IRD Simplifies Provisional Tax for Small Businesses
Inland Revenue’s Accounting Income Method or AIM is now into its second year. It’s currently provided through three accounting software providers, such as Xero, as part of their package. The software effectively ensures AIM is tuned into a business’s real-time financial information which then determines the real-time tax liability.
Richard Owen, small business segment leader at Inland Revenue, says AIM is taking the guess work out of provisional tax.
“Our customers are enjoying the certainty of AIM. There’s no squirreling money away to make sure you’re not caught out at tax time, you simply pay the right amount of tax at the right time.
“AIM also significantly reduces your exposure to penalties and use of money interest, a stress many small businesses are choosing to live without.”
“We’re hearing that it’s making provisional tax far more manageable, it’s freeing up cashflow and small business accountants tell us it’s encouraging good financial discipline for their clients.”
Advances in AIM
Inland Revenue has added a few extra features such as allowing businesses to opt into AIM at any time of the year. Previously existing businesses needed to be set up and ready to go in time for the first filing but now they can start using AIM at any time.
In addition, Inland Revenue has added an option so that customers can pay their GST and provisional tax with one payment.
“Accountants made it clear to us that they wanted AIM to be smarter at treating the profits the company pays to shareholder employees throughout the year,” says Mr Owen. “We’ve listened and now AIM gives you two ways to do this through your software and still manage to pay the right amount of tax at the right time.
“AIM is improving all the time but it’s still not a finished product and we will continue to adapt and make improvements. There is a strong demand for a pay-as-you-go provisional tax option as part of an accounting software package.
Making AIM Work for Your Business
Inland Revenue’s Richard Owen says AIM is well suited to businesses in their growth phase, particularly start-ups that need to closely manage precious cashflow.
Business with seasonal income in particular will find using AIM is an advantage. It removes the need to make provisional tax payments during the less profitable leaner months.
AIM also takes away the difficult task of needing to accurately forecast your income for provisional tax purposes. “Businesses know how hard this is to get right,” says Mr Owen. “There can be a lot riding on the accuracy of those predictions but it’s a problem AIM makes redundant when you can simply pay tax as you go.”
Speak with your accountant or tax agent about whether AIM will help your business and find out more at www.ird.govt.nz/AIM