AIM might be the new kid on the block when it comes to provisional tax. But in most cases, you still can’t beat the very real benefits of inspired tax pooling.
Comparing apples with oranges
It’s a base analogy but the difference between tax pooling and AIM is a bit like choosing between a bus and an Uber.
The bus follows a strict timetable, leaving at the same time and making the same stops. By comparison the Uber ride is far more flexible: it allows you to take the journey on your terms, when it’s convenient to you. Both get you to the same place, but they don’t necessarily give you the same experience or benefits.
For truth be told, nothing compares to tax pooling if you want more control, more cash in your business for longer and greater flexibility.
Inspired Tax Pooling explained, an interview with Josh Taylor, Director at Tax Traders
Truly Inspired Tax Pooling
Tax pooling becomes truly inspired when you consider how easy we make the entire provisional tax process.
Your deposits are automatically processed. And we don’t need to know what is coming ahead of time, just make payments when it suits you through the year. At the end of the year just enter your actual income tax number into our year end calculator, press go and we’ll work it all out for you.
All your options laid out for you
Then once you know what you need to pay, we’ll supply an immediate summary of the transfers and tax movements we recommend, as well as a summary of any amount outstanding.
Not sure which settlement option best suits your cash flow? We’ll tell you, and we’ll make sure final payment arrives at IRD on time.
What’s best for your business?
The challenge with AIM is that it’s accounting income with tax adjustments. It’s not a cash flow method. And cash flow can still be a major issue even for steady businesses. In contrast, inspired tax pooling allows you to treat tax like any other working capital item. It gives you a tax specific facility – like a savings account – for tax you can add to, or draw from. Use AIM and you may still have an obligation to pay tax even if your debtors are late paying you. The result: a cash crunch. Capital expenses that need to be made, which fall in the same month an AIM tax payment is due, could also stress cash flow. At the end of the day, AIM doesn’t provide flexibility to deal with this situation unlike tax pooling.
If your company is growing, cash flow is clearly going to be an issue. Flexibility is key. Under the current method, tax pooling allows you to make payments based on last year’s uplift. What’s more these payments are likely to be lower than those calculated using the AIM method. One thing’s for sure – when you add tax pooling, the ability to spread payments over an even longer period at low interest rates becomes a very attractive feature.
This is the one type of business best suited to AIM, especially when income is stacked to the second half of the year. Seasonal businesses can find it harder to forecast though, and if access to capital is tight, or flexibility is important, you may want to consider tax pooling as the alternative.
Whether you pay your provisional tax on time or after the fact, we’ll see you right. Call us on 0800 TAX TRADERS (829 872) and we’ll be happy to show you how we can make tax pooling work for you.