Date posted: 4/09/2019 4 min read

Provisional Tax and UOMI: Issues raised with CA ANZ and IR’s update

Members raised scenarios with the NZ Tax Team where unfavourable outcomes were occurring for taxpayers. IR have issued an update and details of interim processes.

In brief

  • CA ANZ raised member’s provisional tax and UOMI issues with Inland Revenue
  • Inland Revenue are working to a solution for the 2020 tax year
  • Due to the rounding method used in MyIR, some taxpayers may be subject to use of money interest

Member queries and issues relating to Provisional Tax and UOMI

The CA ANZ tax team have received several queries from Members recently regarding provisional tax and use of money interest in MyIR. A few different scenarios have been brought to our attention which have resulted in incorrect calculations of use of money interest for clients’ provisional tax liabilities, and/or incorrect calculations of provisional tax instalments. 

  • Where a person is not a new provisional taxpayer, and not a provisional taxpayer in the previous year as RIT is less than $2,500 (so there is no liability to pay provisional tax in the following year), in the following year RIT is greater than $2,500 so the person is a provisional taxpayer in that year. UOMI is being calculated from the first or second instalment date.
  • Where a person’s calculation of a provisional tax instalment does not exactly match the calculation in START (taxpayer’s calculation gives a lesser amount) and the difference between calculations is a matter of cents; the persons ‘underpayment’ is resulting in the calculation of UOMI from the first, second or third instalment dates.
  • The calculation and rounding of provisional tax instalments differ between FIRST and START systems. If a person calculates and pays instalments applying the FIRST methodology, any ‘underpayments’ will result in UOMI charges from the first, second or third instalment dates. 

While the last scenario is intended to be addressed by an amendment to the Income Tax Act 2007 in a proposal in the Taxation (Kiwisaver, Student Loans, and Remedial Matters) Bill, these scenarios are creating unfavourable outcomes for taxpayers as they are incorrectly being excluded from the concessionary UOMI rules. 

CA ANZ raised this issue with Inland Revenue who are now working on resolutions for these issues and have provided additional information for taxpayers and tax agents to manage them. 

Differing provisional tax calculations 

Inland Revenue provided an update on their quick fixes and solutions for tax intermediaries page on 29 August 2019.

MyIR uses a different rounding method to most accounting software and what is reported in Inland Revenue’s income tax return guides. This has meant that provisional tax will be out by a dollar or so for a small group of taxpayers. As well as causing confusion, some taxpayers will be subject to use of money interest.

Inland Revenue are working to fix the issue for the 2020 tax year, however the current focus is on correcting the issue for any affected accounts. IR advise that any impact on you or your clients’ accounts will be addressed once this has been resolved. 

Other provisional tax issues

Some taxpayers using the Accounting Income Method (AIM) were incorrectly charged late payment penalties and interest on terminal tax where they had paid their tax in full and then later filed an IR4 to square up. Inland Revenue have fixed this issue but advise that AIM taxpayers whose penalties and interest are incorrect to contact IR for a review. 

Inland Revenue are now issuing specific provisional tax assessment summary letters which replace the summary of account letters. The new letters will come from the income tax account and will follow tax agent mail redirects.  Summary of account letters will still be sent directly to tax agents’ clients for outstanding bills which have both provisional tax information and account information across all tax types.

Previously there was an issue in the new system preventing taxpayers or tax agents from manually amending the provisional tax amount to $0.00 in GST returns. Inland Revenue has resolved this issue. 

IR provisional tax updates

IR’s progress and updates on provisional tax issues affecting tax agents and their clients.

Read more

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