If you use the standard, estimation or ratio options, you will not need to pay provisional tax during your first year of business. If you use the accounting income method (AIM), you’ll only pay provisional tax when you make a profit, even during your first year.
However, your first year in business is not tax free. Any income tax from your first year in business is usually due by 7 February the following year. If you have an agent it will be due by 7 April.
This may mean you must pay income tax for your first year in business at the same time as paying provisional tax for your second year in business.
You can choose to make voluntary payments of tax during your first year of business to help spread the cost. If you make voluntary payments you may be able to get an early payment discount.
Early payment discount
You may be able to get an early payment discount if you meet the following.
- You are self employed or a partner in a partnership and get most of your income from the business.
- You make a voluntary income tax payment before the end of the income year or you use tax pooling funds to make payments for the income year.
- You apply for the discount on or before the date your tax return has to be filed.
- You do not have an obligation to pay provisional tax in the income year you make voluntary payments or for any of the 4 years before.
Early payment discount rate
From 1 April 2022 to 31 March 2023 the early payment discount rate is 4.31%.
Self employed people with student loans
If you're self employed and have a student loan, you may have to make repayments in your first year of business.
Contact us to find out more.