The IRD published their 2012-2013 Compliance Focus document in August and it always makes for interesting reading as the Commissioner sets out the range of tax compliances that are under their current gaze.
There are numerous ways people avoid tax, none of which is a sensible approach because there are also numerous ways that the IRD can obtain information on avoidance to stop this practice in its tracks. These ‘ways’ are wide ranging and designed specifically to address non-compliance.
Continual evasion of taxation obligations has serious consequences for those who deliberately flout the rules – the document tells of a client who deliberately set out to avoid GST and PAYEcompliance and ended up with a four year jail sentence and another who refused repeated requests to comply with GST returns and was eventually charged with 30 counts and sentenced to home detention for four months and ordered to do 150 hours of community service. Another taxpayer who knowingly helped a company avoid filing PAYE returns was sentenced to 11 months of home detention and 300 hours of community work plus costs. So the clear message is compliance with tax obligations and avoidance will be detected and depending on the extent of evasion, heavily penalized.
You will note that we are not drawing attention here to big-time fraud and the company directors who practice major evasion. These are cases of GST and PAYE avoidance, taxes that every small business deals with on a daily basis.
PAYE debt remains a focus for 2012-2013 and the specific focus is employers who are not including KiwiSaver deductions for employees on their Employer Monthly Schedules (EMS) and not paying or showing the employer contributions they are obliged to make. These obligations are straightforward if complied with regularly but become a major problem if ignored over time, which is why Employer Monthly Schedules are another major focus for this period.
As mentioned above, the timely and accurate filing of the schedule is mandatory. Inaccurate filing or late filing can affect the accuracy of employees’ summaries of earnings and personal tax summaries, KiwiSaver and child support payments, student loan balances and Working for Families Tax Credits. Even just getting the IRD numbers wrong or forgetting to include them can lead to employees being disadvantaged as can failing to advise when an employee leaves. From a small business point of view there are software technologies that can prepare and file these returns online, as does the IRD, and tax agents like Flexipayroll offer payroll that can save you time and money in accurate preparation of EMSs.
The Hidden Economy
During the 2011/2012 year the IRD focused on the sectors known for failing to record all cash income or who are unaware of their obligations. The sectors involved tended to be hospitality, and construction and now include the scrap metal industry and people conducting businesses through online trading and particularly last year those who were providing rentals and accommodation for big events (the RWC) – with over 1000 taxpayers being contacted after advertising residential properties for rent – there were tax implications in these short-term rentals.
The IRD continues to use the funds budgeted in 2010 to increase understanding within the vulnerable sectors in the need to keep accurate records and declare cash income. The IRD also has the ability to collaborate with other tax authorities and private organizations to match data to identify individuals who have not declared all their income – because their methods for detecting this are improving all the time and their advisory team make direct calls on businesses to check, this is an obligation every taxpayer needs to make sure of. Paying wages ‘under the table’, not reporting trade of goods and services, skimming takings from the till and not declaring cash jobs or offshore income are direct contraventions of the tax laws and the IRD has declared it is determined to get on top of this problem.
Taxation can be stressful, it is not deliberately designed to be, but it becomes so if obligations and compliance are ignored. In most cases remedial action is straightforward and the IRD attitude is not punitive but they expect tax to be filed and paid on time, with the right information and if not then they will take action to achieve this. In all cases there are plenty of ways to gain help with taxation issues and a using the services of a tax agent is a good place to start.