It’s time to look at your ATO debt payment plan. As we continue as a small business community to tackle Covid lockdowns in today’s press, we see that the ATO has conceded that it will not take decisive action in the short term.
As reported in today’s “Accountants Daily. “
“The ATO has suspended “firmer” Debt and lodgement activities across lockdown-affected states and territories but has held off from an outright pause on all compliance activities.
The move will see individuals and businesses in NSW, Victoria, and the ACT given more leeway around their tax debts as the ATO looks to mitigate the impact of COVID-19 lockdowns.”
What ATO does to recover debt
These ATO actions include such things as statutory demands, directors penalties and garnishee notices. While these firmer actions have been temporarily ceased things will eventually return to normal. Also as a Director, you still will be personally liable for some ATO debts such as GST if the required return is more than 3 months late.
However, we have noted that the ATO is still following up on business taxpayers. They are chasing outstanding lodgements and small Debt. So despite what some businesses think, while Covid might buy you some time, these issues won’t go away anytime soon.
We are advising our clients to continue to plan. Look at mitigating their exposure in this area. Some of our clients are struggling from no fault of their own, and have been placed in a difficult trading position due to current economic conditions.
Continue to look at the options, keep your records up to date and monitor your situation. While the ATO still understands business trading conditions, early intervention is better than ignoring the problem.
Manage your tax debt payment plan!
The ATO is like any other expense and needs managing. Managing your ATO dent by utilizing ATO debt repayment plans is a short term measure that can help you as your business emerges out of the Covid environment. Be careful as once you negotiate you must stick to the plan. Reneging on the deal is like a bad date gone wrong and can have implications. The strategy around what to negotiate is what we as your tax agent specialise in.
The downside to using repayment plans :
- The ATO eventually will disallow you to continue to apply for payment plans if you ask for frequent repayment plans
- Interest is charged, Cheaper than Bank OD rates but never the less still chargeable
- Some financiers get worried when they see your business in an ATO repayment plan
- Outstanding Debt is a sign that the business cannot meet its obligations in the short term
We have seen some requests to the ATO for payment plans subject to be subject to scrutiny. The ATO can a request a businesses financials and projected cash flow reports.
How you can mange your cashflow and reduce ATO debt!
Several things you can do to help focus on managing Debt
- Prepare a cash flow so that you can see a short term road map out of the situation
- Look at current receivables to ensure collections are not too much outstanding
- Set Revenue targets to ensure you reach the revenue that’s needed to make your business profitable
- Look at expense leakage, i.e. subscriptions no longer needed, excessive assets, leases where equipment is not required
- Make sure everyone on the bus in your business has a purpose and not causing overloading in your business when money is plentiful
Finally, we are also finding that some clients gross margin is too low. A low gross margin can be due to market pressure, non-productivity, or just not charging enough to cover costs.
Be proactive when dealing with the ATO. If you need help with anything we have discussed above, we welcome you to reach out.