We reached out to Tax Traders, a tax pooling intermediary for thoughts on how tax pooling can assist.
Nicola Taylor, Co-founder of Tax Traders, notes they have seen a shift in the way tax pooling is used by taxpayers since the start of the pandemic. Traditionally, the primary use of tax pooling was to top up tax shortfalls after the fact. Fast-forward two years into the pandemic and tax agents are now suggesting the use of tax pooling in a much more proactive way. Businesses are looking for sources of funding and are using tax pooling as a cash flow management tool, complementing their treasury function in lowering the cost of financing and debt to the business.
Financing tax (paying an interest amount upfront and deferring the payment of tax to a later point in time) remains a competitive option when compared to other sources of funding if a client needs to retain funds in a business. In the face of increasing uncertainty around profits for many businesses, as well as complementary insurance on tax finance fees, financing tax is a great way to reduce exposure to UOMI and penalties, while hedging the risk of having a tax bill in the future. Tax Traders exclusive feeGuard product provides a full refund of finance interest paid on the portion of finance not needed at maturity. This makes the choice to finance risk free. If you need it, you use it, if you don’t need it, you get your interest cost back.
Businesses who want to pay their tax on time should still deposit into a tax pool on their relevant provisional tax instalment dates to ensure they have full optionality over these deposited funds. By depositing into a tax pool, businesses retain flexibility over these funds, in that they can withdraw deposits from the pool (subject to anti money laundering (AML) checks) should they need to pull cash back in their business. Nicola notes that many clients took advantage of this under the two major periods of lockdown, and, for some, it was the reason they could stay trading.
When it comes to year-end, Tax Traders’ smart tools ensure businesses pay what they need to at each instalment date and will perform any relevant swaps/transfers needed between dates/amounts.
If a business is not wanting to finance or deposit, purchasing tax after the fact still minimises exposure to UOMI and late payment penalties, should a business miss a payment or need to top-up any shortfalls throughout the income year. Businesses can save up to 30% on UOMI through purchasing via Tax Traders, as well as eliminate the late payment penalty applied to non-payment from and after seven days of the original due date of any provisional tax shortfall. This remains a smart option for clients who want to finalise their tax position before outlaying any funds for their tax bill.
Tax pooling is an excellent option to provide clients and offers an array of tax payment options to suit all taxpayers, retaining cash flow flexibility, all while mitigating UOMI and late payment penalties.
For more advice, contact your usual Deloitte advisor.