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For businesses and employers: Ceasing to operate a business

Special requirements for businesses facing insolvency

If you may not be able to pay your tax on time because of temporary financial difficulties, see our information about instalment arrangements. However, if your financial difficulties are more serious we may need to consider other methods of payment or relief.

What does "in financial difficulties" mean?

"In financial difficulties" isn't defined in the tax laws, nor is it an accepted legal or accounting concept. Inland Revenue uses the term to mean a person's financial situation is such that debts cannot be paid on time, and either:

  • creditors may well seek liquidation (for a company) or bankruptcy (for an individual), or
  • the debts of a business are a substantial limitation on carrying out normal income-producing activities.

It can take into account contingent liabilities (which will arise after a future event) or term liabilities (which have yet to mature, eg, debentures payable two years from now). However, these will be included only if they can be reliably estimated and must be paid when they occur.

What relief is available for someone in financial difficulties?

Legally Inland Revenue must ensure that any relief granted will maximise net present value of tax paid. Generally this means that tax paid now has more value than tax that will be paid at a future date, but that reducing the amount payable now may allow a business to survive and pay what it owes at a later date, rather than going into liquidation and not paying at all.

What relief is available depends on your situation. We need to work this out with you after examining your financial situation and your ability to pay your tax. For more information see our Tax Information Bulletins Volume Thirteen No. 4 (page 24) and Volume Six No. 14 (Appendix).

 

 


Date published: 14 Oct 2004

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