There are now four ways to manage provisional tax:
- The standard uplift method, where three payments are made during your financial year based on your tax bill from the previous year plus 5% (this is the default method).
- The GST ratio method, where provisional tax is calculated based on your GST supplies and payments align with your GST periods.
- The estimate method, based on estimated profit for the year.
- The accounting income method (AIM), which is the IRD’s new way to “pay as you go” when your business has made a profit.
AIM is a new method of calculating provisional tax for companies and sole traders with turnover of less than $5 million per year. But how do you know if AIM is right for you?
How The Accounting Income Method Works
AIM uses functionality in certain accounting software packages to calculate your provisional tax payments. It is available through these accounting packages:
- MYOB – MYOB AccountRight Live and MYOB Essentials Accounting
- Reckon – APS software
- Xero – Xero Tax Practice Manager
On each AIM due date (in line with your GST filing due date), your software will generate a statement of activity, which shows whether you have a provisional tax payment to make. The advantage of this is that you only need to make a payment when your business has made a profit. You are able to review your statement of activity before your software sends it through to IRD before each due date. The statement is submitted even if you have nothing to pay. It is not an income tax return so if there is a mistake you can correct it in the next statement.
Is AIM Right For You?
AIM can be helpful for businesses with cash flow issues, as well as those businesses which:
- Are new
- Are growing
- Have seasonal or irregular income
- Have difficulty forecasting their income accurately
There is no exposure to use-of-money interest for businesses using AIM, provided payments are made in full and on time. If your business makes a loss you can receive your refund straightaway instead of having to wait until the end of the year.
You should also be aware that if you opt in to AIM then tax pooling will no longer be an option available for you.