The short version
- You pay provisional tax when last year’s residual income tax was more than $5,000
- Standard dates for a 31 March balance date: 28 August, 15 January and 7 May
- Six-monthly GST filers pay two instalments: 28 October and 7 May
- Pay the standard amounts on time and, with residual income tax under $60,000, IRD interest only starts at terminal tax time
Who pays it
If your residual income tax for the previous year was more than $5,000, you pay provisional tax this year. Residual income tax is the tax left after PAYE and other credits, so it mostly affects self-employed people, company shareholders who are not on PAYE, and landlords with growing profits.
The dates
With a 31 March balance date and the standard option, three equal instalments are due on 28 August, 15 January and 7 May. If you file GST six-monthly, you pay two instalments, on 28 October and 7 May. Dates on a weekend or public holiday move to the next working day.
Four ways to work it out
- Standard option. Last year’s residual income tax plus 5%, or the year before plus 10% if last year’s return has not been filed yet.
- Estimation. You estimate this year’s tax yourself. Useful when profit is falling, but underestimating attracts interest.
- Ratio option. Payments tied to your GST turnover, available to some two-monthly and six-monthly GST filers.
- AIM. The accounting income method, run through approved software, pays tax on actual profit as the year goes.
Interest and penalties
IRD charges use-of-money interest on provisional tax that is paid late or underpaid. Under the standard option, if your residual income tax is under $60,000 and you pay each instalment in full and on time, interest only runs from the terminal tax date on anything still owing. Late payment penalties are separate and start the day after a due date, so timing matters even when the amount is right.
The second-year surprise
New businesses rarely pay provisional tax in their first year. In year two, the terminal tax for year one and the first provisional instalments for year two land within months of each other. Planning for it from the start is the difference between a manageable year and a cash crunch.
How RAKS helps
We tell you each instalment amount before it is due, remind you, and review whether estimation would save you money if trading drops. Our provisional tax estimator shows the amounts and dates for your situation.
General information only. Talk to us about your own situation before acting on it.
