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Potential issues

Would paying tax as agent be useful if integrated within AIM?

There is the possibility that overpayments of provisional tax resulting from shareholder salary accruals could be transferred to shareholders as tax credits rather than tax payments.

One of the other proposals to improve provisional tax, set out in the Better Business Tax issues paper, is for a company to pay tax on behalf of its shareholder-employees when they are paid salaries. The tax paid becomes a tax credit which the shareholder-employee can use against their tax liability. The purpose of this proposal is to remove shareholder-employees from provisional tax obligations altogether.

Whilst these two proposals sit separately at the moment, there is the possibility of reviewing whether they could be integrated.

Is there interest in combining AIM with tax paid as agent (as discussed in issues paper) if so, should this be compulsory (replace the above measures) or an optional add on?

Comments

Bruce Stone
This should be an optional add-on. The question arises if there is a shortfall of tax whose a/c is underpaid? IRD currently allows taxpayers to pay provisional tax on the ratio method. IRD regularly get this wrong refunding the prov tax as a GST refund. If you are going to allow for the proposed system then IRD procedures are going to have to improve markedly.

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2 months ago
Jane Fitzgerald
Yes we would be interested in combining these, and to be fair to everyone should replace the existing measure.

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2 months ago
Christopher Smith
no coment

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2 months ago
James Beavis
I would like the company to pay tax on my behalf then a reconciliation done at year end once the shareholders salary has been finalised

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2 months ago
Jeff Moselen
AIM sounds like a tax collection vehicle that will only become very complex with software based calculations. I understand the intention of Aim is to simplify tax payments, but it may end up achieving the opposite. Aim may require accountants to prepare balance date adjustments on too regular a basis for the benefit of tax collection only - at an additional cost to the taxpayer. Provisional Tax should be based on its original definition - ie provisional only and the penalties & UOMI regime should be eased off for the majority of taxpayers who make honest attempts to get their payments right but may fall short on occasions. The existing Ratio Scheme for collection of Prov Tax via the GST Return (based on a formula utilising GST taxable supplies and the taxpayers Residual Income Tax GST) works extremely well. However, it has limited application for small businesses because the GST taxpayer (ie Company, Partnership or Trust) is not always the provisional taxpayer. Inland Revenue should look at expanding the Ratio Scheme to include more small businesses by allowing for the pooling of Prov Tax payments amongst designated taxpayers and modifying the ratio formula to include these taxpayers.

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2 months ago
Sandra Kraakman
We do not agree with this. It seems as if AIM is going to become quite onerous, time consuming and burdensome. There are too many unpaid hours already being spent in our business dealing with tax/legal requirements. As this is a user pays society, why are we all doing the hard work collecting/sorting/administering the tax laws free of charge for the IRD? And if we make an error we are slammed for it - no grace is given by the IRD.

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2 months ago
Margaret Baker
HI I like the tax credits option - often clients code drawings to salaries in the P&L as a taxable expense and this would handle this pitfall issue well. Would like more info on Shareholder Employees being removed from provisional tax payment - although I think it is a good idea. My question is if shareholder/employees is removed and company pays for tax credits - what rate will be used and how will this be estimated? Just a heads up on this area: What normally happens is all income is transferred to shareholder employees bringing company tax to Nil. The purpose of this was to avoid penalties and UOMI on unpaid or shortfall prov tax existed. Simplification is going to apply this threshold to company so this problem goes away. If it goes away do we even need the tax credit on behalf of shareholder employee mechanism i.e. what will happen now is tax to marginal tax rate will be paid to shareholders and the rest to company.

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2 months ago
stephanie
optional

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2 months ago
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