If you've ever felt the pain of paying tax on predicted profits, you can breathe a sigh of relief. Pay-as-you-go for small business landed on 1 April 2018, and it'll save you a headache. It's called AIM, short for the Accounting Income Method, and it's a good thing for small businesses, sole traders and contractors. It'll make provisional tax payments easier on your cash flow.
If you choose AIM, you will make provisional tax payments throughout the year, in line with your GST. Because you're paying as you go, your tax is calculated from the profit made in the year to date - and as you're spreading out the tax payments, there's no lump sum to prepare for. Make AIM payments monthly or two monthly, your choice.
Can I use AIM?
AIM is suitable for many businesses. You might be a new business, a growing business, a business with seasonal income, or a business with unpredictable income. AIM is also for businesses who simply want to keep on top of their tax during the year.
There are a few conditions. You must be a company or sole trader with sales under $5 million per year. You must have no foreign investment income, and have no losses offset between your businesses. You'll also need to use AIM-approved software, such as Xero. If you can say yes to these conditions, AIM might work for your business.
What do I get with AIM?
AIM gives you more control over your cash flow by eliminating the need to budget for tax months in advance. You pay tax as you earn profit which helps the money keep flowing year-round. Pay what the system says you should, when you should, and you'll pay no use-of-money interest.
Using AIM also means that if your profits happen to drop during the year and you've paid too much tax, you don't have to wait until your tax return is filed. You can get a refund during the year, because payments happen during the year. That's one less hurdle in the way of achieving your financial goals.
How long do I have to decide?
There are two opt-in deadlines: May 28 for making monthly AIM payments, and June 28 for making two-monthly AIM payments. You have plenty of time to get in contact with us and discuss whether AIM could benefit your business.
Will AIM cost me more in accounting fees?
Despite the hype in the media, calculating your AIM payments does take some work. Whether you will need to pay more depends on the services you're already receiving from RightWay. For many clients there won't be any additional cost - and at most AIM will cost an extra $37.50 per month.
What next?
If you're interested in AIM, get in touch. We'll arrange a time for your Business Partner to give you a call to discuss whether AIM is the best provisional tax option for your business.
To learn more about AIM and who it's for, watch our video here.