Late payment penalty notification

Section 139B(1) to(3A) of the Tax Administration Act 1994

The amendment provides that Inland Revenue will notify a taxpayer the first time their payment is late rather than imposing an immediate late payment penalty. If payment is not made by a certain date, the penalty will be imposed.

Background

One of the basic obligations of taxpayers is to pay their taxes on time. To encourage taxpayers to do this, those who pay late face late payment penalties. The late payment penalty is imposed in two stages: the initial late payment penalty and the incremental late payment penalty. The initial late payment penalty is also applied in two steps: a 1 percent penalty imposed the day after the due date and a 4 percent penalty imposed at the end of the sixth day if the tax owing remains outstanding. The incremental late payment penalty is 1 percent and is imposed each month the tax remains outstanding.

The amendment ensures that those taxpayers who are usually compliant, but have inadvertently missed a payment, do not have late payment penalties imposed on them. In these cases, the penalty can be disproportionately high compared with the severity of the breach. The effect of the amendment is therefore to give consideration to the taxpayer's previous record of compliance before imposing the late payment penalty.

Key features

Inland Revenue will notify taxpayers the first time their payment is late. The notification will explain that if the payment is not made by a certain date, a late payment penalty will be imposed. The notification will also state that if taxpayers make late payments within the next two years, further leniency will not be granted. Inland Revenue will not send the taxpayer any further notifications for two years, and the initial late payment penalty will be imposed in the normal manner.

If the warning does not result in payment, the late payment penalty will be imposed in the normal manner as if the warning had not been given.

All taxpayers start with a clean slate. After 1 April 2008, the first time a taxpayer pays late (irrespective of whether a payment has been paid late in the previous two years) a warning will be given.

The amendment does not apply to provisional tax. It is not until after the due date that the final tax liability is determined and late payment penalties, where applicable, would be imposed retrospectively. As noted previously, the proposal is aimed at taxpayers who are generally compliant but inadvertently miss a payment - this is not the case where the late payment penalty is imposed on late payment of provisional tax.

Application date

The amendment applies to late payments of tax that are due on or after 1 April 2008.