There are four ways to calculate provisional tax - you'll need to choose the best option for you:
- Standard option
- Accounting income method (AIM)
- Estimation option
- Ratio option (for GST registered customers only)
This article focuses on the estimation method. Estimating provisional tax means that you are advising the IRD what you think you should pay, rather than following the standard option.
The estimation option is useful if you know your income will decrease over the next year. You'll usually pay three instalments, however if you're registered for GST and file six-monthly GST returns you'll only pay two instalments.
Filing an estimate that is vastly different from your actual year end result, can leave you open to shortfall penalties. We only recommend filing an estimate to Inland Revenue in certain circumstances and working with an accountant to do so.
We work with our clients, to ensure any estimates filed are reasonable. All our clients are on Xero so this is easy to achieve as we have real and up to date information. At any given stage we can advise our clients on what their likely income tax will be based on actual YTD results and forecasting them over the remaining months of the year.