One in four businesses struggling to pay taxes even before the COVID crisis

New research indicates a possible surge among businesses who may be unable to pay their taxes after the end of the stimulus packages and other subsidies in September.

This is the key finding reached by an independent survey by financial information platform Money.com.au, which also revealed an underlying reason behind the possible “tax debtors” wave: 25 per cent of businesses (and 21 per cent of SMEs in particular) were already facing cashflow issues even before the COVID-19 crisis and the shutdowns occurred, and were already unable to pay their tax and GST in full and on time.

The studt, which involved 261 business owners, 88 per cent of whom are SMEs, also revealed that among the businesses that were unable to pay their full GST and tax in FY2019, 64 per cent (83 per cent of SMEs) mostly paid those taxes through a repayment plan with the ATO or on a credit card. The styudy showed that 65 per cent went on a payment plan or paid via credit card at least twice in 2019, and 16 per cent did so every time. A further 27 per cent of businesses overall, and 10 per cent of micro-businesses, secured financing at least once in order to pay their GST and taxes in FY2019.

Three in four (77 per cent) businesses cited cashflow issues as the major reason they were required to go on payment plans with the ATO or make payments via credit. Specifically, 43 per cent of businesses overall and 29 per cent of SMEs stated that these cashflow issues stem from long-overdue customer or client payments. A further 21 per cent cited the reason as due to the business spent beyond its means.

“The challenge of managing good cashflow becomes more apparent when BAS and tax time comes,” Money.com.au spokesperson and licensed financial advisor, Helen Baker, said. “The fact that a significant proportion of businesses don’t have the cash to pay for their ATO bills in full each time suggests that businesses are not setting aside money throughout the year for these payments.

“Come bill time, businesses are required to turn to payment plans or credit options,” Baker added. “Some businesses may also find that what they have calculated and set aside for their tax may have been underestimated, so there are calculating discrepancies in what is actually owed. In a perfect world, money would be parked each month; however, businesses are often using their funds to put back into the business.”

Baker said that with so many businesses struggling to stay afloat over the last few months, and the first recession of the millenium looming, businesses need the ATO be more lenient than ever before.

“The fact that nearly a third of cashflow issues derive from unpaid invoices is concerning, given that many businesses are going under,” Baker said. “The worst could be yet to come for those businesses that have recently undertaken large jobs and bill in arrears. If this problem is experienced by a significant proportion of businesses, it could cause a chain reaction of delayed payments throughout the business sector.”

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