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As the ATO resumes its collection activities, accountants will need to be on the “front foot”.
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Accountants urged to ramp up ATO debt clearance
14 March 2022
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Businesses need to get ATO debt under control as the country hurtles towards another year of global and pandemic challenges, warned the chief executive of Earlypay, Daniel Riley.
He said the ATO had resumed its debt collection activities across the small-business sector after a pause last year during lockdown.
“This means businesses need to really focus on clearing the debt as the ATO pursues harder collection measures,” Mr Riley said.
“We are still going to see supply chain issues in 2022, however open international borders will bring some relief with a surge in sales and new business.
“Businesses need to get on the front foot and set themselves up for a positive year of growth and clearing ATO debt is an important component of this.”
The view is echoed by Olga Koskie, principal at Tax Assure, who cautioned that engagement with the ATO is now vital to prevent enforcement action.
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“With the ATO specifically informing us that debt collection action is commencing, tax debt is something that cannot be ignored,” she said.
“If you are late paying any tax requirements you are considered non-compliant and the ATO may now take enforcement action to recover that debt, even if the debt was incurred during, or just prior to the pandemic.
“This enforcement action may include garnishee notices, director penalty notices – making directors personally liable for a company’s GST, super and PAYG tax obligations. Wind-up applications and bankruptcy are also on the table. Having a clear understanding of personal liability is critical here as a catalyst to taking positive action.”
Mr Riley said it was vital accountants develop a payment plan as ATO penalties and interest could eat away at the balance sheet and cash reserves very quickly.
“You can put in place a payment plan with the ATO and place a possible hold on collection action and any further unnecessary costs,” he said.
“If you are managing other debts as well, one strategy is to focus on one debt at a time with the highest interest or penalties while meeting the minimum payment on others.
“This works because more money will go directly towards repaying the principal balance, and less will be spent on paying interest. Spreading any extra money over several debts will lessen the impact on debt because you will end up paying more interest.”
Businesses can also use sale-back finance and invoice finance to achieve a quicker cash-flow strategy.
Mr Riley said getting funds in the door quickly was important when working to clear ATO debt fast.
“Sale-back finance is an attractive option for many businesses. This works by turning existing business assets into cash,” he said.
“Sale-back finance has its origins in equipment leasing; however, nowadays it is also used to finance transactions where a loan is secured over existing assets that the borrower already has.”
For invoice finance, Mr Riley said businesses that typically had ATO debt or a history of credit issues struggled to get finance through the banks and other lenders.
“Invoice finance has become the go-to option for many businesses that need to unlock funds fast without taking out a business loan or setting up a line of credit,” he said.
“In essence, businesses use their invoices as collateral to generate payment upfront. It is a way for businesses to access funds against the amounts due from their customers.
“Invoice financing can help a business with its cash flow, pay employees and suppliers and reinvest in operations and growth earlier. It can also be used to help a business clear its ATO debt faster.”
Earlypay includes invoice financing and sale-back financing among its products.
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