Part of our role as small business accountants is to act as a barrier or intermediary between the tax office and the small businesses of Australia. It’s not that we don’t trust the two different interests to get along but it’s more about using our experience and knowledge to protect the best interests of the client. Small business owners will understand the time pressures placed upon them and being caught off-guard by a representative of the tax office can be a genuine issue. Often clients are not able to converse about their business finances in a way that gets the true picture across.
Dealing with payment arrangements for small businesses to pay off overdue debts to the tax office is a daily occurrence in our office. Some of the reasons for these debts occurring can involve: –
• Poor cash flow management
• Using the wrong legal structure
• Accounting for GST on the wrong basis
• Not budgeting for cyclical cash flow
• Business owners spending unassigned cash in the bank
• Not utilising accountants or bookkeepers to monitor future tax amounts to be paid
• Rarely are these issues caused by “acts of nature” but this can be a factor as well
So the issue here is how to deal with the tax office and keep your debts under control once they have happened.
Negotiating a payment arrangement with the tax office is normally the first option clients look to. Our advice is always to seek alternative finance to cover ATO debts as they can often be spread over more lenient time frames. Sadly, many small businesses think this is where the process stops but this is not the case. Once a payment arrangement is in place it is your obligation to make your regular payments as well as your current lodgments for both income tax and BAS purposes. Should you stick to your arrangement but not lodge and pay your most recent BAS on time then your arrangement defaults? Every time you default it becomes increasingly difficult to negotiate a new arrangement. This is how businesses fall further and further behind.
The key piece of advice in this lesson is not to fall behind. The way to keep on top of your obligations is to know what they are and when they are due. You can only do this by taking up the services of a bookkeeper or accountant from the very start of setting up your small business. So many of our new clients have waited a year or two before seeking help and end up paying two years of tax in one year. This is a recipe for disaster and places further cash flow stress on new small businesses that are already running in a very lean state.
About the author:
This article was written by John Corias, senior accountant at M.A.S Accountants