How to Tackle the Tax Man In The Small Business Playground

  • Keeping up-to-date with tax payments is not only a challenge for struggling cash strapped SMEs. Growing SMEs have the challenge of juggling growing and catch-up tax commitments with day-to-day expenses and the out-of-ordinary costs of a growing business.
  • The ATO is now more bulked up than ever before with a threat of negatively affecting credit ratings.
  • This requires a REACTIVE as well as PROACTIVE approach.

Small business can be a lot like a school playground with everyone looking to join a game, start one up, keep it going, take time out, or move somewhere for more fun. In fine weather, most play nicely, and playground monitors are a benign presence.

Economic storms, though, destabilise those used to calling the shots – whether legitimately or not. Their efforts to tighten their failing grip on power translate as trauma and exhaustion with people falling over in an emptying, wind-blown playground. Control is out of everyone’s reach when the dominant ethos is bullying.

With the sunny playground a faded dream, business owners are now far too often finding themselves all at sea! They are facing a double whammy, and here’s how it looks.

Forced to navigate their vessel through stormy seas, they are rowing like slaves just to stay afloat, while doing their best to deliver their product at a high standard, and still ensuring their staff and suppliers get paid. Tackling the waves head on, they’re at their best ploughing through to get things done.

ATO IS NOW BULKED UP WITH INCREASED BULLYING POWER

But the ATO (The “Tax man”) keeps showing up like an iceberg, demanding justification on its terms – its strength rules, not yours! Total overwhelm looms. You saw it coming but just forged on, hoping for safe harbour.

The picture is sadly familiar: delayed tax return submissions coupled with inconsistent profits to fund tax payments, let alone business growth, can land a small business in the death trap of insufficient cash flow to:

  • Pay GST on BAS returns every quarter/month (depending on the business),
  • Settle or finalise a payment plan for (last years: June 2015) tax assessment that was submitted purposely late in 2016,
  • Be prepared for tax outstanding on June 2016 tax, which may have only just been submitted in May 2017, or settle and finalise the payment plan,
  • Be prepared for 2017 short paid tax, AND
  • Keep up-to-date with the PAYG instalments that the tax man is DEMANDING for the current 2018 tax year.

(Never mind the fact that we have to make sure the PAYG we deduct from our staff payroll is ‘ready’ and available to be paid when it is actually not our money to start off with!)

Even worse, the ATO is now bulked up with increased bullying power as the government finds it harder and harder to recover these outstanding taxes. ATO reports that 68% of taxpayer debt to be small business debt (smh.com 20 Dec 16), and that it amounted to 13 billion dollars (as of 30 June 16).

From 1 July 2017, the ATO now has the power to disclose tax debt information of businesses to Credit Reporting Bureaus. This applies to:

  • Businesses with an Australian Business Number (ABN),
  • Has a tax debt of at least $10,000 that is overdue by more than 90 days, and
  • Has not effectively engaged with the ATO to manage its tax debt.

Wind whistles through the playground.

THE SOLUTION

Both a reactive and proactive approach is needed.

Reactively, business owners with over a 90-day tax debt of more than $10 000 need to open up a conversation regarding this debt URGENTLY. It seems that disclosure by the ATO is not automatic, and will only take place after taxpayers have been contacted.

Business owners also need a more proactive approach to save for GST, TAX payments & PAYG instalments instead of only dealing with it when your bookkeeper or accountant emails you with the awful letter.

  • Ideally, a regular cash flow forecast should be prepared by your accountant or financial performance consultant, so you know exactly what to set aside each month, fortnight or week for GST/Tax/PAYG and any other upcoming tax debts.
  • If that support level is not an option, your best bet is to take responsibility by saving a nominal amount on a regular basis to make sure you have the amount due, or at least a big chunk of it, readily available when the due date comes around.
  • Ask your bookkeeper to calculate the average amount needed to be paid for every BAS period and calculate what weekly portion would be required over a 12-week period if your BAS period is quarterly. If your BAS period is monthly, then calculate this for a four-week period. (Applicable to tax debt as well)
  • Open up a separate bank account. Yes, separate! You may incur fees, but the minimal bank costs outweigh the anxiety of unpaid ATO debts or a possible lost credit rating.
  • Set up an automatic transfer every week to that savings account. It’s much easier to handle small amounts going out than the shock of a big BAS payment/payment plan instalments in lump sums. If you feel you lack the discipline to leave the money in that account for when it’s needed, then consider paying the weekly amount directly to the ATO.

With either a reliable cash flow forecast or your own self-respecting discipline, you can avoid playground bullying. Instead, you will gain the power to get your tax finalised and already have that sum available to be paid. No more evasive but ineffective survival tactics. Goodbye to the anxiety and lack of sleep that drives you to the gym at midnight.


Tracey Loubser#QueenOfCashflow

Owner at Confident Cashflows

Tracey Loubser is the Queen of Cash Flow! She is NOT your normal "grey-suit" accountant, who rambles on about boring tax stuff. Through her multi-award winning business, Confident Cashflows, Tracey has helped many business owners achieve higher profits & improve their cash flow. Her acclaimed Seven Step Process has proven the key to such transformations as a shift from NET Loss to Net Profit in only ONE month (13% of Sales), and Net Profit improvement of 65% in just seven months


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