The ATO has released its tax debt data from the 2019 financial year and it provides grim reading for small business owners. Once again small businesses represent the highest tax debt level amongst different tax paying groups with one in five small businesses on average having entered into a payment plan with the ATO over the last year. The tax debt owed by small businesses increased to $16.5 billion which is substantially higher than that owed by privately owned and wealthy groups ($5.6 billion) and public and multinational companies ($1.1 billion).
While some small business owners may be reassured to learn their cash flow issues are common it does indicate that small businesses need to carefully manage and monitor their cash flow which is the most common indicator of business stress and the precursor to most business failures. So what should proactive small businesses do?
The first and most important step is to acknowledge the issue and implement cash flow budgets and forecasts to monitor and track your business’ cash flow performance. Cash flow issues can be seasonal or cyclical and having these issues identified and planned for can assist greatly. Knowing when cash flow is tight can assist businesses to know when to tighten the purse strings and implement tighter debtor controls.
The second step is to deal with any problems straight away. A tip we always give small business owners is to prioritise paying their super commitments over any tax debts in the short term. An unpaid tax debt to the ATO can be stressful but the consequences and penalties for unpaid super are far greater and onerous, so businesses should always ensure super is paid first.
The next step is to then communicate with the ATO on their tax debt. Ensure your lodgements are made on time and are up to date and then contact the ATO to set up a payment plan. The ATO’s goal is to assist small businesses and contrary to public opinion are reasonable with their payment plan terms. Debts under $100,000 can be set up automatically online through your business portal or through your BAS or tax agent. For debts over $100,000, then a personalised plan is required and the ATO needs to negotiate this over the phone.
If you need assistance with your cash flow or tax debts, please do not hesitate to contact us.