TAKING AIM AT PROVISIONAL TAX
in this article:
A new way of paying provisional tax could benefit small and growing businesses. MYOB provides a guide
People don’t buy a business for the excitement of doing tax returns and admin – they buy a business for financial rewards, lifestyle benefits or to follow a passion. Sadly, though, tax returns are a necessary evil, and the penalties for making mistakes can be considerable. Just ask the franchisee who recently found his five pizza stores put into liquidation after he failed to do his returns and pay the IRD what it was due.
Fortunately, the advent of online accounting in recent years has made the calculation of tax and managing your accounts much easier. That’s particularly true within an organised franchise, which uses common accounting systems and coding not just to improve financial management but also to enable benchmarking and find improvements and efficiencies for franchisees right across the country.
‘The speed with which such information can be made available means that a franchise using MYOB’s online accounting services can make well-informed, timely decisions to boost their performance and their bottom line – as well as avoiding the penalties that come from getting it wrong,’ says Nick Fletcher, MYOB’s National Sales Manager. ‘Now there’s another benefit too.
‘One of the most difficult and time-consuming challenges for any small business is provisional tax compliance. Business owners are often left frustrated knowing their time and efforts could have been spent elsewhere. However, as of April this year, Inland Revenue has developed a new provisional tax payment option for small businesses. It’s called AIM – Accounting Income Method – and is a provisional tax payment method for enterprises which have a turnover of less than $5 million a year. If you’re using online accounting software such as MYOB Essentials, then you’ll be able to use the Accounting Income Method.’
If you’re just starting out – perhaps in your first year, or are still in the early stages of growth – then AIM is a good provisional tax payment option for you. It’s also suitable for businesses with irregular incomes; those whose cash flows are seasonal or unsteady.
Unlike the IRD’s three alternative payment methods – standard, estimation and ratio – AIM lets you pay tax as you earn an income or make a profit.
Using new functionalities in accounting software, you can work out your tax payments with ease – and in half the time. Your accounting software will calculate how much provisional tax you are required to pay each instalment based on your past two months of income instead of the previous year’s income, which was previously the case. Not only is this new method more accurate – it means you can avoid the major cash flow problems that can be caused by an unexpectedly high tax bill later on.
It does mean, though, that you will have to make provisional tax payments more often than you used to. If you have registered for GST, you’ll pay monthly, and if you’re not, you’ll pay every two months. ‘That makes MYOB’s online accounting more valuable than ever,’ says Nick. ‘MYOB Essentials automatically calculates provisional tax, meaning easy compliance with no more guesswork.’
If you make your payments on-time and in-full, then you won’t be charged use-of-money interest. Also, if you make a loss, you’ll be able to get your refund straight away and not at the end of the year.
This can be great news for start-ups and young businesses, as they’ll only have to pay tax on the results they achieve – rather than estimating how they’ll go and risk losing money when they need it the most.
To decide whether they are eligible and, if so, whether to take advantage of this new option, franchisees should consult their accountant. It’s also important for franchisors to be aware of any implications and advantages for new and mature franchisees, and to issue guidance where there are common accounting systems that may need to be considered.
While the introduction of AIM offers a good reason for franchises to explore online accounting right now, Nick is keen to emphasise that making provisional tax payments easier is just one of the benefits it can offer. ‘MYOB online accounting and the available add-ons can automatically do lots of things that franchisees currently spend time on, from accounting to payroll. This can give them more time to focus on their business, more control and even more time to spend with their family rather than their paperwork.
‘If you want all these benefits as well as better benchmarking and improved margins, give me a call,’ Nick suggests. ‘MYOB has helped many franchisors and franchisees make the transition to online accounting, and is happy to provide step-by-step training to help you get the best out of your accounting system. One thing is certain – once you’ve made the change, you’ll never want to go back, and with more initiatives like AIM on the way, the advantages will just keep growing.’
See this advertorial on page 36 Franchise New Zealand magazine Year 27 Issue 1
Contact details for MYOB
For more information and advice on buying a franchise get your FREE copy of Franchise New Zealand magazine.
We welcome links from other websites to this article. Please note that this article is copyright © Franchise NZ Marketing Limited, Franchise New Zealand magazine and Franchise New Zealand On Line. While it may be downloaded for personal use, no part may be reproduced on any other website, in electronic or printed form or in any other form whatsoever.
advertiser info: franchise business opportunity
|service consultants||area serviced national||FANZ member yes|
|contact Nick Fletcher
p 0800 39 66 38 m 021 940 921
|telephone||find out more listing|
This material is copyright © Franchise NZ Marketing Limited, Franchise New Zealand ™ magazine and Franchise New Zealand On Line . While it may be downloaded for personal use, no part may be reproduced in any form whatsoever without the specific written permission of the publisher.