Small businesses are being encouraged to seek help immediately if they are struggling to pay their tax because of pandemic-driven cash flow issues.
The advice from business rescue and insolvency firm Jirsch Sutherland comes as ATO debt attributed to small to medium enterprises was $21.4 billion at FY20.
With lockdowns continuing throughout 2021, Jirsch Sutherland partner Andrew Spring said that its crucial for businesses to act quickly if they are behind on their tax payments.
"Inconsistent cash flow has a huge impact on when and how a business can meet its tax obligations.
"The lockdowns and restrictions are causing many retail businesses across the country to struggle, and rising tax debts serve as a reminder to seek help.
"If you’re behind in your tax payments, it’s crucial to act quickly.
"While the ATO has been sympathetic about uncertain cash flows and made some changes to its normal practices – such as the suspension of its normal collection strategy around April 2020 – this generosity won’t last forever.
"With the ATO likely to ramp up its enforcement activity over the next six months, it's crucial to have those conversations now.
"A tax debt of $100,000 or more is a deep hole for most business owners to climb out of without assistance," he said.
Spring added that three key business rescue options are available to struggling businesses:
- Payment plans:
"These can be a useful tool to manage short-term illiquidity, but more decisive options should also be considered for businesses that have been severely affected and are carrying significant debt (including ATO debt) on their balance sheets," Spring said.
"This is even more relevant today, due to the continuing uncertainty surrounding economic conditions and business forecasts." - Voluntary Administration:
"This regime is Australia’s business rescue program," Spring added.
"It provides an opportunity to not only defer payment, but also compromise the amount of the payment to a level that the business can afford." - The new Small Business Restructuring Process (SBRP), developed in response to the pandemic:
"It’s added another option to financially restructure and save a distressed business.
"Not only can you defer payment, but you can also negotiate the amount of the payment," Spring said.
"Both voluntary administration and the SBRP provide an opportunity for the total liability of a company to be reduced and deferred.
"Talking to a business recovery specialist doesn’t mean it’s the end of the line; it can be an effective way to solve your business' financial problems," Spring said.
Additionally, fellow partner Malcolm Howell said that businesses should also assess what their financial and cash-flow situation will look like in a year.
"It’s vital to look at your current cash-flow situation and up to 12 months down the track.
"It’s crucial to plan for now and for the immediate and longer-term future," he said.
While corporate and personal insolvency numbers are currently low due to government support measures and the ATO, banks and state revenue offices not yet focusing on debt collection, Howell added that debts are mounting and pressure will continue to build.
"I expect to see a continual, steady increase in personal and corporate insolvencies over the next six months – but it’s difficult to predict the extent of it," he said.