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Calculating the tax adjustments

Prepayments

Identifying prepayments can be an important adjustment for accounting income. Some are minor (like a magazine subscription) and we don't envisage adjustments will be required for them. Larger prepayments will need to be adjusted for. There is some acceptance that if they catch up within the next period, they don't need to be adjusted for. Do you think this is the right approach? How else can we simplify this adjustment? Can this adjustment be carried out on a more regular basis during the year? What changes to your software would assist you with making this adjustment?

Comments

Bruce Stone
For most small businesses items are expensed as they occur. The year end is then used to utilise the rules to spread these. GST is deductible when the item is paid, invoiced. This is the time when it should be deductible for income tax. A complete upgrade of the prepayment rules needs to be implemented.

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2 months ago
Jane Fitzgerald
We don't have prepayments in our business

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2 months ago
Barry Holland
I do think if prepayments are balanced over the next period there is no need for immediate accounting. There should be bit more leeway in the imposition of tax penalties and a collaborative approach from IRD to resolve tax issues rather than punitive action.

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2 months ago
Janise Nelson
Does not really apply

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2 months ago
Susan
Surely its only prepayments if you could cancel and get a refund. Magazines dont really come into this. Insurance does but really over several years it becomes irrelevant. If accounting package had easy option to split over months would make monthly reports more sensible. If the aim is to simplify then it needs to be simple.

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2 months ago
Dale
Xero already identifies prepayments so this shouldn't be an issue to accommodate.

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2 months ago
John Penney
Not an issue for us.

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2 months ago
Ross Bidmead
We run a travel tour company with with payments received and made in advance. Some deposits are received 10-12 months in advance, full payment is received 6-12 weeks in advance and payments to suppliers (hotels) are anywhere from 3 weeks in advance to 4 weeks in arrears of activity. Year end adjustments for fees in advance over the last 4 years have varied from trivial to 30% of profit. We use Xero and for AIM to work it would need to be very simple to add the equivalent of a service delivery date from which both debit and credit prepayments would be adjusted.

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1 month ago
Geoff
GST is deductible when the item is paid, invoiced. This is the time when it should be deductible for income tax. A complete upgrade of the prepayment rules needs to be implemented.

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1 month ago
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