1. Knowledge
  2. Tax Pooling 101

Accounting Income Method (AIM)

What is best for your clients’ businesses?

AIM was introduced by Inland Revenue in 2018 to help smooth provisional tax payments by basing provisional tax payments on current tax-adjusted income calculated automatically by accounting software. But in most cases, your clients still cannot beat the benefits of tax pooling. Tax pooling offers your clients greater flexibility and cashflow control, and more cash retained in your clients’ businesses for longer.

Steady business

The challenge with AIM is that it is accounting income with tax adjustments. It is not a cash flow method and cash flow can still be a major issue even for steady businesses. In contrast, tax pooling allows your clients to treat tax like any other working capital item. It gives your clients a tax specific facility – like a savings account – that your clients can add to, or draw from. Under AIM, businesses may still have an obligation to pay tax even if their debtors are late in paying. The result can be 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 does not provide flexibility to deal with your tax payments, unlike tax pooling.

Growing business

If your clients’ businesses are growing, cash flow is going to be an issue and flexibility is key. Tax pooling allows your clients to make payments based on a prior year’s uplift. These payments are likely to be lower than those calculated using AIM. When using tax pooling, the ability to spread or delay payments over an even longer period at low interest rates becomes a very attractive feature.

Seasonal businesses

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, such businesses may want to consider tax pooling as the alternative.

If your clients choose to use AIM, they cannot use tax pooling to correct any underpayments or missed payments.