AIM – The ‘Accounting Income Method’

A new way to pay your provisional tax –

is it right for you?

You may be aware, there’s a new way to pay provisional tax.
It’s called AIM, short for Accounting Income Method.

Simply, it’s like filing a mini tax return every 2 months, and paying tax on the profit you’ve made to date.  It’s a ‘pay-as-you-go’ scheme, and works a bit like GST. If you’ve made money, you’ll pay tax.  If you’ve made a loss, and you’ve paid tax in a prior period, you’ll get a refund…

This sounds good for clients who don’t like big provisional tax bills, who would like to manage their cashflow by paying their provisional tax more regularly, based on their profit to date.  However, there are some downsides, and you’ll need to think about these before you make a decision:

1. You have to use an accounting system that allows for paying provisional tax on a regular basis;

2. The good news is that Xero does!  However, it’s only compatible if the return is filed through our tax system, and not directly through your Xero program;

3. The figures you file on a 2 monthly basis rely on the information in Xero being accurate to begin with – how good is your bookkeeping?

4. This system may cost you more in the long run, since you still have to file a return at the end of the year.

5. If you’re interested in this method for your business, we highly recommend you give Prue or Maria a call to talk it over.

6. Alternatively, if we manage your bookkeeping, and we think this method would work well for you, we’ll call you to discuss it with you.

AIM may suit a business that:

• Is using compatible cloud-based accounting software, which is kept up-to-date with accurate bookkeeping – this includes registering and depreciating fixed assets, ensuring loan interest is included in the accounts each month, making adjustments for personal transactions, allocating shareholder salaries, etc.  These are normally the tasks your accountant or your ‘office genie’ does;

• Is a start-up, or a growing business. You’ll be paying the right amount of tax right from the start;

• Finds it hard to forecast accurately, or is a seasonal business – you’ll pay the tax when you make the money, and receive refunds in the low months;

There’s more information at:

https://www.ird.govt.nz/news-updates/accounting-income-method-prov-tax.html?id=201801mybusiness

Any queries – please call us!