SMEs and BAS: the consequences of late lodgement
One of the biggest mistakes some SMEs make is putting off lodging their quarterly BAS returns. For those who do their own books, there are a number of reasons for this – they get caught up in the day-to-day running of their business or the person who has been doing their books for them is no longer available. While some business owners have a laissez-faire attitude to lodging their BAS returns, the consequences for late lodgement can be severe.
We regularly see SMEs who are one, two or three BAS returns behind and in more serious cases, those who are five or more BAS returns behind. The ATO has an escalation process for late lodgement of BAS returns, with the first step being a notice to the business owner and the last step being a summons to court. SMEs should also be aware that as the process escalates, it can trigger an audit.
Ultimately, the ATO wants to avoid the situation reaching the last step and the subsequent effort and costs associated with liquidating a business, should this be their only option. Therefore, throughout the process, the ATO will give SMEs every opportunity to contact them to put in place a payment plan and they will be looking at what the business owner is doing to rectify the situation.
Generally the ATO doesn’t apply penalties in isolated cases of late lodgement. However, the ATO has the power to apply penalties to small entities at the rate of one penalty unit ($210) for each period of 28 days (or part thereof) that the statement is overdue. For a medium entity, the penalty is multiplied by two and for a large entity, the penalty is multiplied by five.
Looking closer at a couple of examples will give us an understanding of how business owners find themselves on notice from the ATO for late BAS lodgement.
In the first example, the owner of a commercial cleaning business had recently been through a divorce and his ex-partner had been doing his books. With his ex-partner no longer available, he let the bookkeeping slide and found himself on notice from the ATO for non-lodgement of three BAS returns. In the first instance, it was obviously important to complete and lodge the business owner’s BAS returns. Secondly, it was crucial to automate his bookkeeping practices by setting him up with accounting software that enabled him to generate invoices and quotes quickly and gave him a nightly automated bank feed that downloaded his bank transactions to the software. This meant his paperwork was kept up to date and ready for quarterly preparation of BAS returns.
Having streamlined bookkeeping practices in place will be especially important for the business owner in this scenario, as the government announced in the last Budget that it would extend the existing taxable payments reporting system (TPRS) to businesses in the cleaning and courier sectors. It is expected that in the next financial year, business owners in these sectors will need to report the payments they make to subcontractors, which can then be data matched by the ATO.
In the second scenario, the business owners, a husband and wife team running a café and retail food shop, found themselves in the final stage of the escalation process, with a summons to attend court, after failing to lodge BAS statements for four years. With the day-to-day running of their business consuming their available time, they neglected their lodgement requirements and subsequent notices from the ATO.
In more serious cases such as this, SMEs can find themselves facing penalty costs plus a general interest charge (GIC) on late or unpaid penalties (currently the GIC is 8.73 per cent) and legal costs associated with court proceedings. Ultimately, if a business owner is unable to pay these costs, this can lead to bankruptcy.
The lesson for SMEs is to keep up to date with their paperwork and lodgement requirements and to act sooner rather than later if they find themselves behind on their BAS lodgements. Putting BAS lodgement in the too-hard basket will drive business owners further along the escalation process and the final consequences could mean the loss of their business and personal assets. SMEs who are dealing with late lodgement issues should engage the services of an accountant or bookkeeper early on to save themselves a lot of hassle and cost in the long run.
About the author
Clive Barrett is the Executive Chairman of First Class Accounts, Australia’s largest financial support services franchise providing bookkeeping and finance.