Budget for Tax Due

Putting Money Aside For Tax
This need will not affect taxpayers on salary or wages because PAYE tax deductions have already been made on their income before they receive it. They are paying tax as they are earning.

If you are not on PAYE then you should consider seriously putting money aside weekly or monthly in a separate bank account to provide for future tax when it falls due.

Too many business advisers fail to advise clients on this point. The client is often under the mistaken belief that what he is spending is”what is his/hers”.
This is incorrect.

A portion of what the taxpayer is using belongs to the tax man. The sad moment of truth comes when tax is due and the cupboard is bare. So take hint. If you don’t have tax deducted by instalments or you’re in business, have a chat to your accountant and decide on an amount that you should set aside periodically for tax.

At best it will only be a good estimate, but some provision is better than none at all.

The money should be banked in a separate savings account earning you interest while at the same time providing you with a steadily increasing “tax fund” to meet the heavy commitment when it falls due.

Warning – Don’t draw from this account except for tax. It is often a great temptation.

Budgeting For Tax Payments
It is therefore essential that you budget for all the tax payments you are required to make.

These payments include:

  • income tax on your net business profit, which is calculated in your income tax return

  • goods and services tax that you collect in after charging for your goods/services when you are registered for GST

  • PAYE and other deductions from employees' wages when you are registered as an employer.

How to Budget

Simply calculate and put money aside in a savings account specifically for the sole purpose of future tax payments. For advice on what percentage of your income to put aside for tax purposes, contact your accountant or financial adviser, or a Business Tax Information Officer or a Maori Community Officer at Inland Revenue.