What is Tax Pooling and how does it work?
Tax pooling is the framework that Inland Revenue established to help taxpayers meet their provisional tax.
Tax pooling is a progressive approach to provisional tax management. The tax pooling system is based on taxpayers who pay provisional tax into a ‘pool’ at Inland Revenue. Once taxpayers know exactly what they need to pay in provisional tax, they transfer this out of the pool to their Inland Revenue account and sell any surplus to someone else (typically for a fee greater than the Inland Revenue credit interest rate they would otherwise receive).
A taxpayer faced with an underpayment can then acquire those surpluses for a fee less than the Inland Revenue debit interest rate. When these surpluses are transferred from the pool to the taxpayer’s Inland Revenue account it is like a transfer from a related party, so Inland Revenue considers it a payment made on time and therefore there is nothing further to pay. Any interest or late payment penalty charges on the taxpayer’s account are usually eliminated at the same time.
Surpluses can be acquired from the pool whether you put tax into the pool or not. Surpluses can only be sold if they’ve been deposited into the pool initially.
Acquisition of additional tax can be done in advance (finance) or after the provisional date (buy), and surplus tax can either be sold over time (sell) or refunded within a matter of days.