Life could soon be easier for more than 100,000 small business owners.

From April 1, companies making less than $5 million a year can move to a simpler way of handling provisional tax.

The Accounting Income Method — or AIM — is a new approach to company provisional tax. With AIM, companies make payments based on how their business performs.

For most companies, that means two-month periods — and some can report and pay every month.

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That should smooth the way cash flows through a business.

At present, companies have to estimate their likely profit at the start of the financial year.

They then make regular provisional tax payments based on that estimate.

In some cases, they can end up paying too much, which means they may struggle with cashflow during the year. Although they get a refund at the end of the year, it can be a long wait if the business doesn't perform as well as expected.

If a company under-estimates, it will pay too little during the year. When that happens, the Inland Revenue Department can slug them with a penalty charge at tax wrap-up time.

With AIM, companies report actual earnings figures at the same time as their GST returns.

They then pay provisional tax based on this amount at return time. So they pay the appropriate provisional tax in good months, when the money is flowing. During lean times, they either pay less provisional tax or claim a refund.

AIM is optional. It may not suit every business owner. According to the IRD, it is best for new or growing companies. It also suits businesses with fluctuating income and those who find forecasting hard.

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Not every business can choose AIM. It's not available for partnerships or for trusts. You can check with the IRD if you think you may not be eligible.

You need to do a couple of things to use AIM. First, you have to decide to use it before the first provisional tax date for the financial year. There's no need to register with the IRD. That's all handled when you report.

Second, you need to use software that's capable of dealing with AIM. At the time of writing, there are four packages that do this: MYOB AccountRight Live; MYOB Essentials Accounting; Reckon's APS software; or Xero Tax Practice Manager.

Once you've set up your software for AIM, it will do the rest. This includes sending a regular activity statement to the IRD. This is not a formal income tax return, so if one activity statement is wrong, you can fix it next time. You need some discipline: if you file without making a payment, penalties kick in straight away.

Carolyn Luey, New Zealand general manager for MYOB, says the process is straightforward. Even so, she says her company has worked to make it as easy as possible for business owners.

"Our users will have all the information they need available in real time. So they shouldn't have to do much more than normal. The whole AIM process is automatic. You can even make the IRD payment direct from the software."

She says MYOB recommends people talk to their accountants or financial advisers before deciding to use AIM. "It isn't appropriate for every company. A professional will have a better idea if it is right for their client," she says.

Luey says there's not much that can go wrong in practice. "It's a change to a much better method. There's no need to guess your future income, which can involve risks. For most companies, everything happens in real time and there is no disruption. So long as you make the required tax payments on time and don't get caught with use-of-money interest charges, there's little to worry about."

She says MYOB has done a lot of work preparing for the new provisional tax method. The company recently completed its annual Insight Roadshow. It's an event where MYOB travels the country talking to its accounting partners. MYOB presented the change to them, describing how it would work and what it would mean for their clients.

"We're running campaigns to inform our small business clients about the changes. They have already had direct emails explaining the changes and what it means to them. We've also trained the people working at our dedicated call centre to support clients who want to know how they can get started."

There's every sign that many small businesses will take up the AIM Method with enthusiasm. Luey says MYOB works with Colmar Brunton to run a regular Small Business Monitor.

The researcher surveys a snapshot of what the sector thinks. She says: "In a recent survey, 83 per cent of respondents told us they want to see a simplification of provisional tax. They said this would make it easier for them to meet their tax obligations."

Taking AIM:

What it is: AIM — the Accounting Income Method of paying provisional tax
The potential benefits: A better match between actual income and tax paid. Faster refunds, and fewer unpleasant surprises.
Who can use it: Businesses with turnover under $5m a year, who choose the system before their first provisional tax date for the year
Who can't: Partnerships, trustees and beneficiaries, Maori authorities, among others
But: May require more work to comply, as well as set-up costs
Is it compulsory: No. Businesses can continue to use their current system.
When does it start: April 1