From the start of the 2018 tax year, shareholder employees are going to be permitted to take a PAYE salary and then top up at year end with a lump sum on which they will pay provisional tax.

You now have the opportunity to reduce the 28 August provisional tax payment together with subsequent payments by putting these people onto a PAYE salary for part of their income.

What this means for you:

Providing the tax on your income is less than $60,000 and you pay Provisional tax based on the standard uplift method (generally last year’s tax + 5%), there will now no longer be any use of money interest charged.

Previously this threshold only applied to individuals with less than $50,000 tax, now it includes Companies, Trusts and all other entities.

For many of you this will take some of the guesswork out of Provisional Tax time, although there are some rules and exceptions, particularly relating to associated parties and estimations, so we will still keep an eye on the payments to ensure you are meeting the rules and there are no shocks.

For other tax payers who are outside of safe harbour threshold and use the standard uplift method, the use of money interest will only apply from the third Provisional Tax instalment, whereas previously it applied from first instalment.

They have also made a slight change to the penalties payable on late payment.

The 1% monthly incremental late payment penalty will no longer be charged on:

• GST debts for the period ending 31 March 2017 and later
• income tax (including provisional tax) for the 2017-18 and later income years, and
• Working for Families Tax Credits overpayments for the 2017-18 and later income years.

The 1% penalty the day after the due date and the 4% penalty the week after the due date and interest will still apply but this change will reduce the accumulation of penalties.

If you have any questions about your provisional tax or need some help – please get in touch today.