Jeremy Tauri: Tax changes need thought

Jeremy Tauri

Tax changes are coming, but it's worth giving it a bit of thought before jumping at the new methods.

From April 1, businesses will be able to choose a different way to calculate provisional tax, provided they use the right kind of accounting software.

Accounting Income Method (AIM) will allow provisional tax to be paid "as you go" alongside GST, if you use cloud-based software for your accounting.

It will mean businesses can pay their provisional tax every one or two months instead of the usual provisional tax dates three times a year.

The IRD says it will become a normal byproduct of business processes and give businesspeople more time to spend on their businesses, rather than administration.

It will benefit seasonal workers or those with unpredictable income but could put cashflow pressure on some businesses, particularly those who have invoiced for work but not been paid.

Their accounting software would show this as profit to be taxed, even if the money was not yet in the bank.

The new system will also rely on people putting correct information into their accounting systems, which, as most businesspeople know, is not always guaranteed.

Many people may not want to pay their accountants for help every two months to make sure they are on the right track - so more mistakes could be made or things that should have been claimed could be missed.

While the new system looks likely to make it easier to manage provisional tax and almost puts businesspeople on something that looks a bit like PAYE, it seems to allow them to take a step back from the numbers.

Businesspeople should understand how the financial side of their business works, just as they do any other part of it. However, if you are the type of person who just likes to have your tax affairs dealt with, this may be a good option to take some of the pressure off.

Jeremy Tauri is an associate at Plus Chartered Accountants.