In New Zealand, provisional tax has long been recognised as a stress point for small businesses. Many small business owners struggle to grasp the concepts of provisional tax and terminal tax. This isn’t surprising, as there are so many things to think about every day, just to run the business.
Another pain point with provisional tax is the mismatch between when a business makes a profit and when it pays its provisional tax. Under the old rules of provisional tax, payments are made three times a year in equal amounts. However, most businesses don’t earn their income equally over the year. This mismatch can create pressure on the business’s cashflow if taxes are paid earlier than the profit is made. AIM will also reduce the risk of penalties and interest on provisional tax.
The power of cloud accounting
Under the provisional tax rules before AIM was introduced, a business’s provisional tax liability was calculated either as a fixed increase over last year or as an estimate of the current year’s result. Both of these methods can produce results that are very different from the actual business performance especially given the outside influences which can affect business performance, including everything from economic pressures to natural disasters. Xero and AIM overcome these problems by using the power of cloud accounting, coupled with the experience of your business adviser.
At Xero, we know that almost all business owners rely on their advisers for provisional tax advice. Many advisers also guide their clients on the choice of software that is most appropriate for their business. We know that it is crucial to help business advisers to understand and accept AIM if it is to be widely adopted by small businesses.
AIM will help bring your business adviser closer to your business as it is designed to be calculated as part of the business’s GST return process. The same work you do to get ready for GST, will get you ready for AIM. Your business adviser will use your data from Xero to calculate your AIM provisional tax every two months. This gives your business adviser another opportunity to help you with advice about your business performance, as well as providing valuable tax advice.
AIM to be available in Xero Tax
That is why we have worked with the Inland Revenue to develop AIM for business advisers in New Zealand and this will be ready in Xero Tax as part of Practice Manager for the new financial year on 1 April 2018. We understand that sharing up-to-date information and collaborating on advice are essential features of AIM, and Xero makes this easy.
We’ll be sharing more information about AIM in Xero soon.