After a pause to allow businesses to survive the pandemic, the Australian Taxation Office has begun calling in tax debts owed by businesses, writes Daniel Riley, CEO of Earlypay.
As the economy starts to come out from under the COVID cloud, local and global issues have introduced more challenges for business, including increased supply chain disruptions, inflation, soaring cost of fuel and interest rate hikes.
In addition, we also have a federal election to contend with and a tax office ramping up debt collection. For this reason, it is vitally important that business operators urgently get their tax debt under control.
The last thing businesses need is to face the year ahead with tax debt that just continues to rack up penalties and interest.
How to clear your ATO debt faster
The Australian Taxation Office has resumed its debt collection activities across the small business sector after a pause last year during lockdown, and they are making up for lost time. This means businesses need to really focus on clearing the debt as the ATO pursues harder collection measures.
We are still going to see supply chain issues in 2022, however, open international borders will bring some relief with a surge in sales and new business.
Engagement with the ATO is now vital to prevent enforcement action. With the ATO making it known that debt collection action is commencing, tax debt is something that cannot be ignored.
There are some key things businesses can do to help clear their ATO debt faster.
1. Know your situation
The most important issue for business owners seeking to clear their ATO debt faster is to know their true situation.
Knowing your amount of ATO debt is an important part of understanding what type of strategies you need to put in place to clear it. Regardless of how the business is structured, there may be different types and levels of debt involved.
It is of paramount importance to ensure you are across all of it and understand the consequences of the debt.
If you are late paying any tax requirements, you are considered non-compliant, and the ATO may now take enforcement action to recover that debt, even if the debt was incurred during, or just prior to the pandemic.
This enforcement action may include garnishee notices or director penalty notices — making directors personally liable for a company’s GST, super and PAYG tax obligations. Wind up applications and bankruptcy are also on the table.
Having a clear understanding of personal liability is critical here as a catalyst to taking positive action.
2. Consult with your tax debt specialist
Good accountants and financial advisors have really earned their keep during the pandemic and the 2022 year is going to be no different.
Work closely with your key advisors to ensure you are able to effectively evaluate your current situation and reset your business objectives. This will help you to create a plan aimed at clearing your ATO debt and setting the business up for a strong year moving forward.
Seeking expert help from the right people to ensure you get the best possible payment plan is critical. With an expert tax debt specialist, you can map out a strategy to meet cash flow needs, and where possible, reduce debt.
3. Create a payment plan to avoid penalties
ATO penalties and interest can significantly eat away at your balance sheet and cash reserves very quickly.
Working with the right specialists, you can put in place a payment plan with the ATO and place a possible hold on collection action and any further unnecessary costs.
If you are managing other debts as well, one strategy is to focus on one debt at a time with the highest interest or penalties, while meeting the minimum payment on others. This works because more money will go towards paying down the principal that attracts the largest interest expense — by paying this debt quickly, you can effectively reduce the amount of interest you would have paid, had you paid the principal down slower.
Working with a specialist to determine a payment plan that is viable, matches cash flow, reduces debt and ultimately allows the business to continue to trade and grow, is the step many businesses need to now take.
The time for action is now.
4. Sale-back Finance
Getting funds in the door quickly is important when working to clear ATO debt fast. Sale-back Finance may be an attractive option for many businesses.
This works by turning existing business assets into cash. Sale-back Finance has its origins in equipment leasing; however, nowadays it is also used to finance transactions where a loan is secured over existing assets that the borrower already has.
If a business owns an asset that is unencumbered, a business finance provider such as Earlypay can give you a loan against it, while allowing you to continue using it. The loan is then paid off over a three to five year period.
At Earlypay, we tend to recommend Sale-back Finance on eligible assets such as vehicles and other types of equipment. If the business is asset-rich but having short term cash flow problems, this method allows a business to keep using the asset while also using it as security for a loan.
Effectively, Sale-back Finance allows you to tap into cash tied up in your assets.
5. Invoice finance
Typically, businesses that have ATO debt or a history of credit issues struggle to get finance through the banks and other lenders.
Invoice finance has become the go-to option for many businesses that need to unlock funds fast, without taking out a business loan or setting up a traditional line of credit. It is also ideal for young businesses that do not have an extensive trading history.
In essence, businesses use their accounts receivable ledger as collateral to access the cash upfront — before their customers have paid the invoices. It is a way for businesses to access funds that are due from their customers, without having to wait the duration of their credit terms.
Invoice financiers can also take care of managing debtors and collections so the business can focus on what they’re good at.
Invoice financing can help a business with its cash flow, pay employees and suppliers, and reinvest in operations and growth earlier. It can also be used to help a business clear its ATO debt faster.
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