Inland Revenue have amended how Use of Money Interest (UOMI) is applied to safe harbour taxpayers, being taxpayers who have a Residual Income Tax (RIT) obligation under $60,000 for a given income year.
There have been some changes to how UOMI is calculated from the 2023 income year onwards, for provisional taxpayers that use the standard method, under what is commonly referred to as the 'safe harbour’ provisions (in the Tax Administration Act 1994).
Previously, as a safe harbour taxpayer, a taxpayer’s RIT was due and payable on their terminal tax date provided they had met their uplift obligations at the first/second/third instalment(s). If a taxpayer had not met their uplift obligations at the first/second/third instalment(s), their RIT (in excess of any uplift obligations) was due and payable at or by the third instalment.
From the 2023 income year onwards, qualifying as a safe harbour taxpayer prevents UOMI being charged for underpaid provisional tax during the year. UOMI is only charged after a taxpayer’s terminal tax date (to the extent of any provisional tax shortfalls throughout the year). Taxpayers will not lose any concessions under the safe harbour provisions due to short-/late-paying their provisional tax uplift obligations (i.e., terminal tax obligations will remain due and payable at a taxpayer’s terminal tax date instead of reverting to the third provisional tax date due to short-/late-paying throughout the year).
Please note that these amendments mean that credit UOMI will also not be paid out by IR until after a taxpayer's terminal tax date.
Late payment penalties however will still be charged on any shortfalls in uplift obligations on the first/second/third instalments (a 1% penalty on the day after payment due date, and a 4% penalty for remaining tax (including penalties) on seventh day after payment due date).
Our RIT, Buy and Finance tools have been amended to provide a comparison of expected interest/late payment penalty charges at Inland Revenue, in light of the above changes, compared to the quoted interest costs of using Tax Traders to purchase any underpaid tax.
In some circumstances for safe harbour taxpayers, it may be preferable to settle directly with Inland Revenue on a pure cost comparison basis. We recommend you review your settlement options on a case-by-case basis, taking into consideration your individual taxpayer and their preferences/circumstances. When making your decision, please note that interest paid on tax pooling arrangements remains deductible, whereas Inland Revenue’s late payment penalties are not deductible.