Provisional Tax – What is that all about?
Provisional tax is an important aspect of managing a business’s finances and tax obligations. It allows businesses to make progress payments on their upcoming income tax, based on their expected profits for the following year. This can help businesses manage their cash flow and avoid the pressure of paying a lump sum at the end of the year.
For new businesses, the first-year provisional tax payment can be challenging. However, there are ways to reduce the financial strain, such as taking advantage of the 6.7% discount you can recieve if you pay provisional tax in the first year of business for self-employed individuals and partners in partnerships. Additionally, it may be possible to arrange for early refunds if a business’s income falls short of the estimate and too much provisional tax has been paid.
The COVID-19 pandemic has brought about even more challenges for businesses, including those related to provisional tax. To help businesses cope with the impact of COVID-19 and other adverse events affecting provisional tax, tax relief measures have been introduced. These include the ability to re-estimate provisional tax if income falls short of the estimate and the option to request instalment arrangements if unable to pay tax by the due date.
It’s important for businesses to keep their tax plan current and update it if circumstances change. This can help avoid unexpected tax obligations and ensure that the business is financially prepared for any challenges that may arise. By staying informed about provisional tax and taking advantage of available resources, businesses can effectively manage their tax obligations and maintain financial stability.
If your circumstances change during the year, it pays to let us know. Keeping a handle on your tax situation helps ease the stress.