27th March 2018

New Zealand’s Inland Revenue (IR) will implement a newly introduced provisional tax option for the country’s small businesses. Starting this April, many small businesses with less than $5 million turnover a year will have the new tax payment option that enables them to use a new method to pay provisional tax only when they are earning profits.

Introducing AIM to help SMBs

The launch comes with IRD’s new provisional tax method called Accounting Income Method (AIM). This method is designed particularly to ease problems concerning small businesses’ provisional tax payments, which have been a long standing pain point for New Zealand SMBs.  

“At the moment businesses often have to take a stab in the dark about their projected earnings for the current year. When that’s off the mark, it can lead to either an overpayment of tax and a long wait for a refund, or an underpayment and a penalty charge” said Inland Revenue’s Deputy Commissioner for Transformation, Greg James.

What makes AIM different from the old method?

AIM will help businesses stay up to date on their provisional taxes while enabling them to keep track of them more accurately. AIM can automatically calculate provisional tax based on company earnings, and can help businesses more accurately forecast their income.

What’s more, AIM will be integrated into some accounting software packages, which will enable businesses to file their taxes directly from the software. How does this work? At the end of each reporting period, the software will calculate the amount of tax a business owes based on real time analysis of expenses and cash flow. Using the software, the business owner can then file this statement of activity directly to IR.

“The beauty of AIM is that your tax payments are in line with your business cycles and if you go into loss you can collect your refund of overpaid provisional tax immediately,” Mr James also added.

Because AIM seamlessly calculates tax, it will free up time for small business owners. They’ll no longer have to waste weeks attempting to get their numbers right. Instead they can have less worry and focus on what is really important to them: growing their businesses.

Who is AIM designed for

AIM is designed for small businesses and is ideal for start-ups, new or growing businesses, and organisations with fluctuating income. GST registered businesses can use AIM to report and make tax payments through AIM monthly, while non-GST registered companies can report provision tax every other month. According to the government, AIM could be beneficial to as many as 110,000 businesses.

AIM will be included with accounting software packages from three major providers: Reckon, MYOB and Xero. To help businesses learn how to use AIM effectively, a series of webinars will be presented to more thoroughly explain its benefits and how it works. 

“We think this could make life easier for tens of thousands of small businesses but now is the time to check if it suits your circumstances. We suggest they talk it over with their tax professional or software provider,” said Mr James.