Over the past four years, the ATO’s collectable debt has grown 89 per cent with a current estimate of $50.2 billion. Of that amount, small and medium sized enterprises are responsible for $33 billion of that full sum.
During the years of the pandemic, the ATO allowed for greater leniency and more flexibility for businesses owing the tax office money. However, recent announcements indicate that they’ll be more proactively going after businesses with significant amounts of outstanding debt and tightening the conditions to be eligible for penalty remissions and interest exceptions.
With the ATO chasing payments on outstanding debts and exercising their powers to report businesses to credit reporting agencies, it’s critical that you check whether your business owes money in tax and determine whether you need additional funding to assist.
Do you have outstanding tax debts?
Ever since the legislation passed in 2019, the ATO has had the authority to report businesses owing debt to credit rating agencies. These powers were initially ‘unutilised’ to accommodate for the tough business conditions of the COVID-19 pandemic.
However, with many businesses delaying payments in the hope of maintaining their tax debt as an unsanctioned line of credit, the ATO has notified the industry that they intend on commencing proactively with chasing the debt, issuing penalties and using their credit rating agency notification powers.
Which businesses is the ATO reporting to credit rating agencies?
If you answer yes to the following questions, you may be subject to the ATO’s new proactive stance:
- Do you owe over $100,000 in tax?
- Do you have an Australian Business Number (ABN)?
- Are you more than 90 days in arrears?
- Do you not have a payment plan in place or under negotiation?
What types of tax debt is the ATO after?
Any business tax debt captured in tax debt disclosure could be reported to credit rating agencies. This includes:
- Income tax debt
This debt refers to the amount of tax a business owes based on its taxable income.
- Activity statement debts
Any tax reported in a business’s submitted activity statement but not paid will be included in this type of collective debt, such as GST or pay as you go (PAYG) withholdings/installments.
- Superannuation debts
Employers who fail to contribute minimum percentages of their employees’ earnings into their nominated superannuation fund will incur superannuation debt.
- Fringe benefit debts
Any non-cash benefits provided to employees and their family members incurs fringe benefits (FBT), which if not paid can contribute to one’s tax debt.
- Penalties
Penalties associated with late tax return lodgements or failure to repay tax debt can significantly increase the amount of total tax a business owes.
- Interest charges
The ATO may impose interest charges on outstanding debt, including that debt which is being paid in installments. Delayed payment can compound the amount owed as the interest continues to increase the total collectible debt.
For further details click here to learn about the credit reporting law now being enforced
How should you deal with outstanding tax debt?
SMEs with $100,000 or more in tax debt need to take a proactive approach to prevent the ATO from issuing wind-up notices, penalties or reporting to credit rating agencies.
There are two main strategies for dealing with outstanding tax debt: (1) Proactively engage with the ATO, and; (2) Repay your debt with Invoice Finance.
1. Proactively Engage with the ATO
If you fall under the categories outlined above, you and your business need to take proactive action. The best course to follow is one which minimises the risk of and protects your business from the risk of default.
Make sure to reach out to the ATO directly and discuss repayment arrangements. Actively engaging with the tax office indicates your intention to cooperate and will likely avoid you being reported to credit reporting bureaus.
It’s the responsible way to get your business off on the right foot.
However, if – even with a payment plan in place – your business needs additional funding to pay off your tax debt, you may need to consider a financial solution from the team here at ScotPac.
2. Repaying Debt with Invoice Finance
Invoice Finance is a financial facility that businesses of all sizes can access for quick injections of working capital. Outstanding invoices owed to a business are provided as collateral and up to 95% of the value of those invoices is then provided to the business as an advanced payment. The other 5% is provided once the outstanding invoices are settled – less any associated fees.
The benefits of Invoice Finance is that it is quick to set up, requires far less eligibility criteria than traditional business loans, is flexible to suit your specific needs and requires no security in the form of a home or property.
For businesses without the access to working capital to pay off their ATO debt or even make the required repayment installments, Invoice Finance can be a practical and affordable solution
Need additional funding for your tax debt? We’re here to help
Knowing that your business needs to get ahead of tax debt is one thing. Having the access to working capital to do so is another.
Fortunately, the team at ScotPac have the breadth and depth of capability to help SMEs navigate periods of disrupted cash flow and access the capital they need to pay down their ATO commitments.
Our Invoice Finance solutions are fast, flexible and collateral-free options for businesses of all sizes. By unlocking additional working capital that’s frozen in the outstanding invoices you’ve issued to customers, you can access a line of credit that works for you and works for the ATO.