22nd May, 2018

PAYG provisional tax is here to help solve your cash flow headache

One of the biggest challenges facing small businesses is the dreaded cash flow headache.

Often, the key reason small businesses go under in the early years is that they simply don’t have the ability to make sure they have enough cash on hand to cover upcoming bills.

Small business owners can find themselves injecting personal funds to meet outgoings or becoming very “creative” with moving money around including using provisional tax, GST or even PAYE to pay bills.

Luckily, AIM can help small business owners take one cash flow headache off their plates.

How AIM helps cash flow

The Accounting Income Method (AIM) is a great way to help by paying your provisional tax as you go instead of in one lump sum.

Unlike other provisional tax methods, which use your previous year’s revenue to estimate your profit and tax liability, AIM bases your provisional tax calculation on your businesses’ actual earnings.

That means you only pay provisional tax if your business makes a profit, and you receive a refund straight away if you make a loss.

It also aligns your provisional tax with your GST filing frequency, so that you stay up to date with payments in the same period you recognise the revenue.

This helps keep you current and avoids any surprises or lump sum payments.

Choosing AIM for your provisional tax

AIM works through your online accounting software to take the guess work out of calculating provisional tax.

It calculates income tax based on your actual earnings in the current income year, and then submits your Statement of Activity directly from your software to the Inland Revenue.

MYOB Essentials and AccountRight are two of the only online solutions that are AIM-capable now.

You don’t need to enrol or register to use AIM.

Simply submit your Statement of Activity (SOA) on your first due date through MYOB Essentials and this will indicate to Inland Revenue that you have chosen AIM for the 2019 income year.

NOTE: You must elect to use AIM by submitting your first SOA before the first provisional tax due date. If you miss this deadline, you’ll not be able to use AIM until the new financial year.

Getting ready for AIM

How to get ready:

  1. First check that your business is eligible to use AIM
  2. Speak to your financial advisor to make sure AIM is right for you and check your financial adjustments are setup correctly and up to date
  3. Ensure your chart of accounts are mapped correctly to the AIM statement of activity

How to use AIM:

  1. On each due date, MYOB Essentials will collate your business financial information for the tax period and calculate your profit or loss. It will work out if you have a payment to make or a refund owing and show the IRD how it came to this amount – this is your SOA.
  2. You’ll be able to review your SOA before it’s submitted. It isn’t an income tax return and isn’t processed as one so if you make a mistake, or a retrospective change is made to your financials you can simply fix it in the next statement.
  3. If a payment is required, you send the payment to the IRD and if a refund is owing, this will be credited to you.
  4. All businesses still need to prepare and file an income tax return at the end of the financial year.