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Making payments more often

What will paying provisional tax more often be like?

Businesses using AIM will make provisional tax payments more often.  Provisional tax payments will be made monthly for businesses registered for monthly GST returns. Businesses on a two-monthly or six-monthly GST filing option will pay provisional tax every two months, as will those not registered for GST. Receiving the payments more frequently means Inland Revenue can remove the use of money interest exposure.

We know from previous consultations that being able to pay tax on a more regular basis will reduce this stress, particularly for those in seasonal or unpredictable industries.

How will the option of paying provisional tax more often work for your business?

Comments

Ronise Paul
I think it is unfair that PT has to be paid in advance (before year end), this money can help businesses/self employed people. Obviously those not paying their tax at year end as due will be penalised so paying in advance does nothing except take away from those who are reliable. I don't know of any business who thinks paying tax in advance is a benefit!

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3 months ago
Brian Mannington
Paying monthly has both good and bad points. We are a manufacturing business that has large up and downs as we may be building for three months before invoicing out. Nowadays not many pay their accounts until the last day of the month if you are lucky, so you are always paying out PAYE, GST, and then the provisional tax before you get paid, so paying provisional tax monthly would load more financing cost . I think the $5m is a good level. Would it be possible to allow companies a 12 month trial period?

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3 months ago
Brian Mannington
As an importer,exporter,manufacturer and supplier of parts and service, I have yet to find a software package that will do the lot. If there is one would be pleased to find it.

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3 months ago
Kelly
I'd much prefer to pay as you go. I find provisional tax extremely confusing, the payment dates don't seem logical to me, then there's the crossover with when terminal tax is due. Paying tax for last year and the current year just seems to go on forever.

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3 months ago
Grant Collingwood
Doesn't help the very small businesses at all. We work to earn money that goes back into the business to build it further, and create enablers that allow us to employ staff or contractors, or to extend our services. If we have to pay as we earn, it means we can't grow the business. Further, our income fluctuates throughout the year. Work done in one month may not be paid for, for several months. We may get a lot of work in one year, but not in others. Further to that, AIM is adding complexity to an already complicated tax system. I would challenge others to do their own tax, paye, student loan payments, kiwisaver deductions, gst, fbt etc instead of leaving it to accountants, even just for a month, and see how complicated it is. Try simplifying things, and perhaps it may result in more businesses paying the correct amount.

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  • agree13
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2 months ago
Amanda
I am an accountant working in business advisory services. I also do our family business accounting. Even I find that all the various tax types make for A LOT OF PAPERWORK! The cost of this in time away from income producing activities or either paying your accountant or a staff member is a big burden to small businesses. If simplification is the idea, how about combining or even eliminating some of these things. FBT and Payroll for example could be combined. We already have GST & Prov tax payable together for GST registered businesses but its the cash flow impact of paying as you go that prevents small business from doing this. I also agree that the payment dates are difficult and could be pushed out to a week into the following month to allow for the fact nobody pays until the last day of the month.

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2 months ago
Kelly D
There is already a method to pay Provisional Tax more often for GST payers - the GST Ratio Method. Will that scheme be continued if AIM comes in? GST Ratio Method works well a lot of the time, and is already exempt from Use of Money interest charges.

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2 months ago
Vivianne Douglas
I prefer to pay provisional tax just three times a year, as this cuts down on my admin time.

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  • agree5
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2 months ago
Bruce Stone
Paying provisional tax based on accounting profits means you can frequently be paying the tax before you receive payment. How about reverting to a cash model for businesses under $5m, similar the GST payments basis. This would simplify most procedures and mean the software being used will only need to be a cashbook.

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  • agree6
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2 months ago
Andrew Wilson
The key is to be realistic about time frames for business owners to complete financial accounts and to what level of accuracy is required. My view would be that it should be aligned with GST time frames - either change GST to quarterly and make AIM quarterly - then allow enough time for the accounting paperwork to be completed. 20th of the month following would in my opinion place an unreasonable burden. Maybe June quarter completed and paid by the end of August - 2 months to complete all the accounting entries etc.

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2 months ago
cathy parker
We currently often use tax financing for provisional tax to smooth out cash flows, would this still be available, if not then we effectively end up paying out double tax over the transition period

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  • agree3
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2 months ago
Fred Bauer
As a small business operator, an option for tax payments in arrears under AIM on a quarterly basis would suit me best. That would allow for some smoothing of monthly fluctuations in revenue to costs ratios and avoid tax payments in a bad month following a good one (if calculated and paid monthly). Fortunately, I don't experience whole bad quarters, so that period would work for me.

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  • agree3
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2 months ago
Debbie Dawson
I would be happy to pay two monthly when I do my GST but not more frequently than that because of the other comments that have been made - we all have slow payers who don't pay when they need to even though I diligently send my invoices out on the first of each month.

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2 months ago
Bruce Miller
There is no disadvantage to me in my business to paying PT every two months with my GST. On the contrary, it would be hugely beneficial to know exactly where I stand throughout the year.

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  • agree4
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2 months ago
Hazel Kirkham
Paying tax as we go would be much better for us so long as the calculation was on a cash basis, like we use for GST, because many of our clients are overseas and payment terms vary, so there is often a long gap between our invoice and the payment appearing.

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  • agree5
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2 months ago
Lorraine Fraser
We would prefer to pay taxes more regularly on a monthly or similar basis as we go - very hard to forecast an annual income for the year ahead, so we always end up paying more tax than we need to. Much easier to pay as we go in smaller amounts, than having three large payments throughout the year - especially as we are only a small business.

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2 months ago
Chris Hadlee
It will be more work for me to adopt the proposed new system as I prefer to the accounting work all at one time and have sufficient reserves set aside for tax payments. I have no opinion re the proposed $5 million threshold as it doesn't affect me.

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2 months ago
Greg finlay
Yes it will create additional work and is a stupid idea . These payments can be made voluntary now . More simpler allow a voluntary payment to made from gst return profit with an incentive and an annual adjustment . What idiot suggested the proposed system I have 50 years small business experience . Most small businesses do not possess the skills to code correctly and balance up accurately . Another stupid academics solution with no idea of the coal face situation . Look at the ratio method uptake and I guarantee this will be similar. .

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2 months ago
Keith Davidson
This proposal will not work accurately for people who have a highly volatile income stream during the year. Also, as a principle, there is a significant advantage in paying 3 instalments in arrears as per current provisional tax, rather than paying immediately upon receiving income. The current penalty interest regime is the only problem, and if IRD paid / charged interest at the 3% - 4.5% that banks do, it would bring about a much fairer scheme.

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2 months ago
John Williamson
I'm not sure it will work with my business, which is very seasonal. I receive payments through the year, but almost all the expenditure is just in July to October. Does that mean the tax paid regularly is very low until the season starts, and then increases during the season? That might still be better than a few payments based on last year's income.

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2 months ago
Dale Lovett
I receive an income protection benefit and pay provisional tax on it. As my income is set, I'd be happy to pay my tax more regularly.

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2 months ago
Justine Cummings
I think this would benefit me as a sole trader immensely. I don't always know how much work I can take on during the year, so have the AIM will allow me to pay the right level of tax throughout the year, rather than the potentially incorrect lump sums three times a year

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2 months ago
Susan
So much depends on cash flow. You can easily put aside when positive but if payment falls due on a tight month what happens then?

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2 months ago
Joe Boden
This method of paying provisional tax would work brilliantly for me, as we earn consultancy income via our company, and we're never quite sure what our income from year to year will be. I would be quite happy to take the likely correct amount from each paid invoice and pay it to the IRD, as I receive it.

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2 months ago
Anne Messervy
I think the new proposed system is a great idea. As the director of a business with vary variable income, this system will be much easier for me to manage and definitely be helpful in terms of managing cash flow. IT won't be additional work to keep the books up-to-date on a monthly basis, as in this type of business I do it already.

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  • agree3
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2 months ago
Chris Hadlee
It will be more work for me to adopt the proposed new system as I prefer to the accounting work all at one time and have sufficient reserves set aside for tax payments. I have no opinion re the proposed $5 million threshold as it doesn't affect me.

Do you agree with this comment?

  • agree3
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2 months ago
Andy Bloomer
Although I do most of my accounts myself, including two-monthly GST returns, my accountant does the end of year accounts and calculates Provisional Tax. It works fine as is. I do not actually use a software accounting package, but just use spreadsheets - my accounts are very simple. I could file two-monthly income returns along with the GST returns (or monthly, I guess) but see no advantage in it for me.

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2 months ago
Alan Thomson
two monthly GST system + prov tax works

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2 months ago
Fred Bauer
As a small business operator on a six-monthly GST and Provisional tax regime, a quarterly tax payment in arrears option in AIM would suit me. This would likely balance out extra admin workload, and monthly fluctuations in cash flow that impact earnings to costs ratio, which could make monthly payments tricky sometimes.

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  • agree6
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2 months ago
Kathryn
It will make my life much easier. My income fluctuates throughout the year and it would be so much easier (and less painful) to pay as you go.

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2 months ago
Angela Yelavich
Yes, I think it is a good idea. Why not every 2 months the same as GST? You need to get all your figures into the accounting system for GST so it wouldn't make a difference for tax. It wouldn't make any extra work, though sometimes you do receive invoices/bills late the following month.

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2 months ago
Helen
Yes, for small businesses such as mine, paying tax in regular increments based on current income (as per GST) would make tax a lot less stressful so we can get on with running a good business.

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2 months ago
Barry Holland
All the proposed changes are going to increase costs to a small business/sole trader thereby reducing profit and the Government's tax take.

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  • agree3
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2 months ago
Homman F Tapsell
I agree with the new system as more regular and smaller amounts is better for a small business planning rather than the 3 larger amounts throughout the financial year

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  • agree2
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2 months ago
Hayley Buckland
yes, I think this will actually be easier. earnings can fluctuate a lot in a small business, and this will help with cashflow and budget planning for businesses.

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  • agree2
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2 months ago
Denise Ross (Ac...
I think that paying provisional tax during the year will be easier for me. Financially it will make my budgeting easier and it is easier to find small amounts more frequently than one large sum at the end of the year. Also if a business has fluctuating income, then you are only paying what you owe, not a guess on the previous year which could have been high/low

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  • agree2
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2 months ago
Wanda Kingma
Paying as we go = working smarter. Takes all the guess work out of how much to hold back for tax payments and/or the stress of having to find the payment in a small/tight cashflow business.

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  • agree2
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2 months ago
Andy Mayhew
I think it will help smooth out cash flow with tax payments coinciding with income at key times of the year. I mean don't we all love the big tax bills early January at a time when business is generally quieter.

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2 months ago
Ralph Winmill
To 'pay as you go' is a great advantage for small business like mine. It's always a 'surprise' to get the provisional, and terminal tax PLUS the GST payment requirements at the same time. There' is slightly more work to have the accounts up to date but with my Finance software it just means being more diligent with downloading the data.

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2 months ago
Monique Dean
For our business, it would cause extra work, as we prepare accounts annually. I am happy to stay with the three provisional tax payments per year.

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2 months ago
Stacie
I don't think it will be any extra work but paying provisional on a more regular basis would definitely help with cashflow for our small business

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  • agree3
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2 months ago
Kelli Booth
Much easier for my small business to pay as we go. Saves the worry of large unpredictable payments and allows better budgeting and forecasting.

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  • agree2
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2 months ago
John
Not good, sounds like more work. Only good for those who can't budget. Maybe there are many but wouldn't work well for me. More hassle instead of less. Have to focus on business not admin!! When will they ever learn.

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  • agree3
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2 months ago
Sandra Kraakman
We already use the voluntary payment of provisional tax option when it is appropriate. There are times when we also readjust our tax payments down as our income plummets. Our problem is that our tax liability is based on the previous years income + 5%. This creates huge distortions in our tax liability when our income drops dramatically due to international pressures. The system is working well for us already and we do not see the need for drastic change. Can AIM work alongside the existing options?

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  • agree4
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2 months ago
Paul Dunmore
I would prefer it, provided it is on a cash basis for businesses that compute GST on a cash basis. It would mean that a portion of each invoice received, offset against payments made to suppliers, could be set aside to pay the tax in the near future. No cash coming in, no tax; lots of cash coming in, pay the tax right away and be (more or less) done with it. In my business, the real problem with provisional tax is that the annual income may bear little relationship to the month-to-month cash flows, and so tax may be due at times when there is no cash coming in to pay it.

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2 months ago
Bruce Rea
I'm OK paying company income tax each month using the AIM method if it means I don't have to do the IR4 and IR10 process each year. I find the IR4 and IR10 process a bit redundant and time consuming because I have to add lots of accounts together to get the IR10 totals to work out.

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  • agree4
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2 months ago
Mark S
In my experience, one of the key issues for provisional taxpayers is having to pay it. While lots of tax to pay is actually a good business problem (way better than nothing to pay!) having to pay it is often a cashflow problem. However, I would think that having 3 instalments a year (and therefore 3 cashflow impacts) is way more preferable to having 6 episodes per year. The incremental gains achieved by "smaller amounts more often" will absolutely be outweighed by doubling the compliance costs. The average taxpayer will have increased levels of frustration and general dissatisfaction with the prov tax system if it never gets out of the "foreground" when worrying about day-to-day business. For those that fancy AIM, they can always use GST Ratio Method.

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1 month ago
Tony Murphy
I think this will be a good idea. I have a pretty good idea of the profit each month so paying tax more frequently will not be a burden.

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1 month ago
Donald
I paid 3 Provisional tax payments yearly plus Terminal Tax and 6 monthly GST for years. Then the system changed to 6 monthly GST and Provisional Tax plus Terminal Tax. Whilst this saved cheque writing time (or Internet Banking payments) it meant that a larger payment was needed at a given time. It would be easier for me to pay Provisional Tax, based on the standard uplift of the previous years income, more often so that payments would be smaller and easier to manage.

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1 month ago
Bevan Walsh
I think your proposal is very logical. The current Prov Tax system is nuts and I think what you're proposing is the way to go.

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  • agree3
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1 month ago
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