Some of our Clients have experienced unexpected Provisional Tax interest charges from IRD.
If you do not pay on time, or you underpay your Provisional Tax:
- IRD will charge interest on late or missed payments.
- If you underestimate IRD will charge you penalties and interest on the difference, from the provisional instalment dates. You will be charged even if you paid your estimated provisional tax in full and on time.
This higher chance of penalties and interest is why it is important to estimate your residual income tax carefully, and to estimate again if your income increases.
- charge you interest on late provisional or end of year tax payments
- pay you interest if you overpay your provisional tax.
IRD will work out the interest charges once you’ve filed your income tax return. IRD will not charge or pay interest if you under or overpay by $100 or less.
Here are the IRD rules on income tax:
IRD will charge or pay you interest from the day after the end of year tax due date if:
- you have made your payments in full and on time
- your residual income tax (RIT) is less than $60,000.
IRD will charge or pay you interest from the day after the final instalment date if:
- you have made your payments in full and on time
- your residual income taxis $60,000 or more.
IRD will work out interest on the difference between the provisional tax you have paid and your residual income tax.
For the 2020 income year forward
If you use the standard method then estimate your final instalment you will have UOMI ( Use of money Interest) calculated as if you estimated for the full Interest year.
For instalments, if you pay an instalment late, or if you do not pay an instalment at all, IRD will charge interest from the day after the instalment due date. Interest is charged on the smaller of:
- the instalment minus the amount already paid
- your residual income tax divided by the number of instalments for the tax year, minus the amount already paid.
From and for the final instalment, if you pay any instalment late, or if you do not pay it at all, IRD will charge interest from the day after the final instalment due date charged on your residual income tax, minus the amount already paid.
