IRD increasingly vigilant over debt

Michael Turner
Michael Turner
The Inland Revenue Department is becoming increasingly vigilant about recovering outstanding tax as the credit crunch continues to hurt businesses, three Dunedin tax practitioners say.

Polson Higgs tax partner Michael Turner, WHK Taylors tax principal Scott Mason and Deloitte Dunedin tax partner Steve Thompson all told the Otago Daily Times yesterday the IRD had lifted its activities in contacting companies it believed to be behind in tax.

In some cases the tax department had been involved in liquidating companies when it reached a view that all hope of funds being paid was lost, Mr Mason said.

"My experience to date is that the IRD has been relatively pragmatic around cash collections in this region and are willing to work with taxpayers and their advisers, as long as the matter is front-footed."

The New Zealand Herald reported that the IRD was issuing deduction notices to clients of businesses - meaning that rather than paying their bills to the supplier, the client is ordered to make payments directly to the IRD until informed otherwise.

Mr Thompson said his team had experienced that situation which had caused some "interesting" side-effects.

"It is telling a customer that the person they are dealing with - the supplier - has problems paying IRD and presumably others.

"It effectively makes the issue public.

"While it was likely that payment had not been made to IRD, there could be circumstances where the taxpayer is actually up to date."

In some cases, the customer had been requested to make payment to IRD that it would otherwise make to its supplier on the usual terms of trade earlier than would normally be the case, he said.

That had possible cash-flow consequences for the customer.

"This is unreasonable, given that the customer should not be expected to be disadvantaged by the tax affairs of its suppliers."

Both Messrs Turner and Mason had not experienced the deduction notices being issued to clients of businesses but Mr Mason said he would be concerned if the deduction notices became the norm.

"That truly would result in businesses falling over and jobs lost.

"In some cases, the payment of tax is not an `if' but a `when' as some businesses just need time to work through cash-flow difficulties."

Mr Turner said the IRD had been historically slow in following up outstanding debt.

The department was now trying to better understand the risk to it and being more proactive about managing that risk.

IRD staff had been talking to large taxpayers trying to understand whether they had funding in place to pay tax, checking on how trading was going and how the cash flow was holding up.

Not paying the IRD had always been an expensive option with a small debt quickly ballooning out when overdue penalties and interest were added on and then compounded, he said.

"The IRD is acting more decisively, instigating proceedings against people who haven't talked to them about debt.

"Look at the papers on most days and you will see the IRD pushing some liquidations through."

The IRD would close businesses when the businesses were not paying tax and not doing anything about it.

The department had wide-ranging powers, including getting someone else to deduct money on its behalf, Mr Turner said.

Mr Thompson said he had noticed the automated responses from IRD relating to debt recovery coming out much earlier than previously.

"We have received a number of letters from IRD requesting payment for apparent overdue tax at April 7, which was usually the last day for payment of 2008 terminal tax, in circumstances where the client has actually paid on time but the payment hasn't yet been processed by IRD."

Other examples included a payment being made by way of transfer from another taxpayer, a different tax type or year but that payment had not yet been processed by the IRD.

There was a feeling that the IRD had become more vigilant over recovery of outstanding tax but in many cases all it was doing was creating more work or, in extreme cases, disadvantaging taxpayers who had already met their payment obligations, he said.

 

At a glance

• File tax returns as usual
• Inland Revenue Department (IRD) more vigilant in recovering tax debt
• Talk to IRD early if paying a problem
• IRD willing to work with taxpayers if told early

 

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