AIM: is it hitting the mark for provisional tax?

AIM: is it hitting the mark for provisional tax?

UPDATE 11 April 2023

If you have a growing businesses or find cash flow difficult to manage under the standard provisional tax system, you may like to consider moving to the AIM system for provisional tax. We first tried this system ourselves when it came out in 2018 (see below).

Since then we have been struck by how easy the management of cash flow has been for us compared with the problems that we see our clients having from time to time. Because of this we have talked to many of you about the AIM system and lots have moved over. It is now our default system that we recommend to new clients starting out in business.

If you are thinking about it but haven’t moved yet then now would be a great time to think about it. Have a chat to your usual Accounting Hub advisor to talk about how this would work for you. Imagine a new financial year with no lumpy provisional tax payments and with payments that actually reflect your income! This is one positive thing that you can do to improve your business life today.

18 June 2018

There has been a lot of talk in the small business marketplace about the new Provisional Tax method called the Accounting Income Method, or AIM.

To recap, the AIM method has been heavily promoted by the IRD as a new way of paying provisional tax which removes some of the problems with estimation that exist with the “standard” provisional tax method.

AIM: is it hitting the mark for provisional tax

Simpler than standard provisional tax?

The method was pitched as being a few clicks of a mouse for people with good quality accounting systems like Xero, however after attending webinars and learning more about the scheme, many accountants and tax agents were concerned about the level of complexity that existed for a “simple” alternative.

Our AIM experience

Up to now though nobody had actually filed an AIM return, as they were not available until the first GST period of this current (2019) financial year.

So, in the spirit of learning and adventure, we decided as a business to use the AIM method and to pay our own provisional tax this way. And yesterday we completed and filed our first AIM return (you have up to the 28th of June to do this if you are on a two-monthly basis for GST and you want to use this method this year).

My observations were as follows:

  • The process was a bit easier than I thought it would be. There were a couple of speedbumps with the setup in Xero so that the transfer of the data worked properly.
  • There is an option if you are on a payments (or cash) basis for GST to file the AIM return on a cash basis too. Personally, I would not do this unless you do not keep track of your accounts payable and receivable in Xero – at the end of the year your tax return is completed on an accrual basis (including accounts payable and receivable and other adjustments) so you are less likely to get any tax surprises if you use an accrual basis for your AIM returns too. It’s also easier to do this.
  • When we completed the return it turned out that we had some tax to pay. Ordinarily we would not have paid any provisional tax until 28 August so the effect was to bring forward a tax obligation. Of course, the payment was smaller than a normal provisional payment would have been as we will need to pay six times a year instead of three.

Recommendations

Would I recommend this method for other businesses? As usual, the answer is “it depends”. There have been some changes to the “standard” provisional tax system that make it easier to pay tax this way. And of course, the ratio method works well for some taxpayers and is simpler to administer.

Feel free to get in touch so that we can talk through the pros and cons of each method with you.

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