Tax Freedom Day two days later than last year
The impact of cancelling the tax relief package has been revealed: one day's worth of taxes [image src="/assets/Uploads/up-to-26/02/2019/55b0eda7a3/ST-Tax-Freedom-Day-2018.jpg"...
You may be aware that, from 1 April 2018, there is an additional way to calculate your Provisional Tax using online accounting software such as Xero and MYOB.
The IRD and the accounting software providers are now actively promoting the product, and the IRD have even approached several of our clients directly, asking for meetings to discuss with them the benefits of AIM.
AIM enables businesses with an annual turnover of less than $5 million to use the information from their accounting software to calculate and pay their provisional tax, at the same time as they prepare their GST return.
The IRD has previously attempted other initiatives to make provisional tax easier, but with limited success. However, unlike those initiatives, AIM should almost certainly be popular.
If AIM doesn’t suit your business or you trade through a Partnership or Trust, you will still be able to carry on using one of the existing three options for provisional tax.
AIM will mean smaller but more regular tax payments throughout the year, which may help businesses whose income fluctuates from month to month. Currently businesses pay provisional tax in three instalments throughout the year, however using AIM would increase this to 6 times a year for businesses registered for GST on a two-monthly basis and 12 times a year for those registered for GST monthly.
If you think adopting AIM will mean adopters will have less contact with their accountants, think again. The view of most accountants is that their clients will need assistance in setting up AIM and on-going support with its administration.
Currently businesses supply IRD with a single summary of their financial statements each year, however using AIM requires an activity statement to be supplied for every GST period. Business accounts are much more than simple income and expenses. Other more difficult items include asset additions/sales, depreciation, stock, debtors, creditors, retention payments, drawings, accruals, reserves and provisions. It is not uncommon for clients (who, to be fair, are not qualified as accountants) to occasionally mis-code some of these trickier items. Therefore, we will be recommending periodic reviews by your accountant to see that things are running smoothly.
While AIM may not be suitable for all clients, we believe it will be helpful for suitable clients with relatively straightforward accounts. The rules for AIM require it to be used for the whole of the income year, so if you want to use it from 1 April, we would encourage you to contact us soon.