Consumption Tax Interim Payment Has Arrived: Mechanisms, Cash Preparation, and Filing Procedures
One day, an envelope arrives from the tax office.
This is written for those who have had the experience of opening it to find a paper labeled "Interim Tax Return and Payment Slip for Consumption Tax and Local Consumption Tax," only to see a figure in the amount column that was larger than they had imagined.
What is this? I wasn't told about this.
I truly understand how those who thought that feel. You have just paid your consumption tax during the final tax return, and you did not expect another consumption tax bill to arrive. Moreover, even though you do not remember filing a return, a payment slip has arrived for some reason.
If it is your first time, this is naturally what happens. It is not strange; you just did not know.
However, if you leave this envelope unattended,delinquent taxwill be incurred. This article will organize what you need to know.
Why did such a bill suddenly arrive even though my sales increased?
When a business starts to go well, these "sudden taxes" increase.
The interim payment of consumption tax is one of them, a system that applies from the year after sales exceed a certain level. Even if you have become accustomed to the annual final tax return process, the interim payment arrives suddenly at a different time, so you do not notice it.
It is not rare for people who thought, "I thought it would be fine if I just did my final tax return properly," to stumble over this system.
Moreover, the amount is large. It is also common to find yourself in a situation where you think, "Even if I am told to pay several hundred thousand yen suddenly, I do not have that much on hand." You should be happy that your sales have increased, but the sudden bill makes you anxious about your cash flow. There are not a few people who have had that experience.
I understand the feeling of wishing someone had told me. But once you know the mechanism, you will not be surprised next time.
Understanding the structure of "prepayment of consumption tax" makes it easier
To explain the interim payment of consumption tax in one word, it is "a system to prepay a portion of the consumption tax to be paid at the end of the fiscal year during the middle of the year."
The reason such a system exists is that if the government only collects consumption tax once a year, cash flow becomes unstable. For businesses that reach a certain level of tax payment, a mechanism is in place to have them pay even during the year.
Those subject to this are businesses whose final consumption tax amount for the previous year (previous taxable period) exceeded a certain amount. In the case of sole proprietors, if the previous year's consumption tax amount (national tax portion) exceeds 480,000 yen, they will be subject to interim payment from the following year.
Roughly speaking, it is the image that a notice arrives saying, "You are required to file an interim return from this year," once the previous year's consumption tax exceeds 480,000 yen.
Actually, the amount has nothing to do with "this year's sales"
This is the point that surprises many people.
The amount of the interim payment is not calculated based on this year's sales or profits.It is calculated based on the final consumption tax amount of the previous year (previous taxable period).
In the case of an annual interim payment, the calculation formula is simple: the interim payment amount (national tax portion) is the final consumption tax amount (national tax portion) from the previous year divided by two. Local consumption tax is added to this to arrive at the amount on the payment slip.
The scary part is that even if this year's business performance is poor, the amount from the previous year will still be requested. Even in years when sales have dropped significantly, you will receive a payment slip based on the previous year's figures. This is the cash flow risk: having to make a large payment in a year when sales have declined.
Conversely, even if this year is going exceptionally well, if the previous year's figures were small, the interim payment amount will be low.
Just knowing this mechanism will go a long way toward clearing up the question of 'Why is it this amount?'
Three things to do starting today
Now that you understand the mechanism, here are three things you can do right away.
The first thing to do is to check the deadline on the payment slip. For sole proprietors (annual interim filing), the payment deadline is generally August 31st. For corporations, it varies depending on the fiscal year-end. It is written inside the envelope, so please check it today.
Once you know the deadline, check the amount roughly. Have your final consumption tax return from the previous year at hand, and if the amount on the payment slip is close to the consumption tax amount (national tax portion) written there divided by two, you are fine.
And one more thing: keep in mind the existence of an option called 'provisional settlement.' If this year's sales are significantly lower than the previous year's, there is a way to avoid paying the amount based on the previous year.
Don't just end it with 'I managed to get by'
Even if you were able to handle this envelope, you might get stuck in the same place again next year. Not knowing you could use a provisional settlement, using consumption tax for operating funds, not grasping the deadline—one of these things is repeated every year.
This article organizes the structure of 'why this happens' and the procedures for 'how to act' in concrete terms. My goal is for you to be left with the feeling that 'I can prepare for next year without being surprised' when you finish reading.
Why does it 'arrive suddenly'? Understanding from the structure
There are two methods for interim consumption tax filing.
The first is the scheduled filing method. This is the true nature of why it 'arrives suddenly.' It is a method where the tax office calculates the amount based on the previous year's final consumption tax amount, and only the payment slip is sent. There is no need to submit a tax return, and you pay using the payment slip you received. The question 'Why did I get a payment slip when I don't remember filing?' is due to this mechanism.
The second is the provisional settlement method. This is a method where you calculate the consumption tax yourself based on actual sales and purchases during the interim period, prepare and submit a tax return, and pay an amount that matches the actual situation. It takes time and effort, but if this year's performance is significantly lower than the previous year's, you can lower the interim payment amount by choosing this method.
If you do nothing, the scheduled filing method will be applied. If you want to use the provisional settlement, you must submit a tax return by the deadline.
The number of interim filings is divided into three stages based on the previous year's final consumption tax amount (national tax portion).
Over 480,000 yen to 4 million yen or less is once a year. For sole proprietors, the deadline is August 31st.
Over 4 million yen to 48 million yen or less is three times a year. For sole proprietors, the deadlines are the end of August, November, and February of the following year.
Over 48 million yen is 11 times a year (monthly).
For many business owners subject to interim payment for the first time, it is a once-a-year case.
I will provide supplementary information on the amount on the payment slip. The payment slip you received includes two items: "Consumption Tax" and "Local Consumption Tax." The national consumption tax amount for the previous year divided by two is the national tax amount for the interim return, and the local consumption tax is added to this to make the total amount.
For example, if the previous year's consumption tax (national tax portion) was 800,000 yen, the interim national tax portion would be 400,000 yen, and the local consumption tax would be approximately 110,000 yen (400,000 yen × 22/78) added, for a total of about 510,000 yen. This is just an estimate, so please check the actual amount on the payment slip you received.
If you follow these steps, you won't get lost
STEP 1: Check the payment slip you received
The payment slip lists the payment deadline, consumption tax amount (national tax), local consumption tax amount, and total amount. First, please check these four items. In the case of the scheduled filing system, there is no need to submit a tax return; you simply pay using the payment slip you received. You don't need to panic thinking, "I have to file a return."
STEP 2: Check the amount yourself
Have your final consumption tax return from the previous year (Final Consumption Tax and Local Consumption Tax Return) at hand. Check the "Deducted Tax Amount" column (national tax portion) on the return and divide that amount by two. Compare it with the "Consumption Tax Amount" column on the payment slip you received; there is no problem if there is no significant discrepancy.
STEP 3: Decide whether to choose provisional settlement
Check how this year's performance (January to June) compares to the same period last year. The situations and criteria for deciding whether to choose provisional settlement will be explained in the next section by case. If you choose provisional settlement, as a sole proprietor, you must submit the tax return by August 31st.
STEP 4: Complete the payment procedure
In the case of a scheduled filing, use the payment slip you received as is. The main payment methods are as follows:
Financial institution counter: Bring the payment slip and pay. This is the most reliable method.
Convenience store payment: If a barcode is printed, you can pay at a convenience store.
Direct payment: Although prior registration via e-Tax is required, you can have it automatically debited from your account.
Internet banking: You can make a transfer via e-Tax.
Counters can get crowded as the deadline approaches, so it is safer to act with time to spare.
STEP 5: Start saving for next year
Once you have finished paying, start saving monthly from today. A good guideline is to move 10% of your monthly sales to a separate account for consumption tax. Since consumption tax is "money you are holding in trust," the most reliable way to prepare funds is to have the habit of separating it from the start so that you do not use it for business. The situation of "not having enough money" at the time of interim payment arises from not having this habit.
How to act based on your situation
Case 1: If this year's sales and profits are at roughly the same level as last year
Please pay as scheduled using the planned tax return method. Choosing interim closing of accounts offers little benefit while only increasing your workload. Pay this interim tax as scheduled, and make it your top priority to start a monthly savings habit for next year and beyond.
Case 2: If this year's sales and profits have dropped significantly compared to last year
We recommend considering an interim closing of accounts. For example, this applies if your previous year's consumption tax (national tax) was 800,000 yen and you received an interim payment slip for over 400,000 yen, but your sales for the first half of this year are less than half of the previous year's.
If you choose an interim closing of accounts, first summarize your sales and purchase ledgers from January to June of this year. Calculate the consumption tax (national tax) by totaling taxable sales and taxable purchases (Taxable Sales × 7.8% - Consumption tax included in taxable purchases = Tax amount to be paid). If the calculated amount is lower than the amount on the payment slip, there is a benefit to choosing an interim closing of accounts.
For the tax return, use the form titled "Interim Tax Return for Consumption Tax and Local Consumption Tax (Interim Closing of Accounts)." You can download it from the National Tax Agency website or obtain it at the tax office. Submit the tax return by the deadline and pay the calculated amount.
If you are not confident in summarizing your ledgers, you can also choose to consult a tax accountant just for this decision. If you tell them, "I want to decide whether to file using an interim closing of accounts," you can often resolve it with a short consultation.
Case 3: If you lack sufficient funds
First, I want you to check whether you can choose an interim closing of accounts. If this year's performance is down, there is a possibility that you can reduce the amount through an interim closing of accounts.
If you still lack funds even after choosing an interim closing of accounts, consulting the tax office about "grace period for tax collection" or "grace period for tax payment" is an option. While it is premised on having prospects for business continuity and acting in good faith, there are cases where you may be allowed to pay in installments while keeping delinquent tax to a minimum. This is a last resort for when your cash flow is truly dire. Please proceed with considering an interim closing of accounts first.
Things people tend to do that I really want you to avoid
NG1: Leaving the payment slip aside, thinking "I'll check it later"
This is the most common mistake. Cases where you are too busy to open the envelope, or you opened it but cannot face it because it is a "large amount."
For consumption tax interim payments, delinquent tax will be incurred starting from the day after the deadline. As a general rule, delinquent tax is charged at a rate of 7.3% per annum within 2 months from the day after the statutory due date, and at a rate of 14.6% per annum after 2 months (please check as the special rate changes every year). The cost of forgetting to pay is not small.
Impose a rule on yourself to at least check the deadline on the day it arrives.
NG2: Using consumption tax as operating funds
This is the decision of "I have it on hand now, so I'll just use it." Consumption tax is a tax that business owners collect from customers to pay to the government. It is not your own money.
If you use it, you will run out of funds by the payment deadline. This is the root cause of the situation where "I cannot pay the interim tax." The most reliable measure is to create a habit of transferring the consumption tax portion to a separate account on the day sales are received.
NG3: Continuing to pay without knowing about interim closing of accounts
This is a case where, despite this year's performance being significantly lower than the previous year, the taxpayer pays the scheduled tax amount as is because they are unaware of the existence of interim closing of accounts.
For example, even if you receive a payment slip for an interim payment of 500,000 yen based on last year's consumption tax of 1 million yen, if your actual consumption tax for the first half of this year is 200,000 yen, you can keep 300,000 yen on hand until the end of the year by choosing the interim closing of accounts. It is a waste to overpay simply because you did not choose it due to the impression that "interim closing of accounts seems troublesome."
NG4: Acting at the last minute every time
Interim payments arrive at the same time every year. If it is once a year, it is set for August; if it is three times a year, it is set for August, November, and February of the following year. For those who repeat the experience of "feeling panicked again because it arrived suddenly this year," simply writing the deadline on your calendar will make a difference.
If you act without any leeway, you will not be able to make it in time for the consideration of interim closing of accounts or fund preparation.
Finally. Once you understand this, you won't be surprised next time
Having read this far, you no longer need to panic over a "suddenly arrived envelope." If you know about it, you can handle it.
Interim payment is a prepayment system, and the amount is determined based on the previous year's consumption tax amount. This year's sales are irrelevant.
It applies to those whose previous year's consumption tax (national tax) exceeded 480,000 yen, and for sole proprietors, it is once a year with a deadline of August 31st.
In the case of a scheduled tax return, there is no need to submit a tax return form. You can simply pay with the payment slip that arrived.
If this year's performance is significantly lower than the previous year, you may be able to reduce the payment amount by choosing the interim closing of accounts.
Set aside 10% of monthly sales for consumption tax into a separate account. This is the basis for fund preparation from next year onwards.
Confirmation Checklist:
□ Checked the deadline on the payment slip
□ Compared the amount with the previous year's final tax return
□ Checked this year's performance and determined the necessity of interim closing of accounts
□ Decided on a payment method and planned to pay before the deadline
□ Planned to start saving for consumption tax from next month
If you can check these five items, you will be able to overcome this year's interim payment. Next year, you should be able to receive it without being surprised.