Inland Revenue says that more than 1,100 businesses have signed up to the new Accounting Income Method (AIM) so far, as they opt for more certainty about their provisional tax obligations.
AIM is a new system available for small businesses with an annual turnover of less than $5 million. It means they only need to pay provisional tax when they make a profit.
Inland Revenue says AIM also means businesses are less likely to incur penalties and interest because AIM can provide a more accurate calculation.
Inland Revenue customer segment leader Richard Owen describes AIM as a game-changer, and the types of businesses that are signing up are from the same industries that stand to benefit from the system.
“We’re seeing builders, plumbers, mechanics, café owners and doctors using AIM as their provisional tax method of choice. These are the same businesses that we found traditionally overpaid their tax. They will now benefit from payments that better reflect their cash flow.”
Owen is pleased to see that so many early adopters have signed up to AIM, particularly as it’s a new tax approach that embodies a completely different way of working.
“We think that uptake will build steadily as more businesses adopt accounting software and embrace the opportunity to make their tax obligations simpler,” he says.
“Often people don’t rush into new services like this. The first year of filing GST through software attracted fewer than 2,000 customers – today it’s more than 85,000.”
One of AIM’s early adopters is Raquel Withers from Auckland accountancy firm Balance My Books. She believes AIM’s benefits were obvious, but she was worried about whether it would work smoothly or not.
“I found AIM really easy to use. There was some initial set up time because it was a new process but we regularly update our clients’ accounts anyway, which meant adjustments for things like depreciation and private expenditure were already taken into account,” she explains.
“Filing my first statements of activity still ended up being much simpler and quicker than I thought. I like how AIM takes the guess work out of provisional tax and substantially lowers the risk of under or over payment,” Withers concludes.
Inland Revenue will work with customers and software providers to continue improving AIM.
Registrations are now closed for the current tax year but newly established businesses are still eligible to join AIM at any time. Legislation currently before parliament proposes allowing existing businesses to join during the tax year as well.
“If AIM proves to be the game changer for the early adopters that we think it will be, then we can expect many more customers will want to get on board,” Owen concludes.