IRD can help firms in trouble says chief

If putting off paying tax is what a company needs to do to survive, then it should, the Commissioner of Inland Revenue says.

IRD is urging businesses to get in contact at the earliest opportunity if they are having trouble meeting their tax obligations.

Bob Russell said the department could ease the burden in a number of ways, such as agreeing to payments in instalments and waiving penalties.

IRD charged use-of-money interest - currently 9.73 per cent, having dropped from 14.24 per cent as part of the Government's small-business relief package - and it was not opposed to companies considering that as a banking facility if they needed to for a time.

"In fact we might think that that's a good strategy for them if they come and talk to us and get into an instalment arrangement," Russell said.

"We're prepared to wait a little while, the interest will accrue but the penalties can be turned off while they do the things they need to do to survive and get past their difficult time."

If the taxpaying company got in touch before the due date IRD had the option of charging it a one-off 1 per cent penalty and then accepting payment in instalments. But if it left the payment to become overdue the penalties would rise to 5 per cent after the first week, with an extra 1 per cent added every month thereafter.

Putting a company into liquidation was always a last resort but with business failures on the rise IRD was keen to get the message out that it could help, Russell said.

"We're not all bad guys."

The tax department put 316 companies into liquidation in the six months to December.

Although that was a small proportion of the total 2976 companies liquidated in the period, two-thirds of liquidations are voluntary. That means Inland Revenue initiated about 33 per cent of involuntary liquidations.

BDO Spicers tax partner Iain Craig said he had had clients enter into instalment arrangements with IRD and it had even been quite creative in coming up with a plan.

"I think they've been a lot more helpful recently than they have been necessarily in the past."

But he said struggling businesses could seek tax financing from independent intermediaries, at cheaper interest rates than IRD charged.

Ernst & Young partner Joanna Doolan said the tax department adhered to rigid criteria and businesses should think carefully before going there for help.

She said it might be better for companies to find out what the lowest amount of tax they could legally pay was before asking the IRD for help to save paying penalties.

Liquidator Gerry Rea, of Gerry Rea Partners, said businesses in strife often left paying the IRD until last.

Unpaid PAYE or GST did not show up on credit checks, and so other suppliers might be unaware the company was in trouble.

"That to me is a real bad loophole in the system," Rea said.

Claire Massey, director of Massey University's Centre for Research into SMEs, said it would not necessarily be companies in crisis making use of the IRD's offer.

Banks had tightened up so much that businesses suffering temporary cash flow problems might use it to tide them over. "It's firms doing good sensible business that will be calling on it."

HELP AT HAND

* If you think you won't make a tax payment, contact IRD.
* IRD can waive penalties other than a one-off 1 per cent charge.
* It can then agree to let you pay the bill in instalments.
* It will charge you 9.73 per cent interest, but says consider it an overdraft.