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22 February 2018

From April 2018, small businesses, sole traders and contractors can choose a new pay-as-you-earn option, rather than paying provisional tax in instalments several times a year.

Inland Revenue is introducing the Accounting Income Method (AIM) so your business can pay tax as you earn profit. Your accounting software will calculate how much tax to pay for each filing period — monthly or two-monthly.

So small businesses can pay provisional tax based on their cash flow, rather than the previous year’s earnings or estimated earnings for the current year.

If you make no profit in an AIM period, then no provisional tax payment is due.

What you need to do

AIM is optional — and only for businesses with an annual turnover of less than $5m — so you might like to talk to us about whether it’s the right choice for you. Other options for paying provisional tax remain in place.

If you decide to choose AIM, set it up in your accounting software before your first provisional tax payment of the 2018/19 financial year. These systems will have AIM functionality:

  • MYOB’s AccountRight Live and Essentials Accounting
  • Reckon’s APS software
  • Xero’s Tax Practice Manager

Your accounting software will then calculate the tax to pay, and the due date. If you pay on time and in full, there are no penalties or interest.

If your income drops during the year, you get an automatic refund of any overpaid provisional tax straight away.

The first AIM payment dates for the 2018 tax year: 28 May for monthly GST filers, and 28 June for two- and six-monthly GST filers, and those not registered for GST.

If you switch from provisional tax instalments to AIM, your final 2017 instalment payment is in early May. It’s a good idea to plan ahead for this overlap in tax payments.

This applies only to businesses with the standard balance date of 31 March.

Please get in touch with us if you would like to discuss what is the best option for you. 

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