Simplifying Provisional Tax For Small Businesses
Inland Revenue is making provisional tax simpler for New Zealand small businesses through the Accounting Income Method (AIM).
Now in its second year, AIM allows business owners to pay a tax bill only when they’re making a profit. Under the previous rules of provisional tax, payments must be made three times a year and in equal amounts. As most businesses don’t earn their income equally across the year, this can cause strain on the business’s cash flow if taxes are paid earlier than profit is made.
AIM does not replace existing methods but is available alongside previous ways of paying provisional tax.
It is currently provided through three accounting software providers and aims to take the guesswork out of provisional tax by using a business’s real-time account information. This can then provide them with more certainty that they are paying the right amount of tax at the correct time. AIM also reduces a business’s exposure to penalties and interest on provisional tax.
The method is already being used in a wide variety of industries, including hospitality, construction, and rural services. Businesses with an annual turnover of less than $5 million and AIM compatible software are eligible.
In the second year of the new method, IRD has made some revisions to the platform that makes it easier for businesses to use. New features include the ability to opt-in to AIM at any time of the year, the ability to pay GST and provisional tax in the same payment, and a reduction in the stream of notifications that businesses were receiving.
AIM is currently provided as part of software accounting packages from MYOB, Reckon and Xero. To find out whether AIM will assist your business, speak with your accountant or tax agent.