financial position IR590 form and a 12 month cash flow forecast IR591 form.
Bear in mind the IRD will look carefully into your company expenditure and your shareholder current account and the viability of the business. If it is determined the company is not viable, it may be recommended that the company is placed into liquidation or the IRD may initiate steps for that to occur.
WILL YOU BE PERSONALLY LIABLE FOR BUSINESS TAX DEBT?
In theory, your company structure is designed to protect your personal assets in the event of company insolvency or other financial difficulties. However, there are legal means to ensure you’re held liable.
Under a HD 15 of the Income Tax Act 2007, the Commissioner is able to go after personally-held assets of company directors and shareholders in order to recover tax debt. However, this only applies when director and stakeholders have entered into an agreement to purposefully deplete a company of its assets (an asset-stripping arrangement). Such an arrangement is also a breach of Director’s Duties. This clause is rarely utilised to recover debts.
Another Act, the Tax Administration Act 1994, makes provisions for non-compliance with tax laws. Under this Act penalties for a company’s non-compliance can be placed upon an officer of the company. A conviction under this Act could see a company director facing both a significant fine and time in prison. This same Act allows the commissioner to pursue a director personally for unpaid PAYE. The IRD has successfully brought many of these cases against company directors – in these cases the directors have been complicit in breaching their tax obligations.
Usually when a licensed insolvency practitioner is appointed to liquidate the company and following the liquidation process and payment of the realisations to creditors, any shortfalls including to IRD are written off. Directors may face pursuit from company creditors who held personal guarantees and on the occasion by IRD for unpaid PAYE.
ARE YOU IN TROUBLE WITH THE IRD?
If you’re having problems meeting your company tax obligations, or you are trying to make arrangements with the IRD to pay arrears, it's best to be proactive, before you find yourself in even deeper trouble.
If you think your business is in financial trouble contact us to see how we can help. If you have received a statutory demand from IRD, do not delay or next your company will be served with a winding up proceeding to place your company into liquidation. If you want to understand your options you need to make enquiry promptly.