The IRD have introduced a new way for small business owners to pay their provisional tax.
Its call AIM, short for Accounting Income Method.
In short it allows small business owners who have sales under $5million per year, to pay your tax as you go during the year. If you like it could be likened to PAYG ( Pay As You Go) income tax on business profits as you go. The timing is linked in with your GST filing frequency, monthly or 2 monthly, and is calculated on the profit you make. The converse works as well, if you make a loss in one period, you can get a tax refund, just like you do with a GST refund.
- Its not for everyone, and like all taxes , it comes with some rules, and fish hooks.
- Such as it only applies if you are operating a company or are a sole trader.
- It doesn’t apply to partnerships, trusts, Portfolio Investment Entities.
As the name suggests it requires you to be using accounting software, such as Xero, and operate tidy books. It also requires additional accounting work to process, and compile the Tax return you file each period. We are currently evaluating our monthly service plans and will be discussing this more in coming newsletters. These will offer a monthly service plan for your accounting fees that will allow you to pay income tax monthly or 2-monthly.
It just depends on a number of variables, and each business needs to be evaluated on its own merits as to whether this is an option worth considering. So we will keep you posted. The IRD are making this option available from April this year. However, our experience with any new IRD initiative is these initiatives will take a little while to settle down. The software required to produce the tax returns in this format is only just being released, so we will take a steady as she goes approach with this.