For many GPs and medical specialists, tax time can feel like a juggling act – busy clinic, fluctuating income and those large provisional tax payments that always seem to arrive too soon. But with a bit of planning, tax season doesn’t need to be stressful. Understanding how provisional tax works and setting up a simple system to stay ahead can turn what feels like a financial headache into just another part of managing your practice smoothly. 

Here’s how to take the guesswork out of setting aside tax and manage cash flow with more confidence. 

Understanding provisional tax 

In New Zealand, if you earn income that isn’t fully taxed at source (for example, through PAYE), you’ll likely need to pay provisional tax. This applies to most self-employed GPs and specialists working as contractors, partners in a practice or through a company. 

Instead of paying one big tax bill at the end of the year, you make payments through the year, usually three instalments (April, August, and January for a standard balance date). These are based on your previous year’s income tax plus 5%, though you can estimate if your income will be significantly higher or lower. 

Why tax time feels stressful for doctors 

Medical professionals often face uneven cash flow. Locum work can mean income peaks and troughs, and practice ownership comes with fluctuating expenses – equipment upgrades, staff costs or a new fit-out. It’s easy to focus on day-to-day expenses and forget that a large tax payment is coming due. 

A large tax bill can catch you off-guard even when business is going well. The key is planning – having a clear system for putting money aside and understanding what’s coming up in advance. 

How much to set aside 

While everyone’s situation is different, this rough guide can help: 

• Contractors and locums: set aside around 30–35% of your income (after expenses but before drawings). 

• Practice owners or company shareholders: consider setting aside 28% for company tax, plus personal tax on drawings or dividends. 

• High earners: Once your income exceeds $180,000, the top marginal rate (39%) applies, so err on the higher side when setting money aside. 

Your accountant can provide a more precise percentage based on your past returns, structure and deductible expenses. 

Build a system that works 

The simplest way to stay on top of tax is to make it automatic: 

• Open a dedicated tax account with your bank and transfer your set-aside amount weekly or fortnightly. 

• Use accounting software (like Xero) to track your running profit and forecast provisional payments. 

• Set reminders ahead of due dates so there are no surprises. 

• Review your tax estimate mid-year if income has changed, IRD allows you to adjust if your earnings drop significantly. 

If you prefer a system that aligns tax payments more closely with your actual cash flow, you might consider AIM (Accounting Income Method). AIM uses your accounting software to calculate tax based on real-time profit rather than fixed instalments. It can be useful for contractors or practice owners whose income varies through the year. Your accountant can help decide if AIM is suitable for you. 

More about AIM  

Other cash flow tools worth knowing 

If you’re short when a payment is due, options include: 

• Tax pooling intermediaries (like TMNZ or Tax Traders) – they let you make backdated or delayed payments at lower interest rates than IRD. 

• Voluntary payments – if your income is rising, paying extra early helps smooth future instalments. 

The key takeaway 

With the right systems in place and a good understanding of how provisional tax works, managing it becomes routine rather than reactive. Setting money aside regularly means no surprises and more control over your cash flow throughout the year.

If you’re unsure how much to set aside or want help forecasting your next provisional tax instalment, we can run the numbers and help you plan ahead.