last updated 02/09/2021
Practical help with getting tax relief
last updated 02/09/2021
30 August 2021 – Philip Morrison of Franchise Accountants offers some practical guidance on how to help franchisees secure relief from IRD to spread out their tax burden and help with business resilience
The extensions to Covid Delta lockdowns will place mounting cashflow pressure on business owners. Here are some thoughts on how franchisors can help franchisees access some cashflow relief with IRD, and manage their cashflow over this time.
At the time of writing, unlike last time there is no Government funding to assist business owners in getting advice about assessing cashflow needs and working out a cashflow resilience plan. It falls to the franchisees (with the help of the franchise support team) to learn from last time and put these in place.
Franchisors, recommend that each franchisee dusts off and updates their 2020 Covid cashflow projections. They should then make this available to the support team so that they can discuss it together and devise a plan to manage through any cash crisis.
We strongly recommend that franchisees also consult their accountant about seeking assistance from IRD on payment relief. Accountants can get a quicker response, understand the settings they work to, and often get a better result.
Deferring tax payments
Compared to 2020, the IRD have changed some settings on how they will grant lockdown relief and the way it’s administered. They have moved to evaluating each business seeking assistance on its own merits – not just handing out assistance without qualification as in previous times. It’s important to note that it’s at the IRD’s discretion as to what level of assistance, if any, will be granted.
To help franchise support teams provide more precise guidance to franchisees here are some of the changes around the process for seeking IRD assistance.
- File your tax returns
o This is first base. Stress the importance of continuing to file returns. This is a core requirement before IRD will engage for payment relief dialogue.
- Evidence-based assessment
o Requests for assistance should be made on a timely basis as soon as practicable.
o Businesses need to show that their ability to pay by due date is financially (or physically) significantly affected by Covid 19.
o This applies to tax owing from 14th February 2021.
- Information IRD may request. This includes the following (but not in every case):
o File tax returns e.g. GST returns;
o Three months’ bank statements;
o Credit card statement;
o Management accounting information;
o List of aged creditors and debtors.
- Assistance offered
What type or level of assistance, if any, will be granted is at the IRD’s discretion. There are a number of different types of possible relief for new IRD debt due to Covid-19. These include:
o Instalment arrangement;
o Instalment arrangement with deferred payment start date.
These are dependent on the circumstances of the business, and the ability to repay. Defaulting on any payment arrangement will be seen in a bad light, and the facility may not be re -instated. Once again, we recommend seeking support from your accountant to negotiate these arrangements.
- IRD remission of interest and penalties
It’s important to note that in circumstances where suppression of interest and or penalties have been agreed on payment arrangements, these are still owing until the repayment payment plan has been paid in full.
Only at the end of the repayment plan term, with all instalments having been made, will interest and penalties be written off. Not keeping to a payment plan will see interest and or penalty charges being re-instated. So make sure franchisees keep their instalment plan at a level which their business can sustain.
Example - café business
Vishal owns a café. In the last few weeks, the business was experiencing a sharp decline as people avoided going out due to concerns about Covid-19. Now, with the lockdown, Vishal’s business has no cashflow at all.
Vishal or his accountant contacts Inland Revenue and explains that the effect of Covid-19 on the hospitality sector means his turnover for the current year is going to be down from the previous year’s, and he won’t be able to pay in full an upcoming tax bill.
He’s tried to get a further extension to the business overdraft from the bank but has been unsuccessful. Vishal has a payment plan with his key suppliers that he needs to keep the business running, and has other immediate financial expenses to maintain his business operation in the short-to-medium term. He asks if there’s any kind of help Inland Revenue can provide.
There are a range of ways Inland Revenue can help customers who are struggling to meet tax payments. Working through these options in conjunction with Vishal’s finances and plan to sustain his business, Vishal agrees with Inland Revenue on an instalment arrangement to pay off the tax bill over the next six months. This allows him to also meet his other financial commitments and assist with the viability of his business moving forward.
Agreeing to an instalment arrangement before the due date means only initial late payment penalties will apply to the amount owning. Because his financial situation was due to Covid-19, the late payment penalty and the UOMI charged over the term of the arrangement will be remitted once the amount owing is paid.
Table of Govt support as Covid-19 lockdown restrictions unfold
Other levers for managing cashflow
There two other key options available to franchisees. These require a cashflow forecast to be done before approaching stakeholders so that businesses are able to explain the nature of the problem for which they are seeking temporary assistance.
- Supplier repayment arrangements
Suppliers also have constraints on their cashflow. In general, we recommend paying what is owed, so you will be granted credit on supplying goods once business recommences. Where national suppliers have agreed payment terms, franchisors may be able to negotiate on behalf of the whole network.
Banks will also be prepared to help customers overcome short-term cashflow problems and restructure loans if required. Consider the following avenues:
o Temporary overdraft facility ( normally 30 days, with the ability to roll it over twice more);
o Negotiate interest-only terms.
Each of these will require cashflow projections to support the application. Often banks will require these facilities to be fully secured over property.
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