In this discussion
Money held for tax should not be confused with the money available to run a business. In this extract from Notes From The Executive, hosted by Mina Amso, Dave Ananth discusses the practical discipline of keeping GST and PAYE separate from operating cash. A bank balance may include amounts that will need to be paid to Inland Revenue rather than spent on rent, suppliers or other commitments.
The clip recommends maintaining a separate tax account and transferring an appropriate portion of incoming revenue into it. The appropriate amount depends on the business’s actual tax position and should be established with its accountant. A separate account is a cash-management discipline, not a substitute for correct calculations, returns, payment dates or advice about an existing shortfall.
Repeatedly using tax money to keep trading may indicate a deeper cashflow or commercial-viability problem. It can postpone a difficult decision while creating another creditor and further pressure. The useful question is therefore not only how to meet the next IRD payment, but why ordinary business income is failing to cover ordinary business expenses.
Dave’s work at Meridian Partners includes student loans, tax disputes and negotiations with Inland Revenue. Where tax debt has already accumulated, accounting information and legal advice can help clarify the situation and the options that may be considered. No separate-account practice or negotiation guarantees that a business will recover or that Inland Revenue will accept a proposal. The underlying commercial problem still needs to be understood and addressed.
Practical points
- Separate tax provisions from day-to-day operating funds.
- Ask the accountant to establish appropriate amounts and payment obligations.
- Treat repeated use of tax money as a warning about cashflow.
- Address the underlying business problem as well as the outstanding tax.
Podcast material: Notes From The Executive, hosted by Mina Amso. Featuring Dave Ananth. This material does not imply endorsement by the publisher or host.
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This material is general information only and is not legal or financial advice. Outcomes depend on the facts and the law applying to each matter. Past outcomes do not guarantee future results. Inland Revenue and the courts retain responsibility for their decisions.