"In the current economic environment, managing cashflow is paramount.
"Tax can be a significant cash outgoing for businesses, so it is important that you do not pay any more than you have to," WHK Taylors tax partner Scott Mason said this week.
Provisional tax was a payment system designed to ensure businesses paid tax periodically during a financial year, both to allow the Government to collect tax as profits were generated and to allow businesses to manage their cashflow better by not just having a one-off tax payment at the end of the year.
"It is effectively the business equivalent of PAYE on wages, but subject to an interest regime."
The default way of calculating provisional tax was to use last year's profit (or from the year before) as an initial proxy for what profit was likely to be generated this year, before applying an "uplift" of 5% (or 10%) for growth, he said.
The uplift was fine when businesses were either static or growing, but could materially overstate the final tax liability for a business that had either ceased or fallen on tougher times.
In those instances, it was possible to estimate provisional tax liabilities downwards.
However, poor or inaccurate estimations could come with some down-sides such as penal interest and, in rare circumstances, penalties, Mr Mason said.
"It is also possible to voluntarily pay more than you are required to do under uplift - creatively called `voluntary payments' - which is generally done to reduce exposure to IRD interest."
Assuming that businesses had not estimated their 2009 provisional tax obligation, and were subject to the standard uplift approach, there was some good news arising as part of the Government's small business support package, he said.
The uplift rate had been lowered by 5% for both companies and individuals from April 1, 2009 which affected future payment calculations (see table).
The reason why the company uplift rate was lower than for individuals was due to the reduction of company tax rate from 33% to 30%.
If businesses were provisional taxpayers with a March balance date, and had already calculated provisional tax payment on uplift for the 2009year for the first two provisional tax payments (August and January), they had likely done so on the basis of the old uplift rates, Mr Mason said.
As a result of the uplift rate reductions, when businesses calculated provisional tax over the entire period, then divided it between the three payments, a 15% saving was possible on the next payment.
For most taxpayers, this will be May 7, 2009 (P3).
Some software used to calculate provisional tax payments by accountants had only just been updated, so those who had previously calculated provisional tax might find they had overstated the amount due.
"When cashflow is tight, having overpaid tax earning interest at the rate of 4.23% may not be the best use of your hard-earned money, so I recommend that you take steps to ensure this matter is managed proactively."
If businesses did have a significant tax liability coming up which was causing some issues with the bank, there was another specialist tax finance funding option available for up to 12 months which did not require specific security or personal guarantees.
Interest rates were reasonable, about 6%, depending on circumstances.
"We have utilised this for a number of our clients, and I can recommend it as a good option if cashflow is tight and tax is due," he said.
At a glance
• Provisional tax due May 7
• Uplift rates changed
• Ensure you do not overpay
• Tax finance funding available
