Small businesses suffering unduly at the hands of the ATO

New research we have conducted has found finance brokers say that small businesses in Australia are under increasing and undue pressure from the ATO’s repayment plans for money owed.

Brokers are uniquely placed between businesses and the ATO to understand and negate financial difficulty and are no stranger to the challenges already faced in business by SMEs.

Our research shows that 75 per cent of brokers believe that the ATO’s repayment plan for small businesses was either “way too harsh”, or “quite harsh” and could have “serious long-term effects on small businesses”, or, at the very least, a “negative effect on a small business’s cashflow”.

The research also found that 62 per cent of Australian brokers agreed that most small businesses on an ATO payment plan, suffer additional financial hardship as a result it, and 12 per cent of Australian brokers agreed that all small businesses on an ATO payment plan, suffer additional financial hardship as a result it.

For smaller enterprises who typically employ fewer staff, run tighter margins and need credit to fuel their business in lieu of a cash reserve, adhering to the same tax repayment standards as larger businesses can induce extreme pressure. SMEs form the backbone of the Australian economy and are often very closely interlinked – one business closure will be a customer and supplier lost to many other businesses. More of an understanding of circumstance should be shown by the ATO and, possibly, a more economic repayment plan on tax debt.

This sentiment was also echoed by the broker community through the research conducted, with 75 per cent of all brokers saying that, given the challenges that small businesses already face, a fairer repayment plan would be “interest-free on tax debt for the first 24 months”.

When developing a new plan, the broker community of Australia believe

that industry and seasonality and the number of employees are the main factors of small-business operation that should guide the ATO in its consideration, with 49 per cent and 25 per cent of brokers agreeing, respectively.

While the ATO already makes concessions for Small Business Entities, the broker community believes that more can be done to prevent unnecessary additional financial hardship in the small business sector. The ATO has recently allowed simplified record keeping and a reduced Company Tax Rate from 27.5 per cent down to 26 per cent for this financial year, but repayment plans are still set to calculate interest on the outstanding amount daily; repayment terms are generally only offered up to two years in length, and this plan is still in addition to the usual GST and tax payments continuing to accrue.

We also found that very few small businesses fully understand how the ATO works in this area and this of course is a problem. More support and education around the ATO’s processes must be available to SME customers, or mandatorily administered through the commercial broker network as part of the business registration process.

From Sail’s perspective, the broker community also agrees that a business’s ATO information should be included as part of an application for finance, however, it doesn’t always have to be displayed in a negative light. Lots of SMEs are smart operators who utilise the ATO as an additional overdraft account and there’s nothing wrong with this – ultimately, the insight will allow a responsible lender to see if they can restructure the ATO debt into a smarter repayment solution.

Dan McCarthy, Head of Sales & Partnerships, Sail Finance

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