Businesses and their advisers warned to get on front foot as ATO starts acting on its outstanding debts power

Craig Michie, Group Executive, Client Acquisition and Asset Finance at ScotPac Business Finance

ScotPac has warned business owners and their brokers and accountants to be proactive as the ATO starts acting on powers to disclose SME tax debt to credit reporting agencies.

These powers came into force in late 2019 but were put on hold, until now, to allow SMEs to cope with the tough business conditions created by the pandemic.

ScotPac offers advice on handling the ATO

ScotPac senior executive Craig Michie said it was vital for SMEs and their accountant and broker advisers to get on the front foot and come to arrangements with creditors.

Mr Michie said the laws passed in 2019 allow the ATO to report a business to credit rating agencies if the business owes more than $100,000 in tax, has an ABN, is more than 90 days in arrears and doesn’t have a payment plan in place or being negotiated.

“When the pandemic hit, the Australian Taxation Office understandably put its powers on hold due to COVID-19’s massive impact on the business sector,” Mr Michie said.

“Now, many of our accounting partners have indicated the ATO is again sending SMEs notification of intent to start reporting their outstanding tax debts to credit bureaus.”

Mr Michie urged business owners to put in place sustainable business funding and talk to creditors regularly to keep them in the loop about how the business is tracking.

“The worst thing is to stop communicating with creditors as it makes creditors anxious.”

“Even if you can’t pay now but have a pipeline of work that will provide cashflow, share those details with creditors and link your payment to that future cashflow,” said Mr Michie.

“SMEs should do this all the time as it is very important in the current business environment.”

Put in place funding structures to resolve debtor issues

“Now is the time to ensure your business has a sustainable funding structure in place, especially with the current strong incentive not to run up ATO debts,” Mr Michie said.

“In the past, business owners have sometimes used the Australian Taxation Office like a line of credit by not paying their ATO commitments on time.”

“This is likely to have an adverse impact on their credit ratings and credit insurance limits, and this would make it more difficult to maintain or extend credit terms with suppliers.”

“The ATO is no longer prepared to be viewed as a line of credit,” emphasised Mr Michie.

Debtor finance (invoice finance) facilities are a good option for SMEs in this position. “We are able to work with many business owners who find themselves in this position with the ATO.”

“We encourage clients to be proactive with the ATO. Brokers know we understand clients facing that situation and having a repayment scheme won’t inhibit their ability to get funding.”

“If you have a solid debtor book you can access invoice finance meaning there is no need for the business owner to be put through hoops to qualify for a loan that has to be repaid.”

Businesses are encouraged to access the FitsME Guide. Accountants and brokers can access the Business Funding Guide by the Small Business Ombudsman (ASBFEO) and ScotPac.

It has comprehensive information on a wide range of business funding options to suit many small business scenarios, as well as handy tips to help SMEs become financially fit.

“ScotPac urges business owners to invest time with their respective funders to carefully consider what is the best funding for their business situation and get that funding in place early so they don’t end up on the wrong side of this credit reporting initiative,” said Mr Michie.