Inland Revenue Cash Flow Game Changer Great for Small Business
You might have read the name of this blog and wondered why I have IRD, game changer and great for small business in the same sentence? Well, this time they have nailed it!! This gamechanger is a new way of calculating and paying provisional tax called the Accounting Income Method or AIM for short. How AIM works is, once you have finalised your GST return (or coded all your accounting data for a two-month period in line with your balance date for those not GST registered), tax calculations are made based on the year to date accounting data available. What does this mean for you? You and your business will pay tax only when have made a profit! And if one period reports a loss, then you will get any overpayment of tax back. So, when you are making money and have the cash, you pay the tax.
Makes sense, right? Yay IRD!! High 5!!
Businesses will be able to do away with paying tax in large installments based on prior year earnings, which is something we all loathe as your numbers could be significantly different to this year (this is why you will hear from the JMA team regularly through-out the year getting you to pay more or less tax than has been assessed). Using AIM you will pay tax in line with your GST periods, so for two monthly filers this is 6 times each year. Once your tax return has been filed there may be a wash up of tax however there shouldn’t be any nasty surprises as you have paid tax based on your actual trading. The IRD’s view with AIM is that ‘close enough is good enough’ for provisional tax, rather than being rigidly based on prior year earnings.
AIM will be a great tool for new businesses too as it is not always possible to predict what your initial trading results will be (although we are actually pretty good at this!). If you are thinking about working for yourself and starting up your own business, look out for our upcoming blog on start-ups. If you want to get started right now then call or e-mail us today 😊
While AIM really is a cash flow game changer for small business it isn’t for everyone. Some tax payers such and trusts and partnerships are not able to use AIM……yet. You have to have AIM compatible software to use AIM, such as Xero or certain versions of MYOB and Quickbooks. You also aren’t able to opt in to AIM mid-way through a year, you must use AIM from the beginning of your financial year. And a bit of a given is that you must make the tax payments calculated under AIM on time! If you miss filing two statements of activity then you will drop out of AIM.
Does AIM sound like it would be a good fit for you and your business? If it does then contact us as it is not too late to set you up on it for the 2019 financial year. Now is also a good time to change software providers if you have been thinking about it as most businesses financial years start in April. It makes good sense to be using AIM if it will work for you and you need AIM compatible software, so great timing really.
If you have any questions about AIM or anything else please send me an e-mail or give me a call
09 407 3063 or 021 253 6892
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