Understanding your Statement of activity and payments for provisional tax
Once you've chosen the Accounting Income Method (AIM), you'll only pay provisional tax when your business makes a profit
From April 2018 small businesses with turnover under $5 million a year can work out their provisional tax using the accounting income method (AIM). AIM uses new functionality included in approved accounting software, like Xero Tax Practice Manager, to work out your payments.
Once you've chosen AIM, you'll only pay provisional tax when your business makes a profit. If you make a loss, you can get your refund straightaway rather than waiting until the end of the year. This will help your business avoid cash flow problems.
Inland Revenue has worked to make sure AIM doesn't increase ongoing compliance costs and is simple for you to use during the year. AIM will help you spend more time on your business instead of worrying about tax bills.
Your statement of activity
On each AIM due date, Xero Practice Manger will work out if you have a payment to make based on your figures in Xero. It will collate the information to show Inland Revenue how it came to this amount - this is your statement of activity.
You'll be able to see the statement of activity before it's sent to Inland Revenue. It's like the Summary of financial statements (IR10) form with AIM information, like refund instructions, added.
You can't miss filing more than two statements of activity. If you do, you will no longer be able to use AIM and Inland Revenue will treat you as using the estimation option which will apply as if you have been in it for the whole year. This will result in exposure to use-of-money interest. It won't be automatic - Inland Revenue will talk with you first to make sure there hasn't been a misunderstanding or system error.
Making provisional tax payments using AIM
Xero Practice Manager will work out your provisional tax payments and let you know how much to pay. Your due dates for AIM are generally the same as your GST due dates, that is:
- monthly if you're registered for monthly filing, or
- two monthly if you're registered for two or six monthly filing
If you're not registered for GST, your dates would be the two monthly GST due dates that align to your balance date. If you have a non-standard balance date, check with us when you'll be able to start using AIM.
If you make your payments in full and on time, there is no exposure to use-of-money interest. If a statement of activity is filed but payment isn't made, penalties and interest will apply to the underpayment. These will continue to apply until you make payment.
If your business makes a loss you can get your refund right away rather than waiting until the end of the year.
What about refunds?
If you have a drop in profit that means you have overpaid, you can get a refund through your statement of activity. You don't need to contact Inland Revenue or file any other documents. These refunds will help with cash flow if your profit drops due to seasonality impacts or an adverse event.
You can ask in your statement of activity to:
- release a partial or full refund
- hold your refund, or
- transfer the refund to another tax type or customer