Take AIM at your provisional tax

Taking the pain out of paying provisional tax is the objective of changes that will come into effect this April – and all small business owners should think about whether the new system is better for them, says accounting software provider MYOB.

Called the Accounting Income Method (AIM), it introduces a new pay-as-you-go option that utilises a business’s accounting software to make calculating provisional tax easier, more accurate and more in line with income earned.

“Small business owners tell us paying provisional tax tops the list in terms of pain points. Having to guess what your business’s profit is going to be this year based on what you made last year is a nightmare,” says MYOB New Zealand General Manager Carolyn Luey.

“Get it wrong and you get whacked with the difference, plus use of money interest. On the other hand, overestimating the tax you need to pay creates cashflow issues and means lengthy waits to get a rebate.

“The good news for Kiwi small businesses is that calculating provisional tax through online accounting software like MYOB will become a whole lot more

That can be filed directly to Inland Revenue through the software – and as long as the business pays what the system has calculated, if there is a difference at the end of the financial year the business will not have to pay use-of-money interest. The government calculates that 110,000 businesses with revenues of less than $5 million could benefit from the changes.

Daimon Stewart is a director of business advisory service firm Staples Rodway in Taranaki and says the new method is a good way for some businesses to avoid those end of year “tax surprises”.

“AIM helps to match tax payments with cashflow, meaning tax is more closely aligned to a business’s performance.

“That’s distinctive to the current system which sees people having to guess what they might owe this year, based off the previous year’s result - even though that year might bear no resemblance to this one.

“You hear of businesses that get into trouble because they’ve got their heads in the sand about how they’re performing. They get to the end of the year and end up having to find money to cover a tax bill.

“Modern accounting software like MYOB allows businesses to build a much more detailed picture of their financial situation. Once you understand it, the AIM solution is easy-to-use and allows for adjustments to make the process as easy as possible,” says Mr Stewart.

MYOB says the new process will remove a key pain point for small business owners. According to its Business Monitor survey of more than 1,000 local SMEs, 83 percent identify “simplification of provisional tax rules and processes to make it easier for businesses to accurately determine and meet their tax obligations“as the compliance change most important to their operations.

“MYOB is focused on using technology to make business life easier,” says Ms Luey.

“This is a key benefit of upgrading to cloud accounting software. It allows more businesses processes, like tax compliance, to be automated. That frees businesses up to do more productive activities, like servicing customers, developing new products, or spending time with the kids.” For more information visit: www.myob.com/AIM