Tax pooling is a service designed to reduce interest costs and penalties, and provide payment options for provisional taxpayers.
How does it work? For underpaid income tax, you can settle what you owe IRD by paying through a tax pooling intermediary such as Tax Traders at an interest cost lower than the interest IRD charges on underpaid tax.
The payment you make is essentially a purchase of tax that Tax Traders pay to IRD using the original date the provisional tax was due.
As this payment is date-stamped, IRD treats the tax as paid on time once it has processed the transfer from the tax pool to your IRD account. Any late payment penalties and interest showing on your account will be reversed once this happens.
When might this be useful? Tax pooling can be used if you have underpaid income tax for the current tax year or the one just completed.
Is tax pooling secure? Tax pooling intermediaries are registered with IRD and operate under legislation set out in Income Tax Act 2007 and Tax Administration Act 1994.
The system was proposed by IRD so private markets could provide ways for provisional taxpayers to manage their income tax obligations and reduce their compliance costs.
The tax pool accounts operated by tax pooling intermediaries are held at IRD and managed by an independent trustee. The independent trustee also oversees the bank accounts in which your payments are made.
For further information, have a read of the Tax Traders website here.