New provisional tax option for small businesses
Small businesses that have turnover of less than $5 million a year can work out their provisional tax using the accounting income method (AIM).
AIM uses new functionality included in approved accounting software to work out payments. You can continue to use another provisional tax option if you think your business won’t suit AIM. It will suit your business if you have:
- irregular or seasonal income
- accounting software or want to start using accounting software.
Once you’ve opted in to AIM you’ll only pay provisional tax when your business makes a profit. This will help you to avoid cash flow problems.
As long as you make your payments in full and on time, there is no exposure to use-of-money interest. If your business makes a loss you can get your refund straightaway rather than waiting until the end of the year.
|When you can start using AIM|
|AIM is not available as an option for provisional tax payments until 1 April 2018.|
Choosing AIM for your provisional tax
To choose AIM, complete the set up in your software. The set up will include a step where we’ll confirm if you’re eligible to use AIM. You shouldn’t need to contact us.
If you choose to use AIM, you must opt into this at the beginning of the tax year before your first payment would be due.
If you’re a new business (or new to paying provisional tax) you can opt into AIM at any time before your first payment would be due.
You can’t choose AIM for a transitional year or if you’re a:
- portfolio investment entity
- superannuation fund
- Māori authority.
You’re also excluded if you have foreign investment funds (FIF) or controlled foreign companies (CFC) attributed income.
On your first due date send us your statement of activity through your software. You’ll also need to send your payment if there is one to make.
|What a statement of activity is|
|On each AIM due date, your software will work out if you have a payment to make. It will collate the information to show us how it came to this amount – this is your statement of activity.
You’ll be able to see it before it’s sent to us. It’s similar to the Summary of financial statements (IR10) form with AIM information added, eg refund instructions.
It isn’t classified as an income tax return and isn’t processed as one. This means if you make a mistake you can simply fix it in the next statement.
How approved accounting software will work out your AIM payments
Approved accounting software has the functionality to work out if it needs to include adjustments, for example:
- Your depreciation register
Is it up to date and does it use our depreciation rates?
- Private use expenditure
Has it been removed from accounting income?
- Debtors and creditors
Optional, unless you include them for your GST calculation.
- Trading stock
Included where you have a perpetual inventory system or:
- it can be manually included, or
- you can use last year’s figure.
- Prior year losses
If we’ve already assessed these, you can include them to reduce your payments.
The profit remaining is used by your software to work out your provisional tax payment based on your:
- company rate, or
- individual rate.
If there’s no profit you won’t need to make a provisional tax payment.
Making provisional tax payments using AIM
Your AIM software will work out your provisional tax payments and let you know how much to pay. Your due dates for AIM are generally the same as your GST due dates:
- monthly (if you’re registered for monthly filing), or
- two-monthly (if you’re registered for two or six-monthly filing).
If you’re not registered for GST, your dates would be the two-monthly GST due dates that align to your balance date.
Provisional tax payment refunds
If you have a drop in profit that means you have overpaid you can get a refund through your statement of activity. You don’t need to contact us or file any other documents. These refunds will help with cash flow if your profit drops due to seasonality impacts or an adverse event.
You can ask us in your statement of activity to:
- release a partial or full refund
- hold your refund, or
- transfer to another tax type or customer.
What happens if a statement of activity isn’t filed
If a statement of activity is filed but payment isn’t made, penalties and interest will apply to the underpayment. These will continue to apply until you make payment.
You can’t miss filing more than two statements of activity. If you do, you will no longer be able to use AIM and we’ll treat you as using the estimation option. The estimation option will apply as if you have been in it for the whole year. This will result in exposure to use-of-money interest. It won’t be automatic – we’ll talk with you first to make sure there hasn’t been a misunderstanding or system error.
Start-up and ongoing costs to businesses
We’ve worked to make sure AIM doesn’t increase ongoing compliance costs and is simple for you to use during the year. AIM will help you spend more time on your business instead of worrying about tax bills.