They say there are two certainties in life: death and taxes. In fact, for businesses only one of those is true.
We’ve already seen how, with the right preparation, your business can live on without you. Unfortunately, there’s no such get-out with taxes, but neither should tax liabilities cripple your ability to operate, even if you have fallen behind on your payments.
Owing the ATO
For small to medium size businesses, that trades month to month and has working capital fluctuations, it’s often not too difficult to end up in a situation where the business is unable to pay its ATO bill. If this is the case, the taxman will usually look to put a plan in place to ensure that the money is paid, provided you are proactive with them and explain the situation. Leaving it unpaid is never a good way to handle the ATO.
The ATO provides a section on their website for small businesses called “Help with Paying” whereby they provide a number of options and steps that a business can take, to work with the ATO in paying their tax obligations.
In fact, the site states: “If you can’t pay on time, we can help you. You still need to lodge your activity statements and tax returns on time, even if you can’t pay by the due date. You’ll avoid a penalty for failing to lodge on time and show us that you’re aware of your obligations and doing your best to meet them.”
It should be noted, however, that there are a number of conditions that a business must meet before the ATO will enter into tax negotiations. Among other things, you may have to prove your business is viable. ATO’s assessment will consider, among other things: gross margin; cash flow; asset/liability position (including working capital); liquidity; debtor/creditor position; and availability of funding.
For small businesses with annual turnover of less than $2m and an activity statement debt of under $50,000, one of the eligibility criteria for the ATO’s interest-free payment plan is that a business is unable to raise the funds through a conventional loan. Provided these and the other criteria listed are met then a business can access the interest free plan, but many small businesses will not be eligible as they will not meet all the criteria listed by the ATO.
In these cases the ATO states:
If we cannot reach an agreement with you about paying your debt, we may consider accepting an offer of security where you request that we defer the time of payment of a debt, or where you are seeking to pay a debt by instalments.
Our Preferred Securities are:
• a registered mortgage over freehold property, or
• an unconditional bank guarantee from an Australian bank
The problem with this is that many SME’s are unable provide such securities. As they just do not own property and a bank will not provide a guarantee when there is insufficient funds in the account to back it up.
Trade your Way out of Debt
The simple solution, if you are confident that your business model is fundamentally sound and you have a solid turnover, is to pay off your tax debts from your cash flow. Unfortunately, even for the most organised business, meeting ATOs monthly or quarterly payments could be a tough ask as income and working capital fluctuates. Missing a payment will immediately exclude the business from ATO’s interest free option.
Even if you can make all your payments, in order to get out of the cycle of tax debt, you really need your business to grow and generate excess cash month in month out. This is where the alternative forms of business funding can be really useful. Depending on your plans and ambitions, these could include a form of equity funding; a family loan; a business loan from an alternate lender; or flexible invoice financing from tim.
Equity funding is always an option if you are willing to give away a slice of your business; a family loan is wonderful if you don’t mind being reminded how much you owe your father-in-law every time you gather for a family barbecue. A business loan, although often seen as a quick fix, entails weekly or bi-weekly interest payments (regardless of whether or not the business has the funds to service it); it is for a fixed term and is costly. The beauty of selective invoice finance from The Invoice Market is that it isn’t debt at all, – it is an upfront advance of money against your outstanding client invoices. The Invoice Market will provide you with up to 85% of your outstanding invoice values and when your client pays their invoices as per your normal trading terms (30 – 60+ days) you will receive the 15% balance owing, less a small discount fee due to tim. No application fees. No monthly interest fees and No admin fees.
Provided that your business is selling to other businesses (B2B), you require at least $50,000 of initial funding, you have a good payment history and are not in default, you should be able to secure approval for invoice financing whatever your position is with ATO. By securing most of the cash from all or some of your orders within days of issuing an invoice, you can take control of you cash flow and ensure you never miss one of those crucial ATO payments. You should also have some cash left over to fund any supply orders, marketing expenses and hiring costs that come with expanding your business.
“Get Tomorrow’s Cash flow Today”