New ‘pay as you go’ tax to replace provisional tax

Date: 13th April 2016

A new ‘pay as you go’ tax for small businesses, called the Accounting Income Method (AIM), will replace the largely unpopular provisional tax, in April 2018. The government is hoping to make tax part of running a business, rather than a separate process, a significant change to the way the provisional tax system works now.

Businesses with a turnover of less than $5M per annum will not have to predict future earnings and instead will make tax payments throughout the year. If they make the payments calculated by their accounting software, they will not be liable for use of money interest.

Stressed man working at desk

Provisional tax ‘a pain in the neck’

Prime Minister, John Key announced the changes saying, “Businesses tell us that provisional tax is hard to get right and expensive to get wrong. Perfect accuracy can sometimes be costly in a way that doesn’t seem justified, and some penalties are seen as punitive and discourage compliance.”

“In effect what will happen from 1 April 2018, is that people will go off to their software system, like a Xero… they’ll go out there, every two months it will calculate their tax at exactly what they owe, they’ll pay it and that’ll be the end of the story for them.”

More information

We’ll keep you posted on these changes, but in the meantime, if you want more information contact us or go to Making Tax Simpler.

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Posted in: Alexandra, Christchurch, Latest News, Queenstown, Wanaka