Sometime people pay cash for goods and services and sometimes the recipients may not declare it to Inland Revenue. This is called the hidden economy (sometimes called the black economy) and refers to the part of the economy that people hide by not disclosing transactions and income to Inland Revenue. Simple examples are tradespeople and the hospitality industry.

The hidden economy includes undeclared cash payments, sales that are not put through the books or till, or barter arrangements where the value of what a person receives is not included as income.

Inland Revenue is having increasing success at detecting transactions in the hidden economy and can access multiple sources of information with or without the persons’ knowledge.

Detection could result from something as simple as being “dobbed in” through a link on Inland Revenues website; an investigation of one person suggesting another person’s tax affairs should be audited; or a focus on a particular “at risk” industry, such as the hospitality industry.

Inland Revenue also uses sophisticated computer-based benchmarking tools to compare the

performance of a business with industry norms for evidence a person is not disclosing income.

When a person purposefully undertakes these types of transactions, it is tax evasion. If identified by Inland Revenue, not only will the person have to pay the tax they have evaded but also a penalty for tax evasion which is 150% of the tax that was evaded. They could also be prosecuted and fined of up to $50,000 and/or receive a term of imprisonment not exceeding five years.

What should you do?

If you have concerns about tax liabilities that may arise from income that has not been disclosed to Inland Revenue, you have the option of making a “pre notification” voluntary disclosure, or in the event that you have been contacted by inland Revenue, a “post notification” voluntary disclosure.

A pre notification voluntary disclosure, can mean a reduction in the penalties you face of between 100% and 40%, and a reduced risk of prosecution.

If Inland Revenue announce the intention to carry out an audit you have a short window of

opportunity to make a ‘post notification’ disclosure. This can provide a 40% reduction in the shortfall penalty component, and a reduced risk of prosecution.

If you have any concerns, talk to Mary Nelson to ensure you understand the implications and options that are available to you in your specific circumstances.

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A Statutory Demand is a demand made by a creditor in respect of a debt owe by a company to the creditor. The Statutory Demand process is intended to be a first step in making an application to put a company into liquidation (wind a company up) and provides a quick procedure for ensuring payment of a debt, or for finding out whether payment is possible.

​Once a Statutory Demand is served on the company, the company has 10 working days to apply to the Court to have the Statutory Demand set aside, or 15 working days to satisfy the Statutory Demand.

​If the Statutory Demand is not satisfied within the 15 working days, this will prove that the company is insolvent and not able to pay its debts, and the creditor can apply to the High Court to have the company put into liquidation.

​Whether you are owed debt by a company, or have had a Statutory Demand served on you, we at Crawford Nelson can guide you through the process. We offer cost effective debt recovery services backed up by extensive litigation experience in bankruptcy and liquidation proceedings, serving and setting aside statutory demands and assisting clients to enforce judgment.

​A company owes you an outstanding debt

​If you have outstanding debt owed to you by a company, our first step would be to issue a Statutory Demand. If your debtor does apply to set aside the Statutory Demand within 10 working days to or satisfy the Statutory Demand within 15 working days, an act of insolvency is established, and we can then apply to the High Court to liquidate the company.

​You have been served with a Statutory Demand

​If your company has been served with a Statutory Demand, the most important thing is to seek expert legal advice and act immediately. Most creditors do not want to put a company into liquidation. We can help you seek another outcome including negotiating some sort of payment arrangement or settlement with the creditor.

​If you dispute the debt in the Statutory Demand, we can:

​assist you to apply to the High Court to have the Statutory Demand set aside; or, negotiate with creditors; or, respond to court proceedings and help to ensure the best outcome for your business and your reputation.

​Your company is insolvent

​If your company is insolvent, then you can discuss your options with us. You have only 10 working days as a shareholder to appoint a liquidator from after the service of liquidation documents, which is the document that follows the Statutory Demand.

The post What is a statutory demand? appeared first on Crawford Nelson Law.

A voluntary disclosure is when someone tells Inland Revenue they have made an error in their tax return. Errors can include under declaring income, such as rental, cryptocurrency earnings, cash payments, and overseas income.  Or it could be over claiming expenses. 

A voluntarily disclosure can be made for any tax type (PAYE, GST, income tax etc) or any of the payments that IRD monitor, including child support, student loan repayments or working for family’s tax credits (WfFTC).

Currently Inland Revenue is running a campaign on the Resurgence Support Payment (RSP). 

There are 2 types of voluntary disclosures:

1. A pre-notification voluntary disclosure is made any time before IRD notify the taxpayer of an impending IRD audit or IRD investigation.
2. A post-notification voluntary disclosure is made after IRD notify the taxpayer of an impending tax audit/ investigation, but before the IRD audit/ IRD investigation begins.

Why make a voluntary disclosure to IRD

Inland Revenue has wide ranging powers and routinely reviews the tax affairs of people and businesses, so there is a real chance that errors will be identified by Inland Revenue. 

Inland Revenue also receives anonymous tip offs through the IRD website, information from other overseas tax departments and information from overseas financial institutions under the international Common Reporting Standards.

Other times IRD may be investigating another taxpayer and your name comes up. Or a taxpayer might discover funds they have been receiving should have been taxed. This may be the case with rental payments which people often confuse with capital gains. 

Inland Revenue undertakes campaigns on particular industries, and tax types. Currently Inland Revenue is running a campaign on the Resurgence Support Payment (RSP). 

It is a criminal offense to knowingly not pay tax or overclaim expenses. Being proactive reduces the risk of a full blown IRD tax audit or criminal prosecution.  

Why make a voluntary disclosure to IRD 

It is important to manage tax correctly. The New Zealand tax administration system is based on voluntary compliance. Under tax laws, a taxpayers’ basic obligations are to work out the correct amount of tax to pay, keep all relating records, then file the tax returns and pay tax on time.

Inland Revenue routinely audits the tax affairs of people and businesses. An IRD audit may be well underway before a taxpayer is even aware they are under investigation. IRD has very wide powers. By the time a taxpayer has been notified of an audit, IRD may already have a lot of information including bank statements, interviews. Even photographs of people at cash machines withdrawing or depositing funds. 

Under the tax administration laws, tax evasion is a criminal offense. Making a pre-notification voluntary disclosure to IRD will significantly reduce the risk of a criminal prosecution. 

How to make a voluntary disclosure.

The voluntary disclosure needs to contain enough information for IRD to make a tax assessment, including:

• name, IRD number and contact details 
• the tax periods and tax types involved, eg: income tax/ GST.
• an explanation as to why the error occurred.
• sufficient information for IRD to make a correct assessment of the tax shortfall.
• a signed statutory declaration that what has been submitted in the voluntary disclosure is full and complete. 

Ideally the tax payable as a result of the voluntary disclosure should also be calculated. 

Inland Revenue shortfall penalties and prosecutions

If you underpay your tax, Inland Revenue may charge a shortfall penalty or prosecute you.

There are 5 shortfall penalties that range from 20% for not taking reasonable care, to 150% for tax evasion. 

It is a criminal offense to knowingly not pay tax. If prosecuted and convicted, the sentence can be up to 5 years in prison and/ or up to a $50,000 fine. IRD will also seek reparation for tax they say was not paid.

When we submit a first-time accurate pre-notification voluntary disclosure to IRD, Inland Revenue will waive shortfall penalties and will not prosecute you. 

Why you need us along for the journey 

An incorrect voluntary disclosure can leave you exposed to large shortfall penalties and a potential criminal prosecution. 

We specialise in voluntary disclosure applications. Mary Nelson is an expert tax lawyer who understands the IRD requirements and IRD audit process. She knows tax law and has a proven track record in successfully resolving issues with Inland Revenue. Mary understands IRD’s tax technical requirements and is a highly skilled negotiator. Once the disclosure is accepted, she will negotiate a payment proposal with payment options that are affordable to the client and acceptable to Inland Revenue. 

If you have received a letter from Inland Revenue, or think your tax returns may be incorrect, please contact us immediately. Any information you share with us is legally privileged and kept strictly confidential. 

Dealing with Inland Revenue or an IRD audit can be daunting. We handle the entire process, keeping you out of the firing line, whilst ensuring the voluntary disclosure is compliant, accepted and successful. We will give you practical and trusted advice. We contact IRD on your behalf and all contact with Inland Revenue will be through us. 

Contact us and get the process started.

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