AIM-ing to please
IRD are promoting AIM (Accounting Income Method) pretty hard as they envisage great benefits in adopting this method of paying provisional tax.
We agree mostly and see some significant advantages, including:-
· Promoting best practice by ensuring regular reporting and assessment
· Increasing contact with key advisors (in this case us)
· Promoting financial awareness by introducing accounting adjustments and ensuring you understand and acknowledge these
· Better aligning tax and income by paying based on profits and refunding when losses are incurred
· Mitigation or elimination of interest and penalties
The last of these benefits is likely your primary focus in such a fear-inducing realm as tax compliance. But do bear in mind the alternatives to AIM have also experienced significant relaxation of interest and penalties.
Conditions when adopting AIM:-
· You must have and use compliant software (Xero, MYOB, Reckon)
· You must be set up and file an AIM activity statement every month or two months
· Filing may only be available through your tax agent.
We shall be offering the AIM solution to all our clients using Xero software. We believe the increased reporting, awareness and contact with us will prove beneficial and see business owners take a lot more interest and control of their finances.
But let’s get one thing straight – there will be costs:-
· AIM set up – IRD have speculated that each client setup will take 30 minutes
· Activity statements filing – will require accurate reporting and is only available to Xero Partners, such as us.
We shall be advocating this AIM option for our clients that we already compile regular reports and GST returns for.
But for those self-sufficient taxpayers out there you will need to weigh up the likely costs against the benefits. Ideally, we would have you kicking some real goals under our planning and accountability coaching where accurate, regular reporting and financial awareness is the norm.
So who is AIM great for?
We can see obvious benefits for the following:-
· Start-ups – AIM should avoid the double whammy when the first year’s taxes and the second year provisional are paid in the same 12 months.
· Distinct seasonality – where their profit is all earned at one or two points in the year and their tax outgoings can be matched with that
· Anticipated change in income – whether up or down AIM works on a basis of paying on profits and refunding on losses so changes in circumstances can be managed with ease
· Best practice – businesses reporting regularly and accurately for themselves
· Tighter engagement with their beloved accountants
Electing to use AIM
You simply need to file your Activity Statement prior to your first tax instalment date – generally 28 May for monthly GST filers and 28 June for all others.