The Australian Taxation Office recently announced that it will take “timely” and “stronger action” against small businesses with outstanding debts. With stricter ATO penalties looming, staying on top of your returns is now more important than ever. Aside from initial penalties and your tax debt accruing interest, being behind on payments can start to negatively impact your credit score and your ability to access funding.
Here’s a rundown of what you need to know about tax debt penalties, as well as the best ways to manage your debt before it starts to harm your credit score.
The ATO isn’t out to get small businesses and it’s not in their interest to collect debts to the point where it hurts businesses. That said, the penalties they issue can put serious stress on the cash flow of your business and in the long-run, start to damage your credit score.
1. Initially you can expect your tax debt to accrue interest (regardless of whether or not you have an ATO payment plan)
2. Any tax refunds you are eligible for will be automatically used to pay your overall debt.
3. The next measure that ATO may take would be to refer your debt to an external collections agency like Dun & Bradstreet or Collection House. This is where your credit score is put at risk, which will impact your ability to access funding.
4. Finally, if warnings are ignored the ATO may now garnish debt directly from your bank account without your approval.
Many businesses make the mistake of not lodging at all because they aren’t able to pay. However, there are actually separate penalties for failing to lodge and failing to pay on time. So, even if you can’t pay, you should still lodge. The ATO will treat you more favorably if you lodge on time, even if you aren’t able to pay on time.
If you know that you’re not going to be able to lodge or pay on time, the first step you should make is to contact the ATO. You may be able to arrange an extension and avoid having to pay additional penalties down the line.
The ATO can help set you up with a payment plan. However, these plans aren’t always suited to small businesses, and if you fall behind in one payment then the entire debt amount is due in full.
One of the best alternatives to the ATO’s payment plans is refinancing your tax debt. There are flexible finance options which can help you access funding quick smart, without hassle and paperwork.
Find out how a business loan from Moula can help you refinance your tax debt.
There are numerous ways to avoid being penalised because of an existing tax debt. It pays to research your options. If you don’t, you may be limiting the growth potential of your business due to debt or a poor credit score.
Moula is a better way to borrow money to grow your business. We use a combination of heads and hearts to identify good business, and make fast lending decisions. After all, good business deserves Moula.
