Using the Accounting Income Method to Pay Provisional Tax - Should you do it?

The Inland Revenue Department are carrying out an extensive campaign to get taxpayers to adopt the Accounting Income Method - AIM. The idea behind AIM is that your provisional tax payments are based on the profit as per your monthly accounts. However, WK advises against using the method to avoid higher accounting costs.

ResizedImage600400 Accounting StockShould you use the Accounting Income Method (AIM) to pay Provisional Tax? Our short answer is no.

For most taxpayers, AIM will result in higher accounting costs and/or more work for little or no benefit.  The one exception might be those taxpayers who derive the majority of their income near the end of their financial year.

The Inland Revenue Department is carrying out an extensive campaign to get taxpayers to adopt AIM.

The idea behind AIM is that your provisional tax payments are based on the profit as per your monthly accounts.

In order to use AIM, you have to be using an approved software package such as Xero.

It sounds good, but unfortunately, you have to adjust your management accounts each time GST is due for Accounts Receivable/Payable, Stock and Asset Additions.  

Doing this will result in added complexity and cost, which in our view, will more than cancel out the benefits AIM was supposed to provide.

Additionally, changes to the Use of Money Interest (UOMI) rules mean that this is now considerably less harsh than it was, meaning the major benefit of adopting AIM (avoiding UOMI) are now substantially gone.

You may well be contacted by IRD. Before adopting AIM we strongly suggest you talk to us.