The how, why, and where of tax debt Here is our document that we would like you to read through. It gives background to how we help with tax debt and how we find solutions. It comes with no conditions. You didn’t have to give us your details; we don’t know who you are. It’s not part of any lead-generating device. Yes, we want your business, but we would like you to come to us because you understand that we will understand you, work hard for you and be very fair with you. If you have a tax debt and are more than concerned, please read this all, and you can make far wiser decisions without the usual threats of what can happen in social media and come when you google for information and solutions to your problems. It costs nothing to talk to us; it costs nothing for us to look at your accounts and your situation and devise a plan. Or maybe after this, you want us to quote you and get on with it. Your Business Angels – “Repair the past, rescue the future.”
Your Health and courage.
It’s where we start with every client.
It would help if you were the best you could be physically and mentally to have the courage and strength to ruin your business and face the issues created by COVID or brewing in your business before COVID.
For many during COVID, your doors were closed, work was restricted, and the connection with many clients disappeared. Some costs continued to come at you. You have months of being chewed out with frustration and ground by boredom.
Bo wonders if the fog may still hang around. And now – the Taxman and other problems have arrived.
The people we deal with, the good folks that run a business, know they have a great business and there is opportunity. Being the best you can be, starts with a trip to your GP and making that a regular trip.
What’s going on with the Taxman?
It’s not personal; it’s what they do.
The picture of the canyon is a graph showing the Australian Taxation Offices’ action in courts in Australia. Lawyers I speak to tell me that the ATO has clogged the courts in Australia with proof of debt, windup of companies and chasing debts that they have previously proven in court.
Further to this, they have been issuing directors penalty notices to company directors for unpaid PAYG and superannuation. In this process, the company debts also become the directors’ debts, and they have been reporting obligations to credit agencies, effectively trashing the directors and the company’s ability to get finance.
The Taxman thinks there has been enough time (look at the graph) sending out letters asking for payment, arrangements, and contact that now they are acting.
At the end of the 2020 financial year, small-to medium-businesses owed around $21 billion to the ATO, up from $13 billion in 2018.
So now, as enough time has passed, they are rolling up the printing press and getting legal.
Throwing money at the problem is a dumb thing, and here is why.
Dumb expensive loans solve nothing.
Google tax debt.
What will come up is several other things, a whole list of sponsored ads (paid ads) for finance companies offering tax loans. These loans are at “toe cutter rates”.
Their websites have pictures of well-dressed models making a coffee (coffee shops must rate high in their targets) or immaculate tradespeople models wearing safety glasses; you will know what I am talking about when you look them up.
We call them toe cutters because those who run shady loans (loan sharks) usually encourage their debtors to pay by removing a toe. Their rates are insane and will probably break you quicker than the legal action the ATO will take.
That is not to say that paying down a tax debt with a sensible loan means a redraw against property at a reasonable rate. But, and this is the big but, your business should be at a start in can pay that loan and that you have made changes so that the ATO debt doesn’t happen again.
Finding a solution is more important than just throwing money at the problem. The end part of the solution may be that you borrow money, but that comes at the end.
Please read the rest of this series of blogs as we will show you how Your Business Angels work and how we find the solutions, but please don’t just default on a dumb loan.
Think you are out of time with the ATO – ask us.
Because, in many cases, we negotiate lots of time to get your business in great shape.
Here’s the thing.
When the ATO gives you three weeks, to the end of the month, to come up with payment and you don’t know what to do except throw money at the problem, Your Business Angels comes up with another solution.
After years (28 of them) of dealing with the ATO, we know how to call and negotiate more time. While the ATO is tired of chasing debt and now has a very robust approach, we get time if a company like Your Business Angels and our accounting Fresh Numbers firm calls and outlines a journey to solve problems by examining the business.
If we have delays in getting a plan in place, planning on using an insolvency firm to correct the problems, raising funds at a reasonable rate, or changing processes in the company, that will allow for a negotiation to take place so that our client can pay the debt on a payment plan that won’t default.
The Taxman wants to get paid, but if you know what you are doing and saying, they will work with us to see the business through. We have several senior staff we call “tax whisperers” who are great at this.
We acknowledge that if you have received a DPN or there is court action, we also have plans to buy time to reform your business, but that’s quite involved as you are a long way down the path with an unhappy taxman.
But, in most cases, in the first instance, we want you not to ruin your business and your life with a high-interest dumb loan.
It’s the accounts.
Or why the Taxman won’t talk to me.
If your accounts aren’t up to date and lodgments completed, the Australian Taxation Office isn’t going to talk to you and make a deal.
So, you get a coloured letter from the ATO (brown ones are the dangerous ones), but this one is red, and it looks like they are serious. You know that you have a debt, so you call them up.
If you can’t figure out why you are stoned walled, it’s probably because your accounts aren’t up to date, and they aren’t prepared to talk to you.
Our accounting team is very well-resourced to get the accounts up to date quickly; we are experienced in buying time with the Taxman so that they will leave you alone and we can get on with cleaning up your accounts and lodging what is behind.
Of course, they will usually percolate to the surface more tax debt, though that is not always the case. But we have had the Taxman stay away while we complete lodgment, and now, we know the state of your business and can start to help with the strategies – including knowing how much the business can afford in a payment agreement.
The Taxman will talk, but only when all lodgments are up to date; that means the accounts are up to but, and that means having the evidence of how your business is, what changes need to happen and what you can do with Your Business Angels next.
It’s not in your stomach – it’s in your accounts.
You need evidence of how your business is performing to make critical decisions.
I still hear business folk say I feel it in my “gut” that I have a good business. Your gut is for digesting food; the accounts are the evidence of how your business travels.
So often, when we sit with a client and have completed their accounts for the first time, they say they are conversing about a business they have never had.
They have never looked at the accounts as anything more than the documents produced to calculate how to pay tax.
At Your Business Angels, we see the accounts as evidence of how your business travels. It can tell us where there are cash problems, and it can tell us what the immediate advice to our clients should be and what can be medium-term solutions to profit cash flow and managing debt.
It also tells us what state the business is in for negotiating the tax debt. What solutions, simple or dramatic, need to happen, what time do we need to ask from the ATO, and what do we need to get in place to complete the strategy?
Poor quality accounts will hinder this, so we are fussy about how the accounts are completed, so we have a process that cleans and ends the accounts.
Sometimes we must do them again; it’s quicker than facing 2,000 unreconciled transactions.
Negotiating with the Australian Taxation Office
It’s way more than a phone call, and you can’t lose control.
While you have a tax debt, you reduce the opportunities to create wealth.
OK – First thing to say is maybe you don’t have to negotiate with the ATO, do a payment plan yourself, start and don’t break what you are doing.
No matter what the tax debt, the Taxman will sooner or later tap on your shoulder, so if you have a ready started to pay down your tax debt, there is a chance that phone call may not come, or when it does, you can point to your plan, and while the ATO may want you to formalize it’s your plan.
Paying erratically does not cut it with them; if you argue that you have it under control, there must be routine and logic. So, the first thing Your Business Angels and our Accounting firm Fresh Numbers, will do is see if you can manage this.
There are always a few ducks to line up, but this is the best way to go.
If a payment arrangement must be made, it must fit into what your business can achieve. There was a time when business owners would make a deal with the ATO, just to get them of the phone line; the Taxman has become savvier and will challenge any payment terms that look unrealistic, so sometimes you need to prove that you can meet the payments.
If you have broken one or two payment arrangements, getting one back in play is hard, but we usually can do it. It requires a bit of negotiating and proof, but it is doable.
The most important things to remember and follow through on in negotiating with the ATO.
The accounts and lodgments must be up to date.
Know your accounts. Know what is possible within the cash flow and profit of your business. Tearing down your business and having no funds to support the business or growth or take opportunities means that you have made the wrong deal.
Doesn’t he “force” you into a deal you can’t manage? Say it’s too complicated and look at your business and see what you can do. If you are clear, they will wait – but you could get us to do a deal you need.
Financial support can come with invoice finance. This is different to factoring and can explain why. But bringing your cash flow forward takes a lot of pressure, which means you have cash for your business and debt, but again it must be planned, and your margins need to support it.
Know that the plan must include staying compliant. Deals with the ATO must be costed so that you visit current with the BAS, etc., and chiselling away with the old debt.
At the beginning of this journey, start the conversation about the prize at the end of this journey. Talk to the ATO; there often can be a refund on interest and late lodgment payments when you have paid the debts off and have your Business Angels track. This can mean thousands at the end of the payment process.
Remember – paying a tax debt creates a tax debt. That’s tax debt on tax debt – that makes tax debt. You pay out tax debt out of profit – because you can’t pay the tax previously because you spent it. If your business has recovered – and you have, say, property to redraw on, then use that – to implement a “tax plan” where you save on tax.
Negotiating with the ATO can look like dark art. That is why the seniors at Your Business Angels who intercede most are called “tax whisperers.”
The hard stuff – what if I can’t pay my tax debt or other debts?
Let’s examine what you face.
If you are a sole trader or in a partnership with, say, your life partner, this is where we must, unfortunately, tell you, you are up for all the debt.
Unless there are unusual circumstances (and we will get to that), at Your Business Angels, we ask everyone to trade in a company. Our plans and strategies change in terms of service in these cases.
Let me give you an example: someone has a tax debt they cannot pay. Let’s say it got out of hand and is $150k. Our client has a life partner, and they own a house together. Pressure will come on the business owner to sell the house and pay the debt, but this could wipe out their equity and put them back to square one.
Not saying what would happen; people have a choice, but there is the fight for the partner not involved in the business to retain “their” in the house, and there is the job of planning a bankruptcy but also preparing the company to continue (You can trade an ABN while you are a bankrupt, but it requires the proper management.
While we will say that trustees are ancient fossils (not realizing other legislation etc.) and will pursue the whole property, there is a fight to be had and equity or acknowledging at least the house to be retained. It involves us engaging lawyers, but we have been around the block many times, and if this is the calamity you face, then we will give you solutions that can help retain equity, sometimes keep you in a house and trade on in the business.
We need to hear the story.
If your company has debts, GST, PAYG and superannuation and even income tax for the company that you can’t pay, then if you act sooner, there are many options while you are in a period that the ATO has acted.
As they start to act, options change; most people come to us when things are critical, so we always have a plan.
The first thing to say is that a company “has neither a soul to condemn nor a body to hurt” **.
If your company has debt you don’t, then things change.
When you fall behind, then aspects of tax law kick in. You are liable for superannuation; when the company uses insolvency processes, then the superannuation becomes a secured creditor against the company. You can be issued a DPN for the first PAYG, and now GST can also be hooked into this.
The thing is that there is a moment when you can do something about it.
It is a hideously long blog if we cover all the circumstances, but if you are holding a director’s penalty notice or something like that, call us, as you probably have options.
How do I put this? “There are things that can happen and be negotiated, and something that we can do that will help you move forward.
We can tell you that the Australian Taxation Office wants action and an outcome, and while they are robust, they are still very reasonable in our experience.
** The phrase “A company has neither a soul to condemn nor a body to hurt” is a quote often attributed to English jurist and legal philosopher Baron Thurlow. However, it is essential to note that the exact origin of this quote is challenging to trace definitively, and there may be variations of it attributed to different sources. Baron Thurlow, whose full name was Edward Thurlow, served as Lord Chancellor of Great Britain from 1778 to 1792. He was known for his legal expertise and contributions to English law.
OK, So we gave Your Business Angels the job of cleaning up the accounts and giving us a plan, so what happens now?
Let’s look at the evidence.
You will notice that we have been talking about accounts and evidence through these messages. The accounts tell us your margins, what the business is doing, where there is margin, and where cash is leaking, and the first thing we do is go through this with you.
A whole bunch of things can happen – change in prices and procedures, a look at resources and staffing in the company to see what can be improved, and do those things that will change the business immediately.
Then there are those short- and medium-term plans and things that can be implemented that will turn the business, improve cash flow, and make this business change so that it can negotiate with the ATO or survive any involvement with insolvency practitioners.
We also need to look at the habits you, as the business owner, have with money – do you have a personal budget (or draw from the business), what is your routine, and how much to do to focus on cash flow and margins?
So often, the business imitates the owner’s culture, which can be the main problem. The pressures often create a state where taking action is complex, and we help with that.
But with the accounts and the plans we have in front of us, we can create a cash flow and look at what the business should be doing. We have had a case recently where we removed over 50% of a business’s activity and got back to core clients and simple core work to discover for the first time in years a significant profit.
So often, what a business doesn’t do anymore is the key.
But knowing what we have in front, we can plan and get you through the next part is tricky, but we have the skill, and seeing you through is what we want to happen.
Dealing with insolvency practitioners
We would never recommend you walk the hire wire without a net.
OK, the products that we take to an insolvency practitioner are.
One – Administration
This is where the administrator takes over your company and runs it for over six weeks or more while you devise a plan or offer for the creditors that may look like a deal between 40% to 60% of the debt.
This is hard going. Your Business Angels have the formula to make this work, and we have developed it because we have taken on the hard yards of learning the best way to run these.
During administration, administrators are investigating whether it’s better to sell all the assets and pay out what it can to the creditor (minus some eye-watering fees) or allow the deed you (we) propose to go through.
When the debt is high, and your personal life seems to be reflected in the balance sheet, we recommend this. From August 22 to May 23, we have brought 7 companies through administration with savings of about $5 million and a deed to pay on the other side.
To begin giving examples is hard, but we have usually used this because our clients received a DPN, and we scramble for the best options. With each job we have completed, we have learned and changed our process, so we feel we have a unique way of working with an administrator they appreciate; even if it may be unorthodox or illegal, it isn’t.
Two – Small Business Restructure
This is a “mini-me” of administration and is a process where the director still has complete control of the business and must offer a plan through an insolvency practitioner. If the plan isn’t accepted, the company is handed back to the director, who has debts and must come up with something else, it may look easy, but there is a lot of work to get to the mark. The directors must have a decent pan ready to go (of course, we hope we are involved to make it work.)
The purpose of the Small Business Restructuring Process is to provide directors and the company time to put forward a plan to creditors to pay off their liabilities, in whole or in part, within a period not exceeding three years.
The government put this up to help businesses through the post-COVID period, and many companies that haven’t let things go for too long should use this option.
Really, but folks – the major creditor will almost without fail be the ATO, and by having a plan and doing the right thing, this is the big let off the hook.
Your total liabilities (debt) in the business should not exceed one million for this to work, and you need to have a negative total balance on the balance sheet.
If this could work for you, call us; it’s also a much more affordable option.
Three – liquidation
Your debt to the company is too big, and your business is too small for anything else.
Your company is handed to a liquidator who will deal with the assets, collect any debts and investigate the business.
If the assets are good for another business, you may choose at a commercial rate and not a fudged rate, build them and be able to move on.
You may wish to trade on, and this is possible, but we have a work of caution that this is done transparently and without things looking like a phoenix,
When we are involved, we work on this transparency and ensure that the right things are organized for staff, that were possible superannuation and other aspects of staff care are taken care of.
Also, negotiating with the liquidator (as we do with all insolvency practitioners) for fees, making sure proper accounts and the real story of the business are protected so you can keep your assets, such as your home and get on with work or another business (as long as you haven’t done this before – than that a different plan.)
We say bankruptcy is a tactic, not a strategy.
If you face bankruptcy, the strategy must surely get on with your life, a new business (to trade under an ABN) or help someone else get on with a business.
Bankruptcy is a way to draw a line between pressure and debt. It can, for many, be a relief; for many, it can be a challenge emotionally that takes years to get over.
Our job is to work with a trustee, who usually takes care of your affairs for three years. We are transparent and like to ensure nothing is taken from your partner that could be kept.
If you want to stay in business, then we will help you. If your partner needs legal help, we will help you with recommended lawyers. And when we have to you, we fight for you.
Your Business Angels have been around your side of insolvency for 28 years. We know so much about how things “really” work and what can be done for a client.
We know how far we can push things, and in a conversation – once we know your details, we can talk about what we can do, how it can work and how we can protect you.
We plan to do this work – yes, we get a fee, but we are also looking to have you as a long-term client, so it is essential to focus on you winning and staying as a long-term client.
We hope this 4130-word document has been helpful; look for the podcasts that go with this document.
The ATO has decided to draw a line in the sand and is taking more decisive action against businesses with outstanding tax debts.
This is what the ATO strategy is, and it’s not good news. The ATO will first attack a business’s ability to operate and borrow money – weakening a business before it goes through the longer process of chasing money. At Your Business Angels, we see the irony of this. A business unable to borrow or […]
Businesses’ biggest conundrum (and really, only conundrum)
Your Business Angels have been working with SMEs for over 28 years. There is only one problem that establishes businesses or those who have started the initial start-up face: debt that they cannot repay while operating a profitable and somewhat decent business. For many businesses taming debt has been part of running the business. You […]