Many small businesses find it hard to keep on top of both current and future tax obligations. This leads them to being in debt to the ATO and the unenviable need to negotiate payment terms.
Part of our role as small business accountants is to act as a barrier or intermediary between the tax office and the small businesses of Australia. It’s not that we don’t trust the two different interests to get along; it’s more about using our experience and knowledge to protect the best interests of the client.
When called upon by the ATO our clients find it hard to converse about their business finances in a way that gets the true picture across, and this can lead to them being dealt payments terms they cannot meet, especially when it comes to overdue business tax payments.
How do these overdue business tax payments occur? The reasons include:
- Poor cash flow management
- Using the wrong legal structure
- Accounting for GST on the wrong basis
- Not budgeting for cyclical cash flow
- Business owners spending unassigned cash in the bank
- Not utilising accountants or bookkeepers to monitor future tax amounts to be paid
- While it’s rare, these issues can also be caused by “acts of nature”
So the issue here is how to deal with the tax office and keep your debts under control once they have happened.
Negotiating a payment arrangement with the tax office is normally the first option clients look to. Our advice is always to seek alternative finance to cover ATO debts as they can often be spread over more lenient time frames. Sadly, many small businesses think this is where the process stops but this is not the case. Once a payment arrangement is in place it is your obligation to make both those regular payments as well as your current lodgments for both income tax and BAS purposes. Should you stick to your payment arrangement but not lodge and pay your most recent BAS on time then your payment arrangement will default. And every time you default it will become increasingly difficult to negotiate a new arrangement.
This is how businesses fall further and further behind.
So what’s the key takeaway today?
Don’t fall behind!
The only way to keep on top of your business tax payments is to know what they are and when they are due. And you can only do this by taking up the services of a bookkeeper or accountant from the very start of setting up your small business.
So many of our new clients have waited a year or two before seeking help and ended up paying two years of tax in one year. This is a recipe for disaster and places further cash flow stress on new small businesses that are already running in a very lean state.
Have you ever found yourself a few years behind with regard to your business tax payments?