10 Tips for Managing Business Tax Debt ( ATO )

Tips for Managing Business Tax Debt ( ATO )

Paying your ATO tax debts is one of the most critical business obligations. 

Whether it’s your quarterly BAS, IAS or yearly;y tax returns, your business has to pay its tax debts.

If you ignore your business tax debts to the Australian Tax Office, there are severe implications for you and your business. The ATO is not like a standard business debt to negotiate with and perhaps organise a discount. No, the ATO is its own beast, and they are super hungry for your money and will do anything to get it from you. If you think you can run and hide from your ATO your tax debts, then think again; they’ll chase you and, even worse bankrupt you for the money.

Also read: https://www.ato.gov.au/general/paying-the-ato/if-you-don-t-pay/

Implications of unpaid business tax debts

If you don’t pay your tax debts or have difficulty paying the debts, there are some profound implications that you can expose yourself to, including:

Disclosure to credit reporting bureaus – the ATO will let credit rating agencies know that you have failed to pay your debts, affecting your credit score and borrowing capacity in the future. A bad credit score will follow you around for five years.

Smart Company tells us that Businesses that ignore their obligations will receive timely, firmer action from the ATO. This will include legal action where there is evidence the business is insolvent.

If you have more than $10,000 in tx debt and have not paid this within 90 days or are not in touch with the ATO to negotiate a payment schedule, expect to get some nasty call followed by legal action.

The ATO will refer your tax debt to a debt collection agency, and if this goes unpaid or you go insolvent with this debt, you may still have to pay it down the track.

If you ignore your ATO tax debt, expect to get interest added to the debt with extra penalties. These penalties can be pretty severe and could end up losing your business. These guys don’t muck around, be aware of this fact. The tax office is your primary concern when it comes to paying off debts. Other business debts can stand in the queue but for goodness sake, pay the ATO first!

To avoid these nasty penalties and consequences, follow these easy steps to manage your ATO business tax debt:

Easy Strategies for Managing Your ATO Business Tax Debt

1) Know your exact financial situation

Know the financial state of your business. Know your creditors and debtors and have a bird’s eye view of your cash flow position. Speak to your accountant o know when your next BAS or IAS is due, and make sure you have funds in the bank to pay this. If you’re on top of your cash flow and know what money is coming in and going out, you’ll be better positioned to handle any ATO debts coming.

2) Prioritise your ATO tax debt

As stated above, don’t mess or stuff around with the ATO. They are not overly friendly or forgiving like other businesses, and they want their pound of flesh! If you own suppliers or have other business debts, talk to them and keep them informed about planning to pay them perhaps 30 days later, giving you some breathing space to pay the ATO debt off first.

3) Get paid on time

Cash flow is critical with the ATO, so if you have lots of outstanding debts, get on the phone and start chasing them up. Having your creditors pay on time is key to the success of your business and getting the moula in to pay the ATO. Don’t let this get out of hand. The last thing you want is the ATO to start any type of legal action ah=gainst your business while you still have lots of funds outstanding from slow-paying customers. You might have to start tightening your credit terms with people or getting paid on receipt of goods or services.

4) Lodge your activity statements and returns on time

Ensure that you lodge all your BAS and IAS statements on time, as there are penalties for late lodgements. Most small businesses will have an accountant that does this for them, making sure they are doing their job.

5) Communicate regularly with the ATO

Like all businesses owed monies, the ATO is no different. If you can communicate with them regularly and know your financial situation, they will kindly look more kindly. Let them know when you will pay your next instalment. If you have been paying regular instalments, but you cannot make the next payment for whatever reason, let them know. Communication is essential and will be your best strategy when dealing with the ATO.

6) Set up a payment plan

Talk to the ATO and set up a payment plan which you can read about here. There will be interest payments with the payment plan, but they will be manageable over some time. If you can’t pay the ATO, they might accept security (such as a registered mortgage or bank guarantee) in exchange for deferring payment of your debt. Please find out more about our secured business loans.

Please note that even though you might have a payment plan in place, you cannot ignore these as they will be referred to a debt collection agency. Be diligent with your tax repayment schedule.

7) Serious hardship and release

If you are a sole trader and have severe hardship, contact the ATO about being released from this debt. Find out about being released from your tax debt here

8) Business tax debt loans

A great way to get the ATO off your back is to get a business tax debt loan to help finance the tax debt. Believe me when I tell you that it’s a lot better for your mental health and business to get an ATO debt loan than have the ATO hassling you. Plus, the interest and penalties you’ll cop from the ATO are far heavier and worse than the interest payments on your tax debt loan.

9) Get expert advice

Get advice from financial planners or your accountant if you feel that you will struggle to pay your ATO tax debts. These guys will be able to point you in the right direction regarding all aspects of ATO debts.

If you’re finding it hard to meet your ATO business obligations, the problem most likely falls on you due to poor business management, lack of cash flow management or just bad business practices. You might need to go on a few business courses moving forward, but overall you should start managing cash flows better. Sticking your head in the sand and pretending that ATO tax debts don’t exist is not the best way to run your business. Treat the ATO as a permanent debt, pay them on time or speak to them about repayment plans which is the only way to keep your business running smoothly.

10) Treat them nicely

Never ignore the ATO or treat them with disprect. I know this will be hard to do but they are also people at the other end of the phone so treat them with a level of respect and courtesy and you might get a helping hand at the other end of the line.

About the author

Ulrika Lobo

Ulrika Lobo is the lending specialist at Sparrow Loans and has over ten years of experience in the commercial business loan space. Ulrika co-founded Sparrow Loans to provide Australian SMEs with a faster and easier way to access finance. Ulrika is responsible for managing the lending process from underwriting to execution and settlement and post-settlement support.