Provisional tax for sole traders: how it works
When provisional tax kicks in, which uplift percentages apply, what the instalment dates are, and how the safe harbour keeps interest charges away.
What provisional tax is
Provisional tax is the NZ system for paying income tax during the year you're earning, rather than as a single bill after you file. It applies once your residual income tax (RIT: the net income tax owing after credits, minus any PAYE or withholding tax already paid) exceeds $5,000 (Income Tax Act 2007 s RC 3).
If your RIT is $5,000 or less, you're not a provisional taxpayer. You pay a single terminal tax bill after filing your IR3, with no instalments during the year.
The standard uplift method
Most provisional taxpayers use the standard method: pay a fixed percentage of last year's RIT, split across instalments.
Last year's return is filed: pay 105% of last year's RIT (Income Tax Act 2007 s RC 10).
Only the year before last is filed: pay 110% of that year's RIT (ITA 2007 s RC 10).
No prior-year data available: use the estimation method (your best estimate of this year's income tax).
PayWren's Tax Planner accepts your prior-year RIT in the RIT entry panel and shows the uplift amount and the estimation side by side.
Instalment dates (31 March balance date)
For the standard 31 March balance date (which applies to most NZ sole traders), three instalments are due each year. For the FY ending 31 March 2027:
P1: 28 August 2026
P2: 15 January 2027
P3: 7 May 2027
Dates are set by IRD at 5, 9, and 13 months after the prior balance date, with holiday shifts applied (a 28 December due date shifts to 15 January; a 28 April due date shifts to 7 May).
If you file GST six-monthly, you only have two instalments: at months 7 and 13 after the balance date (28 October 2026 and 7 May 2027 for a 31 March balance date).
The Tax Planner shows your exact dates and amounts; visit /tax-planner in the app.
Safe harbour: paying on time to avoid interest
If your RIT is $60,000 or less, the safe harbour applies (Tax Administration Act 1994 s 120KE):
- Pay the standard-method (uplift) instalments in full by each due date - Any gap between those instalments and your actual final tax is squared up at terminal tax, with no use-of-money interest on the shortfall
If your RIT is over $60,000, safe harbour does not apply. IRD's use-of-money interest (currently 10.88% per annum, Tax Administration Act 1994 s 120E) runs on any underpaid instalment from its due date.
Use-of-money interest (UOMI)
IRD charges use-of-money interest on underpaid tax from the instalment due date. The current debit rate is 10.88% per annum (set by Order in Council under TAA 1994 s 120E).
UOMI applies when: - Your RIT is over the $60,000 safe-harbour cap, regardless of method, or - You miss an instalment
Tax pooling through an IRD-approved intermediary (TMNZ or Tax Traders) can cover a missed instalment for materially less than IRD's rate. The Tax Planner flags overdue instalments and mentions pooling as an option. Confirm with your accountant whether pooling fits your situation.
Estimation method
If your income has dropped materially from last year, you may prefer to estimate this year's actual tax and pay that instead of the uplift.
Risk: if you underestimate and your RIT is over $60,000, UOMI runs from each instalment date, not just from year-end. For taxpayers over the safe-harbour cap, the cost of getting the estimate wrong is higher than for those below it.
For most sole traders with stable or growing income, the standard uplift method is simpler and safer. Use estimation when the income drop is clear and certain (for example, after losing a major client mid-year or taking parental leave).