15th December, 2017
The Accounting Income Method (AIM) is a new option for small businesses to work out their provisional tax using accounting software. What’s all the fuss about? We’re glad you asked.
In a nutshell, AIM is an additional option for business owners to work out their provisional tax alongside the existing three options of standard, estimation, and ratio.
It will be rolling out from 1 April 2018, and is designed as a pay-as-you-go option for businesses who want to stay on top of their tax obligations on a much more regular basis.
Crucially, it will allow businesses to calculate their tax based on the results they’ve actually achieved, rather than being an estimate.
That’s great news for startups and new businesses where cash flow management is absolutely crucial.
A small business can use AIM where they have:
• A turnover of $5 million or less
• Not a partnership/trust/member of group.
• Has AIM capable accounting software that is up to date
Because you can pay AIM as you earn, it avoids a huge provisional tax bill in the second year of trading.
AIM will also be great for businesses that have fluctuating revenue or impacted by seasonality because the payment of taxes adjusts with the revenue earned in the period.
So, when they have quieter periods and cash flow is tighter they’ll only be required to pay provisional tax on the revenue they’ve earned in that quiet period, which means a smaller payment.
AIM will suit your business if:
• Your business is growing
• You’re new to business
• You have irregular or seasonal income
• It’s hard to forecast your income accurately
• You have accounting software or want to start using accounting software
AIM will also be a useful alternative for calculating and filing provisional tax for any business that wants more certainty about their tax.
It will make tax part of running your business, rather than a separate process you take care of towards the end of the financial year.
Because you’ll be making provisional tax payments as you’re earning income, you’ll have better visibility over your tax bill while reducing pesky compliance costs.
The current provisional tax system methods can result in a lot of people overpaying their tax to avoid interest charges, but with AIM as long as you pay what your accounting software package calculates you’ll avoid nasty charges and interest.
You can only opt into AIM at the beginning of the tax year and must remain it for the entire year.
If pay-as-you-go provisional tax sounds like an easier and faster way for you to meet your tax obligations then you need to make sure you’re on an AIM-capable accounting solution.
AIM will help you spend more time on your business instead of worrying about tax bills.