(*AIM is The Accounting Income Method)
Receiving extensive publicity, IRD has introduced a new method for certain businesses to calculate and pay their provisional tax obligations, commencing from the year beginning 1 April 2018.
The main potential benefit of this method are that, since provisional tax is payable on the year to date accounting profit of the business, if your business is seasonal your provisional tax aligns with your profits to that time. For instance if you are a retailer with large Christmas season sales, your earlier AIM payments would be much less, your January payment reflect Christmas sales and your subsequent payments only cover the income after Christmas. If your earnings are consistent from year to year and from month to month, the AIM benefit will have very little benefit for you. (This would apply to many contractors.)
To be eligible for AIM, your business must be either a company or sole trader (not a trust or partnership) AND have annual sales of less than $5 Million. Provisional payments must be paid either bi-monthly (six times a year) or monthly (12 times a year), even if you are registered for GST on a six monthly basis. You do not have to be registered for GST to use the AIM method.
The use of AIM also requires you to use an approved accounting software, currently limited to Xero, MYOB or Reckon. Your results have to be maintained as close as possible to final results, reasonable care required, and certain AIM adjustments are required. It is not a simple method to engage in, as Xero has decided that its users need to liaise with an Advisor to implement it. MYOB indicates that there will be a little bit of set up required beforehand.
There are other intricacies to AIM to consider before proceeding to adopt it, especially for those of you who pay shareholder salaries, and we would be happy to work through the implications of these with you.
If you think this method may suit you, or if you have any questions about it, please contact us. We will also attempt to contact our clients who we think it may benefit.