Taxpayers who do not meet their tax obligations may face penalty or interest charges. To avoid such charges, you should pay the full amount of tax you owe by the due date.
The main kinds of charges for failing to meet tax obligations are:
- Interest on the amount of tax you owe if you have underpaid your tax. The interest rates charged are based on rates set by the IRD and change from time to time.
- A late filing penalty if you do not file a return by the due date.
- A late payment penalty if you post or deliver a payment to IRD after the date it was due.
- A shortfall penalty where the correct amount of tax is higher than the amount you paid (eg, because of an understatement of tax, or where the amount of a refund or loss is reduced). These penalties can be as high as 150% (for evasion) and may include imprionment for serious instances of evasion.
- EMS non payment penalties where you file an employer monthly schedule but do not pay the full amount payable on that schedule. These penalties are in addition to any of the other penalites that may also then be payable.
Solutions such as tax pooling can also be used to ease taxpayer concerns and the resulting exposure to use of money interest. Tax pooling allows taxpayers to pool tax payments, offsetting underpayments by overpayments within the same pool, thereby reducing their UOMI exposure. The pooling arrangement is made through a commercial intermediary that charges clients that acquire tax pooling funds and compensate depositors whose funds are acquired by another client. Intermediaries operate tax pooling accounts with IRD and when a payment is transferred into a client’s tax account it will be treated as a tax payment made to that account.
For more information about tax pooling and your exposure to tax penalties, give us a call. For more information about tax penalties refer to the IRD’s Obligations, Interest & Penalties Guide